Will Rise of Digital Advertising Bring Revenue Loss?

Posted on 8/4/2008 by Julia Dudnik Stern | Printable Version | Comments (0)

Though researchers using different methodologies often arrive at different figures, most experts agree that digital media is on the rise. Specifically, researchers are putting emphasis on interactive advertising's growth as a percentage of total ad spending.

WPP's media investment-management company GroupM says that interactive-media advertising will account for 13% of this year's global total, more than double the 6% of 2005. GroupM projects a further 2% cannibalization of traditional ad media by 2009.

In leading global economies, these numbers are much higher. Next year, the U.K. is expected to spend 30% of all advertising dollars online. Western European countries will average 18%. North America's estimate, affected by recession-related caution, is 16% of total ad investment.

This offers further support to the prediction that online image use will continue to grow while print use of images declines, even among stock agencies' most lucrative advertising clients. However, the resulting loss of revenues is far from a foregone conclusion.

Microstock aside, online image-use pricing currently mirrors that of print in relative terms: images used in premium-brand ad campaigns command higher pricing than, for example, those used in digital publications. Factors such as image quality and resolution may be open to compromise with an online campaign; exclusivity and originality are not, so large marketers have more stringent image-selection criteria than most other buyers, as well as more money to spend.

Skeptics point out that images for online use generate lower fees, using this as a springboard for predicting an overall fall of licensing revenues. Yet there is no hard evidence that supports this conclusion. In fact, much evidence contradicts it, including a greater overall volume of transactions, an increase in rich-media ads and the ever-decreasing gap between interactive and traditional ad budgets.

There have been ample reports of online licenses outpacing print in terms of total images. While these may have originated with or have been greatly fueled by microstock, many traditional agencies have observed and reported the same pattern. Many have even implemented online-only image licenses, though the practice is far from pervasive.

Sources from within and outside the stock industry have also commented on the growing demand for multimedia. For example, technology market-intelligence firm IDC projects that display ads will be the next largest type of Internet advertising, capturing more than 20% of global spending through 2011. Spending on rich-media ads (those that combine any number of text, audio, still images, animation, video and user-interactive features) will double in the next three years. Keyword advertising is likely to remain the top revenue source for as long as people need information; however, the growth of online advertising that uses images is significant, further aided by proliferation of broadband services.

Finally, advertising is the one area that can affect the lower online image-pricing paradigm, particularly when online spending becomes comparable to other venues. IDC says this will take some time. The firm forecasts that Internet advertising will remain behind direct mail by more than $30 billion in 2011. Spending on TV and print advertising will each account for twice as much as Internet budgets.

At the same time, IDC says the Internet is underused in terms of per-capita spending: advertising revenues for each person alive today are approximately $105, while the Internet generates only $50 per each active user. Marketers continue experimenting with this relatively new medium, which IDC says will further fuel spending.

It is difficult to isolate spending on Internet-only images and even more difficult to further break it down by segments such as advertising or publishing. While many research firms offer highly specific information on a given campaign's cost per thousand impressions, none would even speculate on the annual total of Internet ad campaigns. As a general rule, Internet advertising is measured in eyeballs, not the number of creative executions. Consequently, parsing out the number of images licensed for use in such campaigns is impossible. Information is similarly lacking from inside the industry, as the privately held companies that comprise it either do not disclose such details or operate under disparate business models. All of this is unlikely to change.

Still, there is wisdom in following the money, and marketing research shows ad money moving online. If they are smart, image producers and agencies that want to survive the age of image oversaturation, the downward pricing trend, evolving technologies and often-inadequate legal structures will focus on the opportunities offered in Internet advertising.

Copyright © 2008 Julia Dudnik Stern. The above article may not be copied, reproduced, excerpted or distributed in any manner without written permission from the author. All requests should be submitted to Selling Stock at 10319 Westlake Drive, Suite 162, Bethesda, MD 20817, phone 301-461-7627, e-mail: wvz@fpcubgbf.pbz


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