Media Forum: Is online media complacent?

Have ad revenues lulled digital owners into a sense of security, Alasdair Reid asks.

There's something rather awe-inspiring about stock market panics - largely, perhaps, because the media tends to get so much scary mileage out of them. The developing world bumps along with military coups and sundry other upheavals; more sophisticated economies merely flirt now and then with supposed economic meltdown.

A full-scale scare can sometimes take on the characteristics of a force of nature - though last week's Yahoo!-inspired panic was, like the tail-end of Hurricane Gordon, rather anticlimactic.

And as such, it had elements of low comedy. When Yahoo! issued its now-notorious profits warning, based on disappointing ad revenue projections, there was an immediate run on other prominent online media owner stocks. A knee-jerk reaction perhaps. Surely, though, when traders had had a chance to mull over a report from Credit Suisse, indicating that underlying ad market trends remained strong, there would be a correction.

Not so. Bizarrely, the downward pressure continued and spread to internet companies such as eBay and Amazon, with very little exposure whatsoever to the vagaries of the advertising market.

It's a fragile commodity, confidence. And, clearly, we've been here before with the internet economy. But how worried should the online ad market be? Will there be a knock-on effect in the UK ad market? In the US, Yahoo! cited a slowdown in the car and financial services markets. Perhaps we're entering a period when revenue performance will become patchy and unpredictable.

Blake Chandlee, the commercial director for Yahoo! UK and Ireland, continues to be bullish about prospects for the UK online ad market. He elaborates: "The UK industry is still seeing phenomenal growth, and with more big traditional brands coming online next year, we're predicting that 2007 will be even better than this year. I think even more advertisers are using the medium to target consumers in ways they can't with traditional media and as a result are adjusting their levels of spend."

To date, he admits, the growth of online in the UK has concentrated primarily in the direct marketing area. "In that role it has been a phenomenal platform. We've seen certain types of advertisers, like those in finance and travel, shifting budgets out of traditional DM channels and into online. Now we're seeing the medium being used with more of a communication focus," he says.

Greg Grimmer, the managing director of Zed Media, believes that despite the best efforts of the likes of Yahoo! and MSN and the Internet Advertising Bureau, mainstream FMCG advertisers remain tough nuts to crack. And, while there's been an assumption that the medium's core customer base will increase their budgets by anything up to 100 per cent a year, there is a limit to how long that situation can continue as the market matures. "On the other hand," he adds, "look at the forecasts from all the major ad agency groups. They continue to be optimistic and it's difficult to argue against that because the big groups represent the big clients."

Guy Phillipson, the chief executive of the IAB, argues Grimmer is wrong to question whether or not progress is being made in convincing the internet sceptics in the ad community. He says: "In the UK, internet advertising has increased 60 per cent year on year for the past three years - so you could argue that the medium can't go on growing at that rate forever - but we will continue to enjoy healthy growth by any normal measure. I think Yahoo! picked a couple of sectors that weren't performing to expectations and the message might be that we're going to see some sectors where, although underlying growth continues, there are elements of seasonality about that growth."

It's a point that Nigel Sheldon, the director of Starcom Digital, echoes - so far, huge growth rates have blinded some analysts to the periodical nature of this marketplace. And as the UK market matures, it may well evolve similar patterns to those being experienced in the US. But he believes media owners are more than ready to recognise this. He concludes: "The lesson is that some years are always going to be more buoyant than others. But the growth is still there. Greater penetration of broadband means video content is migrating to the internet, and that in turn means more advertisers are interested in this as a medium. Advertisers are now able to do more interesting things - look at what Lynx is up to on MySpace, for instance."

NO - Blake Chandlee, commercial director, Yahoo! UK and Ireland

"I don't think complacency is a problem. There is too much direct competition between online media owners for that. We all know we have to stay absolutely focused on our own businesses full time."

MAYBE - Greg Grimmer, managing director, Zed Media

"It is still easy to sell to e-commerce clients, but FMCG clients are harder to convince. They have been slower at moving money from traditional ad channels. So it may be the online market has been growing more slowly than some would like."

NO - Guy Phillipson, chief executive, IAB

"One of the greatest causes of optimism is the whole situation with some of the sectors that have been slowest to adopt online advertising - retail and FMCG. We're now seeing real evidence that they are giving greater prominence to the internet."

NO - Nigel Sheldon, director, Starcom Digital

"Media owners have to grapple with all sorts of challenges so I don't think you can accuse them of being complacent. Some are rising to the challenges better than others. In the UK we're going to continue to see substantial internet growth rates."

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