Does traditional media get to enjoy a little Schadenfreude now?
Cracks are suddenly appearing in the new media growth story. Google and Microsoft earnings released Thursday fell below analyst expectations. Some long-abused traditional media executives might be cheered that their high-flying rivals are experiencing some pain.
I think the tech media sector travails are more than a one-quarter anomaly. Consider that the century-old movie business experienced more revenue growth globally in one recent year than forecasts for the U.S. Web ad sector. Adams Media Research estimates that aggregate theatrical film revenue of the Hollywood majors climbed 13% in 2002, in a spurt from the DVD boom that itself has flattened.
Researcher eMarketer forecasts for U.S. Web display ad sales will grow at 13% or less starting in 2009, though other parts of the Web ad economy will grow faster. Still, by 2011 eMarketer forecasts 12% growth for total U. S. Internet advertising, which is the average of both fast- and slow-growing components. That represents a sharp leveling.
Two forces are at play: First, there’s the Law of Big Numbers. An increase of $500 million is stupendous for a $1 billion industry, but lackluster for a $15 billion industry. The bigger an industry becomes, the harder it is to sustain break-neck growth on a percentage basis. U.S. Web advertising amounted to $5.8 billion in Q1 2008, according to a survey commissioned by the Interactive Advertising Bureau. That is a Big Number.
The other factor is investment analysts and participants in any go-go industry tend not to appreciate signs of deceleration because they are oriented to break-neck growth. The last really painful and lengthy U.S. economic recession was in the early 1990s, so there is limited experience with sustained hard times.
As for topical events today, Google earnings fell short of analyst forecasts, so as I write this, its $168.5 billion stock market capitalization has dropped $13 billion in early trading Friday. Microsoft delivered decent earnings, but lowered it outlook.
Also yesterday, Web advertising services giant ValueClick issued a profit alert warning investors its second-quarter sales will fall short of estimates due to unexpected weakness in Internet advertising.
So the Web is in the same boat as traditional media when it comes to gloomy news. Traditional media executives probably have mixed feelings about that.
By Robert Marich
