ThinkPanmure: Now Entering Phase II of Media Recession

ThinkPanmure, William MorrisonBill Morrison, Senior Analyst at ThinkPanmure and one of the few Wall Street analysts with an understanding of ad exchanges, stated in his industry report released today that advertising is entering Phase II of a media recession. Morrison explains his thinking:

"First, marketers reduce spot market activity and eliminate quarterly budget flushes. Then, marketers begin canceling "up-front" commitments and previously signed advertising contracts. Lastly, marketers begin to rationalize/reduce budgets for future years. Our research suggests that we entered phase two of the current media recession during 3Q. Our recent conversations with online publishers revealed a significant number of advertisers that have cancelled contracts or significantly reduced commitments for the second half of 2008. The majority of industry contacts we spoke with this quarter said fundamentals weakened from 2Q to 3Q."

A bleak outlook, to be sure. We've already seen predictions of a slowdown in online display advertising.

Morrison predicts that among industry verticals to likely suffer the most initially is the auto vertical followed by finance and travel. In addition, he notes that GM's recent advertising budget cuts will affect both online and offline properties - it was previously thought that online would not be affected but his team is finding the impact being felt by publishers online to the tune of a 30% reduction in spending compared to the first half of 2008.

AOL's announcement last week that it was being impacted in finance, travel and auto verticals is further proof of a deterioration in spending according to Morrison. Among public companies whose business is primarily online, he sees Yahoo! followed by Google, TheStreet.com and BankRate as the most affected by the recession.

In our opinion, with the ad exchange model's ability to squeeze the last penny out of a publisher's inventory through the open auction, the "media recession" may prove to be an important next phase in proving the ad exchange's value to advertisers and publishers.

 

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