Digital advertising: The leading-edge indicator of recession (and recovery)

Enders Analysis is offering forecasts for the UK’s online ad market. For 2008 as a whole, here’s the prediction. (Last year’s growth in brackets).

– Online display (banners/buttons etc): Up 9.8% (30.5%)
– Classified: Up 7.8% (54%)
– Paid search: Up 25.4%

Despite that 9.8% predicted increase, online display is problematic. Ian Maude of Enders tells the FT that “many publishers” in the UK expect their online display revenues to be flat or down during Q3.

This has already happened in the US — during Q2. There, the Newspaper Association of America started reporting newspapers’ digital revenues as a separate category in 2004.

Pretty much every quarter since then, the organization has put out a press release trumpeting its members’ online revenue growth. In 2004, digital revenues grew by 27%. In both 2005 and 2006, growth was 32%. In 2007, it was 19%.

But in Q208, there was no press release. That’s because digital revenues at US newspapers went into reverse between March and June, declining by 2.4% YOY.

This par in this morning’s FT piece reporting Enders’ forecast was interesting:

An expected trend towards brand-building online is not as strong as expected, making up only 5 per cent of online spending. ‘This is a reality check for online advertising,'[Ian] Maude [of Enders Analysis] said.

Expected trend? Mmm. More like a fervent wish triggered by the rampant success of paid search as a direct response medium. . .

Meanwhile, at the IAB, Guy Phillipson is predicting casualties in the middle of display markets:

“Advertisers can enjoy lower rates over networks but mainly for direct response. Premium products can easily attract spend. But there will be quite a few sites suffering in the middle that don’t get one or the other.”

Six months ago, the general hope was that a quick downturn would involve cash being shaken out of print and placed online. The prospect of a recession in digital advertising seemed distant enough.

Now that digital display is heading downward, these numbers are going to become the leading edge indicator of recession. Digital will come back further and faster than anything else. And only when they turn upwards can we start thinking about a broader recovery.

UPDATE — 26/9/2008: The forecast from Enders is complemented by two other sources. The first is TNS, which suggests that spending on digital display ads in the US grew by just 8% in 1H08. This is not dissimilar to the NAA’s number for Q108.

Elsewhere, PricewaterhouseCoopers is predicting 10%-15% growth in digital display for the UK during 2008 as a whole. At the higher end, that’s more optimistic than Enders. At the low end, it’s identical to Enders’ forecast of 9.8% growth.

My guess is that that PWC will be forced to revise its forecast down into single figures before the year is out.

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