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Interactive Growth to Offset Local Ad Market Declines

US local advertising revenues will decline from $155.3 billion in 2008 to $144.4 billion in 2013, representing a negative 1.4% compound annual growth rate (CAGR), according to a topline forecast released by BIA’s Kelsey Group, which also predicts declining profit margins for most media, writes MarketingCharts. 

Despite this overall market decline, the local interactive segment will show growth throughout the 2008-2013 forecast period, the report said. All other local media will experience marginal to rapid declines in the next 18 to 36 months, potentially accelerated by the current recession.

Interactive to Gain Share

The interactive share of local ad spending is expected to more than double from 9% in 2008 to 22.2% in 2013 and will offset some of the losses in traditional local media,  The Kelsey Group said.

Dollar wise, the digital component of the local advertising market - which encompasses mobile, internet Yellow Pages, local search, online verticals and classifieds, voice search, e-mail marketing and digital revenues generated by traditional media players - is expected to grow from $14 billion in 2008 to $32.1 billion in 2013, at a CAGR of 18%.

Traditional to Decline More Slowly

The traditional segment (encompassing newspapers, direct mail, television, radio, print Yellow Pages, non-digital out-of-home, cable TV and magazines) will decrease from $141.3 billion in 2008 to $112.4 billion in 2013 (a CAGR of -4.5%).

A small number of traditional media will rebound with a revived economy beginning in 2011, though most traditional media will continue to decline, albeit at a slower pace, the research found.

“By the end of the forecast period, the overall size of the local advertising market will be considerably smaller than it was at the end of 2008,” said Tom Buono, president and CEO, BIA Advisory Services. “As the shift to online accelerates, and the demand for accountability metrics grows, there is an increased urgency for traditional media companies to develop and embrace new business models that incorporate digital strategies in order to drive business over the next decade.”

Business Models Will Shift

The Kelsey Group also predicts that business models will shift from CPM and subscription-based toward performance models - with perhaps as much as 30% of total revenues tied to performance.

The research suggests that this share shift could actually be more pronounced if the major traditional media are not able to integrate new interactive products into their bundle.  In addition, the lines between media will blur even more rapidly over the forecast period as partnerships become the norm.

“Within the local advertising sector, there will be a real share shift, and the players most ready to leverage and adopt interactive models will achieve greater success going forward,” said Neal Polachek, CEO, The Kelsey Group. “The share shift we expect could actually be more pronounced if the major traditional media are not able to integrate new interactive products into their bundle. Successful integration will require considerable attention to business models, product innovation and sales channel evolution.”

The BIA/Kelsey US Local Media Annual Forecast (2008-2013) draws from proprietary data; company, industry and country information in the public domain; and discussions with clients and non-clients about the direction and pace of development in the local media marketplace.