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11.11.2008
Originally featured on BroadcastEngineering.com
TV stations must prepare for projected 2009 falloff in Web ad revenue

It’s not surprising that Gordon Borrell, CEO of Borrell Associates and author of “2009 Outlook: Big Slowdown Begins For Local Interactive Advertising,” is projecting advertisers will begin applying the brakes to interactive advertising next year.

But it’s not entirely for the reason you may think. While the general slowdown in the overall economy will have an impact, its effect is more about the timing than magnitude. According to Borrell, the weakening economy will accelerate the slowdown, which he originally anticipated happening in 2010, to next year.

This week, Sound Off speaks with Borrell to learn more about his forecasted fall off and what steps TV stations looking to the Web for advertising revenue should take to succeed.

IPTV Update: Your outlook for local interactive advertising in 2009 forecasts relatively modest growth of 8 percent on the high side to no growth or even a decline. Is this primarily attributable to the general health of the economy, or are there other factors at play here?

Gordon Borrell: It’s somewhat attributable in that we’ve moved our forecast of slowing down of interactive ad spending by about nine months to a year. We didn’t expect this to occur until 2010. Now we are saying that the slowdown will occur in 2009, mainly because advertisers have really been testing interactive media for the past 10 to 15 years and have finally gotten their dials adjusted to the point where they say, “OK, this works if I mix interactive with Yellow Pages, TV or radio.” They have found that they have interactive where it should be, so they aren’t going to increase it drastically anymore.”

IPTV Update: You say in your report that local media companies increasingly are going to have to re-evaluate what their goals are for next year. Some you say were projecting two- or threefold increases in interactive banner advertising. Are TV stations in a better position to attract online interactive advertising because of their long history of using video and video production and presentation techniques?

Gordon Borrell: Not so much. Let me back up a bit and speak to the growth. We’re seeing some very aggressive double-digit budgets — even triple-digit increase projections from 2008 — especially from television stations. It’s entirely possible because they are coming from a very low growth standpoint. They haven’t really put that much into interactive sales. So they are going to step up their efforts, and they may indeed see 30, 40 or 50 percent growth if they are starting from a very small base.

What we are saying is you are not going to be able to get a lot of growth based on advertisers significantly increasing their interactive advertising budgets next year. If you get double- or triple-digit growth, you are going to have to be stealing share from other people.

TV stations are somewhat advantaged because of their understanding of video. One of the problems is that their understanding of video is of a mass media mindset, which is, “We’ll do news, weather or sports and do a 15-second pre-roll” and bingo that’s interactive advertising, when the far greater revenue stream is coming from on-demand commercials.

So it’s a little bit different from the mass media models of putting lots and lots of content online and then developing revenue streams from all of the traffic around it. It’s a little more scientific than that in the interactive world.

IPTV Update: From your experience, are TV stations equipped both from a technological standpoint and a business model point of view to take advantage of this sort of “more scientific” approach to the use of video on the Web?

Gordon Borrell: Equipped from a technological standpoint, no. But that’s not too difficult to acquire. Equipped from a strategic or visionary standpoint, I would say for the most part, no. This is a very different medium. It’s not a mass medium; it’s a niche medium, and the business model almost necessarily requires a much lower price point. From a strategy standpoint, you have something as simple as sales reps who are accustomed to making nice six-figure salaries off nice six-figure sales closes. So they might close a $100,000 or $75,000 sale, and the average Internet sale might be along the lines of $2000 to $3000, so they are not going to be incentivized that well to go after interactive advertising. They’re not going to get as much juice out of that squeeze. That’s very difficult for TV stations.

So, just taking the strategic approach and the mass media mentality and the business model of television and taking that and trying to transfer that over to the Internet is extremely difficult and requires a lot of education. It requires a lot of retooling, not from an equipment standpoint, although some of that is required, but really from a business model or strategy standpoint where they really have to retool their thinking about how to seize the Web and build revenue from that platform.

IPTV Update: What advice could you give TV stations?

Gordon Borrell: I think they have to tackle two questions. One is: Are they going to tackle the Internet as an extension of their core product? I think the answer to that is yes. But I think they have to resolve that. I think it would be stupid not to use the Internet to extend the brand of the news franchise, extend the brand of the TV station and sales capabilities.

The other question is more important and they really have to address this one as well: Does the Internet exist to their company, not to their TV station, but to their company, as an opportunity to expand beyond television and to create a new franchise? That’s separate from the first question. It’s not just a brand extension. It can also be a completely new medium, and they can choose not to tackle that and that’s fine.

It would be as if newspapers in the late 1940s saw television station opportunities coming along and saying, “Do we want to extend our capabilities and be a media company, not just a newspaper company and go out and get an FCC license and start a TV station? Well, no we don’t want to do that. We want to be squarely in the newspaper business.”

That’s the question that faces TV stations. Do they want to be squarely in the TV business, or do they want to branch out and do something completely different from TV and seize this Internet medium as their own?”

IPTV Update: Is there anything else about your 2009 forecast that you’d like to discuss?

Gordon Borrell: I think you have to take to heart that even though within that forecast there is a slowdown overall of growth, there is some growth. Eight percent growth is nothing to sneeze at in what may be a very difficult year.

In the interactive spending, there are some vast changes. There are some things going down. Banner advertising declines next year. Local interactive banners will begin going down, and things like paid search, video advertising and e-mail advertising all go up. So when you look at it and think you are OK because there is going to be some growth next year and you’re going to have a little bit more aggressive growth than that and you’re going to be fine, if all you’re selling is banner advertising, you’re basically screwed because it’s not what advertisers are buying that much anymore.

There are still some banner advertising sales. It’s still 50 percent of all local interactive advertising. We see that spiraling downward because this is not a mass media model where you just deliver a lot of traffic to an advertiser who wants to put a branding message up in front of it. That’s not what they are buying online, and I think that’s a big, big warning sign for a lot of television stations’ Web sites.

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