Weak Economy Hits Video Ad Production Budgets

Shrinking ad spending in the United States has so far mainly affected channels such as TV and print, but Web spending is hardly immune to cuts — even though it continues to grow, totaling $5.8 billion during Q1 2008. Search remains strong, yes, but display ad giants like Yahoo, MSN, and ValueClick have seen flagging demand and shrinking prices. Of course financial and mortgage industry spending on all forms of advertising, including online lead generation and search, has plummeted.

Video production budgets may be next. Numerous agency executives recently told ClickZ that their clients’ appetite for video and rich media experiences, especially those extravagant projects involving elaborate production spending, has weakened of late.

“As the future is a little more uncertain, we’re seeing a bit of a slowdown,” said Daniel Stein, CEO and co-founder of San Francisco-based EVB. “Production budgets are growing a little bit more slowly than they did.”

Stein suggested the trend is owed partly to marketers’ perception of the online channel relative to television. Because Web budgets are historically low-priced, there’s more pressure to keep them tight in a downturn. “Digital is supposed to be cheaper,” he said. “TV is an institutionalized process that can warrant bigger budgets.”

Tony Quin, CEO of IQ Interactive, suggested the litmus test for many marketing executives considering a rich experience is whether the project is tied to a concrete business goal.

“I think a lot of the frivolous fringe products are going by the wayside,” he said. “Clients are thinking less about, ‘Okay, we’ve got this great campaign; let’s do a fun microsite.’ But if they’re thinking they want to produce a Web site around a goal, it can’t be boring and meaningless.”

Not everyone agrees. Mike Monello, co-founder of agency Campfire, said he has neither seen nor heard advertisers’ knees knocking together. Campfire does work for a number of entertainment clients, including HBO and USA Network, as well as auto and telco advertisers.

And marketers operating in more entrenched areas of online video advertising, such as in-page ads that use video ad creative, say they haven’t seen a fall-off in marketer interest. That may be partly owed to the fact that online video creative of the sort appearing in pre-roll and video banner units is drawn from broadcast spots.

“Advertisers are getting more comfortable with it,” not less, according to Chris Allen, director of video innovation for Starcom USA. Allen said TV networks had improved their cross-selling broadcast with online inventory. “We’re starting to see them introduce online video as a complement.”

Geary Interactive CEO Andreas Roell agreed demand for online video ads remains strong from a media standpoint, but he also concurred that clients are putting a squeeze on production budgets. He said those requests can often be accommodated by reducing the length of videos or finding cheaper ways to produce them.

“If you add the factor of an undecided marketplace, which video probably is, it’s one of the earlier things to go in terms of what people are willing to spend money on,” he said.

When it comes to cutting production budgets, the lowered expectations consumers have for Internet video comes in handy.

“We’re finding ways to do it in-house, versus doing it on production company side,” Roell said. “Lower quality has more of a viral effect, so doing it in-house is a little less of a stretch.”

Given the frenetic pace many agencies have maintained trying to keep up with client demand, a slight easing of that demand may create opportunities for agencies to retrench and hone best practices. So long as some work keeps flowing in, that may be good news.

Or as EVB’s Stein put it, “There’s been a reduced amount of chatter, which is actually not such a bad thing.”

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