The web’s impact on overall ad rates

In a report that has staggering implications for traditional media, it appears that advertising growth in the U.S. has begun to follow overall economic growth instead of leading it. If true, it’s evidence that the internet is relieving pressures on advertisers, and it throws an enormous monkey wrench into systems of calculating advertising growth.

According to Joe Mandese at MediaDailyNews, the report, from the equities research team at Merrill Lynch, says the rate of advertising price inflation now trails the overall rate of economic inflation, and this is a first.

“Interestingly, advertising growth seems to be tracking real [gross domestic product] growth instead of nominal GDP growth, as it did in the past plus some,” writes Merrill Lynch ad industry analyst Lauren Rich Fine in a report released early this morning. “This supports our belief that media no longer enjoys the benefit of above average rate inflation, rather the opposite where increased competition & measurement is putting pressure on rates.”

… Neither Merrill Lynch nor TNS have explained why this is happening, but other economists, including GroupM Futures Director Adam Smith have suggested that at least part of the change may be due to the increasing efficiencies of digital media, which may be taking pressure off overall media inflation, especially in the traditional media, as marketers begin shifting budgets to lower priced online inventory.

In addition, the Merrill Lynch report says that marketers are looking beyond the internet and putting additional money towards other new digital initiatives, such as mobile advertising, games, and video on demand.

This is surely a harbinger of things to come, folks, and we cannot say we weren’t warned. We don’t “enjoy the benefit of above average rate inflation,” because scarcity isn’t what it used to be. And in a week when many media companies issued weak quarterly reports (political advertising notwithstanding), this will put even greater stress on managing the bottom line for 2007.

Comments

  1. The advertising industry is headed for a reckoning.

    My Mindshare 10-Point Declaration

    1. My mindshare is mine.

    2. My mindshare has real monetary value.

    3. I have a right sell, trade, or keep my mindshare as I choose.

    4. Nobody is entitled to take my mindshare without my permission.

    5. Unsolicited and intrusive advertising amounts to mindshare theft.

    6. Mindshare theft is wrong.

    7. I have a right to resist mindshare theft.

    8. I demand media that does not deal in stolen mindshare.

    9. I support media that respects my mindshare.

    10. The world is better when individuals control their mindshare and their media.

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