Contemplating the Consumerist sale and the adpocalypse
Contemplating the Consumerist sale and the adpocalypse

            
  
  
  
      

      

      
        Gawker Media is doing what a lot of folks are doing: selling off assets for  …
      

      
    



  

  
      
    
    
                      
                      
          
Plans to ride out a possible advertising nuclear winter continue apace at Gawker Media, Nick Denton's New York blog publishing mini-empire, with the recent announcement that  Consumerist.com is being sold to the Consumers Union, publisher of Consumer Reports.
Consumerist is the latest of Denton's blogs to be sold off, in a move that he described in an e-mail to AllthingsD's Peter Kafka as part of the process of "pruning"  his network down to only his highest-growth, most profitable sites. Hollywood gossip site Defamer.com is also on the block.
Consumers Union claims that it won't be making any editorial changes to its new property, with the group insisting that the site's snarky editorial voice represents a return to the somewhat staid organization's early roots as a scrappy consumer advocate.
Much more interesting, though, than the actual sale of Consumerist—either what was paid for it (Kafka says "mid six figures") or what will be done with it (see Portfolio's Felix Salmon for a good, insidery post on this)—is Denton's reason for thinning the herd. In short, he's planning for an economy in which online ad spending tanks by a whopping 40 percent before it turns back up again (whenever that is).
Cliff diving: Internet edition (h/t CR)
Back in November, when doom-and-gloom presentations at public conferences and in private boardrooms were all the rage, Denton published his own take on the economic meltdown. Called "Doom-Mongering: a 2009 Internet Media Plan," this read is as gloomy as they come.
Denton takes  Mary Meeker's (in)famous Web 2.0 presentation as a starting point; in it, the Morgan Stanley analyst suggested that for each percentage point decline of GDP growth,  advertising market growth drops roughly three times as fast. 
But Denton thinks that Meeker is too optimistic, and he refines her results with some other  GDP and ad market data from downturns in Indonesia, Sweden, and Japan to arrive at an ad market spending collapse of between 9 and 43 percent over the course of the entire downturn. Denton then advises publishers to prepare for the worst-case scenario of an eventual 40 percent decline, with a possible 27 percent drop coming in 2009.

          
                      
                  
                    
        
          
    
    
          
          
I can't speak in detail to the numbers behind Denton's projection, so I leave the projection itself as just a data point, maybe an outlier, but not necessarily worth discounting. (Indeed, if the past few months have taught us anything, it's that even outliers to the downside can be too optimistic.)
Before moving on to a  summary of my own  thoughts on this issue, developed over the course of some recent, off-the-record conversations with analysts and media types, I want to offer two more data points for your consideration.
The first datapoint is a widely cited MasterCard report (linked at Ars but most widely known from the WSJ report on it), which shows an unprecedented, double-digit year-over-year decline in the advertiser-heavy luxury goods and electronics categories (35 percent and 27 percent, respectively). And this is in the face of super-steep discounts at retail outlets.
The second datapoint is a research note from Morgan Stanley's Mark Lipacis, who created some ripples in the (admittedly very small) semiconductor econ blogging pool with his forecast that chip company revenues could decline as much as 30 percent next year, leading to earnings-per-share drops of as high as 78 percent. For my own reporting on the severe, margin-killing supply glut facing the chip sector next year, see this post. In short, a 30 percent decline in net revenues for semis next year would not surprise me, and it would have painful ripple effects in the ad market via reduced spends for companies like Sony, Toshiba, Intel, AMD, and many others.
So things look bad in 2009, but there's a light at the end of the tunnel, right? Wait; maybe that's an oncoming train.
Ad infinitum
Most of the discussion of ad spending and GDP (non)growth skips lightly over the question of value, but it's a question that's worth asking. Specifically, what if the end result of all of this pain and trauma will be not a return to the "normalcy" of the past decade but a reappraisal and repricing of the basic units of online display advertising?

          
                  
                    
        
          
    
    
          
          
Denton himself touches on these issues twice in his memo. The first time is a mention in passing of a point that I've heard made at two different conferences, i.e., that nothing can  move the sales needle in a dramatic and measurable way like good TV exposure; if you get on Oprah or buy a Superbowl spot, then the very next day you can expect to sell a whole lot of whatever you were hawking.
The second place where Denton touches on this point is when he raises the issue of the restrictive nature of online display ad formats. I actually think about this a lot, myself, especially in the light of my academic interest in the history of media.
In short, both a TV program and a magazine represent a finite unit of (more or less) undivided attention. Each of these media objects is carefully designed to grab your attention and to hold it within a bounded space—with boundaries being the start and end times of the program for TV, or the two covers of a magazine.
What advertisers buy when they purchase a magazine or TV ad is slice of the attention of some subset of that media object's audience. And the ads that they create for those purchased slices are attention-worthy objects in and of themselves, e.g., Angelina Jolie posing with a diamond watch, or a hilarious vignette centered around a brand of beer.
A web page, in contrast, is typically festooned with hyperlinked visual objects that fall all over themselves in competing to take you elsewhere immediately once you're done consuming whatever it is that you came to that page for. So the page itself is just one very small slice of an unbounded media experience in which a nearly infinite number of media objects are scrambling for a vanishingly small sliver of your attention.

          
                  
                    
        
          
    
    

        
        
          
          
Advertisers already seem to have a  sense that this sliver of attention that they're getting is extremely miniscule, and they also know that it grows ever smaller as web users become more proficient at navigating the cacaphony of links in order to focus their attention on precisely what they came to a page for (content).
This being the case, it's entirely possible that cash-strapped advertisers will have exactly the same kind of "moment of clarity" that shopaholic consumers are reportedly having  now that they've seen entire store inventories marked down 50 percent or more in pre-Christmas sales—that is, they may say to themselves, "We knew all along that this stuff was made in China for a tiny fraction of what it sells for here; we were nuts to pay so much in markup for it."
Note that no one should interpret the above as some sort of prediction on my part that display ads will  be permanently and drastically repriced downwards because advertisers are deciding that the standard IAB units really aren't worth anything close to what they've been paying for them. But I do throw this out there as being somewhere on the spectrum of possible outcomes, and I'm not alone in entertaining this possibility at least as a hypothetical.
In conclusion, the online advertising experiment in which so many of us have engaged is really only ten years or so old. Those who say that it's "mature" are not only mistaken, but they drastically underestimate what a true break the web is from the offline media  that came before. We've had a few hundred years to learn to monetize print,  over 75 years to monetize TV, and, most importantly, millennia to build business models based on scarcity. In contrast, our collective effort to monetize post-scarcity digital media have only just begun.


          
                  

                  
          






  


  
    
    
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