Digital Boost May Not Help Local Media Market Regain Traction

The local media market is shrinking. A new report from The Kelsey Group provides a dim outlook for all local ad spending through 2013. The bright spot: digital.

Digital ad spending will continue to rise as all local media spending falls. In fact, according to the research firm’s annual U.S. local media forecast, overall local ad spending is expected to drop by 1.4 percent by 2013; meanwhile local digital media expenditures are poised to grow from over $16 billion this year to $32 billion in 2013, an increase from 11 percent to 22 percent of overall local media spending.

Kelsey predicted overall local media revenues will fall from $155 billion last year to $141 billion this year, only reaching $144 billion in 2013. Local ad spending on traditional media such as TV, print, and radio will experience “marginal to rapid declines” over the next 18 months to 3 years, the firm said.

“There’s going to be a share game,” said Kelsey Group CEO Neal Polachek. “Somebody’s chair is going to be missing when they stop the music.”

Polachek explained local ad spending across media is in decline as a result of “a confluence of factors,” including — of course — the economic recession. “The economy is going to force a more intense review of all budgets.” The intensity of the recession, combined with the effectiveness and variety of measurable options available to advertisers through digital media are driving the move to digital.

“This transition was going to happen. I think the economy accelerated it,” said Polachek.

Small businesses “are looking at ways to improve the efficiency of their ad spend,” he added, suggesting that through their own personal media consumption, small business owners are “recognizing more and more that they have to be found digitally.”

Kelsey expects growth in multiple digital platforms including mobile and out-of-home. “It’s driven by the total number of pageviews,” said Polachek.

When the economy rebounds, Polachek cautioned against expecting a resurgence of overall local media spending. Indeed, overall local media spending will contract. The report concludes that in 2011 some traditional media sectors will improve, though most will continue their descent. Even though digital spending will help boost the bottom line, its inherent cost-effectiveness could temper overall local ad spending. In fact, Kelsey believes 30 percent of local ad revenues could be tied to more measurable, sometimes less-expensive performance-based models as opposed to CPM-based models.

The firm measured digital media including display and search ads, rich media, out-of-home, voice search, local online television, Internet yellow pages, and classifieds. Kelsey this week also forecast U.S. mobile ad revenues, and suggested the medium could find adoption among local advertisers because it allows people to obtain product and pricing information quickly while shopping.

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