Media companies have long complained about losing money when they shift from traditional advertising into digital. But is that due to the inneffectiveness of the digital market or the fact that the ad market has been historically overvalued?

Terence Kawaja thinks we should stop blaming digital. Because traditional advertising has been historical overpriced. Speaking at CM Summit, the investment banker asked: "What if Madison Avenue has been one giant deception for the last 100 years?"

This is not the first time Madison Avenue executives have been tagged as hucksters. A famous apocryphal quote shows that advertisers have historically admitted as much. Retail tycoon John Wannamaker is thought to have said the following:

"I know that half of my advertising doesn't work. The problem is, I don't know which half."

But online advertising is inherently measurable. Yet the online advertising market is still only a fraction of the $300 billion dollars that are spent annually on advertising in the U.S.

Kawaja argues that instead of focusing on how to ring traditional advertising dollars out of the digital dimes that advertisers are now earning online, we need to readjust our expectations of the market. The managing director of GCA Savvian Advisors says that traditional advertising has been priced artificially high, and the current weakness in the ad market is actually just what happens when prices right themselves.

"We need to think about a world where the total ad budget may be materially south of $300 billion," he said.

One of the nagging issues with traditional media today is that it is still nowhere near as measurable as online. With media buyers increasingly looking to measure every inch of their ad campaigns across all platforms, the intense accountability online has already brought prices south on multiple platforms.

While it seems like every click, eyeball and purchase can be tracked online, print and television advertising depend on far less predictable means to gauge effectiveness. Which means the high prices of print and television that were once preferred by advertisers are no longer sustainable. Magazines have been dropping like flies and the networks are increasingly desperate for ways to usurp ad killers like Tivo and DVRs.

According to Kawaja, that's exactly the problem with print media: “You don’t know if it’s working, you just have to believe.”

But has advertising been traditionally overvalued because Madison Avenue could get away with it? Joseph Turow, a professor of communications at the University of Pennsylvania, says that it's impossible to compare the historical rates of television and print advertising to digital today:

"You have to look at it in context. In its day, broadcast TV was the only game in town. A lot of what's happened today is the decoupling of advertisements from their environment and a move towards targeting directly to people. You'd have to go back and prove that those ads weren't successful to say they were overpriced."

That also fits into Kawaja's idea that "prices are set where the intersection of supply and demand meet." But while the overwhelming supply of advertising online may be undercutting the value of traditional media today, when print, radio and television were the only options, their value was much greater.

Wanamaker (or whoever originally said that famous quote above) may not minded that he could only track half of his advrtising. But if he were competing against someone who could measure the entirety of an ad campaign, his would become a far less effective business model.

(In case you want some more Kawaja insight, click on the image below. It's his new parody video "Mad Ave Blues," which goes live on YouTube tomorrow):

UPDATE: The video has been removed from Vimeo, but we will update the link when and if Mad Ave Blues resurfaces online.

Meghan Keane

Published 1 June, 2009 by Meghan Keane

Based in New York, Meghan Keane is US Editor of Econsultancy. You can follow her on Twitter: @keanesian.

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Comments (3)

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hannahhkelly

Hi, I like your post and I kind of have similar opinions about the online advertising taking away the charm of traditional advertising. I wonder what will happen when the traditional advertising completely closes down!!!

Anyway, while I was searching for more information, I found another such article which gives a whole lot of information on how the web is transforming traditional advertising.

It's very good and I would request to you go through it atleast once.

http://www.webguild.org/2009/05/how-the-web-is-transforming-tradition-advertising.php

almost 9 years ago

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Jerry S

Interesting article. Having worked in radio for a long time, I'm focused on that medium but it's got the same problem. I continually read or hear that radio's decline in advertising is due to iPods, satellite radio or other technology. That's not it. Radio's declines in Time Spent Listening are small and losses of cume audience smaller still. That is, if you believe Arbitron. That's the problem. Of those three media, newspaper, TV and radio, radio has the worst audience measurement system. Personal Peope Meters are too little too late. Combine the fact that the world is moving toward greater accuracy in accountability and radio's 1960 rating methodology and you get what we are seeing. Precipitous declines in revenue.

almost 9 years ago

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Pauline O

Any idea of what happened to the Mad Ave Blues video? Finally found it via Google, but YouTube says it has been removed by user.

almost 9 years ago

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