The Great Shrinking Ad Business

So is the ad business growing? That’s a question that was addressed specifically to business publications recentlyat this week’s PaidContent conference, but it reminds me that I had heard a tidbit recently that surprised me.

U.S. advertising as a percentage of the GDP is shrinking.

It has been dropping pretty steadily since it hit an all time high in 2000 of 2.54%. This year it’s expected to drop to the 37 year mean of 2.14%. And that slide is expected to increase, dipping to 2.10% in 2008 and 2% in 2010.

Why is the ad pie shrinking? The Internet and its measurability, says Thomas Weisel, the research firm that collected the data and published it in its October’s Internet Monthly. And contrary to prior cycles, even as the economy rebounded after the dotcom bust, advertising continued to shrink (with the exception of an uptick in 2004).

Of course, though we’re talking about a drop relative to the GDP, advertising does grow. And that growth is coming from the Internet, outdoor advertising, and cinema, cable and hispanic media. The Net, though, is the biggest driver of growth, representing 74% of the overall growth of U.S. ad sales, says Thomas Weisel.

I found that pretty interesting. But the reason I called was because I was doing some reporting early this month trying to figure out if the mortgage meltdown would have any impact on earnings of Internet companies. I didn’t find anything substantial, beyond data from Nielsen that showed that the overall advertising sales that they track did decline in September to $826 million from $877 million in August. As a lone data point, it didn’t help much and didn’t show up in the third quarterly reports. So we’ll just have to see what October brings.

But Thomas Weisel did make some interesting points about what could happen if the economy does take a nose dive, which it still very well could.

1/ Banner advertising would be affected because it’s brand advertising. 2/ Search isn’t recession proof. If people aren’t buying, then what’s the point of advertising things for them to buy?

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