Where Digital Ad Budgets Are Vulnerable

The economic turmoil could take its toll on digital advertising sooner rather than later, warned several executives at a Media and Money conference yesterday in New York City.

“I think there’s going to be widespread pain in digital media,” said Jeff Lanctot, chief strategy officer of Microsoft’s Avenue A | Razorfish. While not recession proof, he believes digital advertising will fare better in the long term than other channels. “It tends to be more accountable,” he said.

Lanctot said publishers are now anticipating trouble hitting financial targets for the fourth quarter. “We saw a decline in financial services in Q2, and automotive is starting to pull back,” he said.

The fact that digital campaigns can be quickly adjusted is a double-edged sword.

“The blessing of digital media, [the ability to] respond quickly, will become its curse,” Lanctot said, referring to the potential immediate impact of the economic downturn. For instance, a retailer forced to cut its 2008 advertising budget cannot slash spending for holiday catalogues because the materials have already been printed. And, advertisers may also be locked into TV contracts for the remainder of the year. Under that reasoning, digital is vulnerable during the next 10 weeks.

Lanctot’s outlook for 2009 is more upbeat. “As we move into 2009, the table turns. Digital will be able to stand above the rest,” he said. “It’s better protected than most other channels.”

Michael Kelley, principal, PricewaterhouseCoopers’ advisory practice, said digital media will benefit from technology innovations, in areas such as IP TV and 2D bar codes, that advance performance-based advertising.

Kelley said he’s heard about iPhone applications that command CPMs of $250 to $300. “That’s not with a huge mass-scale audience, but a very targeted audience with 6 and 7 percent click-through rates,” he said.

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