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Ad Executives Look to The Future—and Worry

Just when Madison Avenue appears to have finally embraced one new disruptive advertising medium—the Internet—an array of new media options (notably, digital video recorders, podcasts and video-on-demand) is confounding the aTd industry anew.

That's the sentiment coming from ad-industry leaders, according to the 2005 edition of an annual survey by the American Advertising Federation (AAF). The report finds that ad execs have fully embraced online as a “traditional” advertising medium but are concerned about new digital platforms, especially the deluge of online spinoff formats such as blogs, text messaging and Web-enabled cellphones.

“What used to be considered a non-traditional medium—the Internet—has rapidly become part of the everyday marketing mix, while some of the very new new advertising is being looked at cautiously,” says Wally Snyder, president/CEO of the Washington-based trade group, which has conducted the study for the past three years.

Overall, the 75 ad executives participating in the survey said “demonstrating ROI” (or return on their advertising investments) remains their greatest business challenge. But looming closely behind is the issue of “new technologies threatening traditional ads,” as well as how those new platforms are altering consumer behavior.

“We don't see it so much as a threat, as an opportunity to broaden our reach against our targets,” says Adam Herman, senior VP/integrated media director at MediaCom Worldwide, one of the major media-buying agencies owned by the WPP Group. “More and more, people simply aren't consuming offline and online media the way they used to. Now you see them on trains using PDAs, cellphones and Blackberries instead of reading papers. The new technologies are just another way of reaching people.”

Herman is responsible for ensuring that his clients' media plans incorporate the right mix of so-called traditional and non-traditional media. He recently began conducting a series of presentations to brief his clients in preparation for their 2006 advertising plans.

“We're talking about everything from mobile advertising to satellite radio to Internet radio,” he says, “and it is a bit overwhelming to them. A major concern is that the size of advertising budgets hasn't kept pace with the abundance of new-media options.

“The reality is that client budgets haven't grown that much in the past five years,” he adds, “but there are so many new options to consider. Sometimes, we don't even know if they're doing a good enough job with keeping pace with their traditional media advertising—TV, radio and print—because of all the fragmentation in those media. So now they're wondering if they can do a good job with these new-media platforms.”

That apparently hasn't stopped them from dramatically increasing their budgets for online media. Respondents to the AAF survey spent 8.3% of their budget on the Internet in 2004 and said they will spend an average of 14.1% of their overall ad budget on online advertising in 2005.

That will jump to 18.7% in 2006. By 2007, they estimated, online ad spending would stabilize at about 17% of their overall budget.

Those are far greater percentages than are indicated by most industry forecasters and syndicated ad-tracking services, and they reflect a fundamental shift in the role of online media in the mix.

Total online ad spending is an elusive number to capture, but worldwide it ranges between 4% and 6% of all money spent on advertising.

Snyder also found significance in executives' attitudes about digital video recorders (DVRs).

According to the AAF survey, 58% of the respondents have either changed or are poised to change their advertising plans in response to DVRs, a substantial increase over the organization's two previous annual studies.

Those figures reflect the debate that began raging between Madison Avenue and the broadcast networks in recent weeks over Nielsen's plans to introduce ratings for DVRs beginning Dec. 26. Nielsen will make three streams of data available—“live” viewing, live plus recorded shows viewed the same day, and live plus recorded shows viewed within seven days.

Major ad shops—including Magna Global USA, Mediaedge:cia, and GSD&M—insist that they will negotiate ad deals based only on live ratings.

Concerns over the DVR-playback ratings are also reflected in the AAF survey, which found that 22% of ad-industry leaders now believe that DVRs will lead to the “death of the 30-second spot.” That's up from 13% two years ago.

We “have reduced television [buys] considerably,” said one media-agency executive responding to the survey. And, he warned, there will be “more to come unless rates come down to reflect lost viewership” from DVRs.