Top 10 trends: Ad infinitum

Madison Avenue is waking up to the limitless new opportunities in digital media.

While digital technology continues to rock the music and film industries, major players in the advertising world are paying close attention and smartening up.

Advertisers are devising innovative ways to target messages to specific audiences by embracing, rather than fleeing, new technologies. They are particularly keen, for instance, on understanding the role of commercial-skipping digital video recorders (DVRs) like TiVo, as well as the potential of placing ads on video games and throughout the Net.

One reason for the new interest: desperation. TV ads, once a stalwart of the brand-building community, no longer pay the same dividends. Younger people are watching less television than previous generations. According to October/November figures from audience monitor Nielsen Media Research, 7 percent fewer men between the ages of 18 and 34 were watching TV than in the same period of 2002. This is a new breed, raised on computers, movie rentals, dozens of cable channels, and video games.

Madison Avenue advertising executives won’t let this audience go without a fight. Why? Studies from sources including Advertising Age and the International Advertising Association indicate that consumer-buying habits of men under 35 are malleable and more receptive to advertising-inspired brand switching. (After 35, these studies say, brand loyalty is set in everything from deodorant to cars.)

Nielsen says the tune-out trend is highest among men between 18 and 24. That group is more likely to play video games or watch DVDs than kick back with TV programming. Advertisers are, in turn, adjusting their approach to fit the lifestyle of their audience. Case in point: as network TV ratings fell, annual video game sales have more than trebled from $6.5 billion in 2000 to a projected $20.8 billion in 2003, according to NPD Group and U.S. Bancorp Piper Jaffray. Agencies are in turn following the money beyond TV, collaborating with video game manufacturers to pay for product placements in the games. That is good news for video game makers, which are expected to rake in more than $700 million in advertising fees annually by 2005, according to data from Forrester Research and Jupiter Media. That is seven times more than in 2002.

Satellite and cable TV companies dependent upon TV viewers are also keeping a sharp eye on rapidly increasing DVR penetration (see chart). Many plan to provide the service in a two-pronged attack designed to both woo more customers and convince their current base to upgrade to premium services. This will further boost a mounting market; Nielsen says that DVR ownership grew by 50 percent over the last year to about 4 percent of U.S. households.

Advertisers are eager to tap into the underdeveloped potential of this growing audience. TiVo, one of the leading DVR platforms, is working with advertisers and audience measurement services to gauge viewer habits in extreme detail. Unlike Nielsen’s TV ratings, which measure viewing in 15-minute chunks, TiVo can break down data to the second. Advertisers get a clearer picture of ad campaign successes – and failures.

In 2004, advertisers utilize DVR technology to determine the specifics (houses, zip codes) of who watched, or skipped, their ads. They may also monitor which commercials are watched repeatedly, to better clue in on what is entertaining – and effective. With DVR technology, consumers can also request longer versions of commercials. It is an advertiser’s dream to spotlight special interest while increasing the cost-to-success ratio. Whether they are offering extended trailers of the next Lord of the Rings movie or ads for a new make of car, advertisers are managing DVRs as an advertisement delivery medium.

Meanwhile, the Internet will remain the king of targeted digital advertising in 2004. In a recent Forrester survey of 95 U.S. marketers and advertising agencies, Internet advertising captured the two highest planned growth areas next year with more than 60 percent of surveyors saying they planned to increase spending on digital advertising. More than 50 percent of respondents said they planned to spend more money on Web advertising, while only 20 percent planned to increase spending on traditional advertising print and broadcast.

The main driver is targeted search, a niche developed by Google, Goto.com, and Overture. Two years ago, advertisers were complaining that print-style Web banner advertising was ineffective. Today, they have been won over by the manner in which the Internet provides quick response from a targeted search, something neither print nor TV can offer.

The advertising industry is set to lead the media sector in 2004. Ad buyers at established firms are facing the global challenges of a digitally altered media landscape head on, intent on taking advantage of new opportunities to reach both specific niche and more broad-based target audiences.

PLAYERS

Google, Yahoo: The titans of targeted search should reap most of the benefits as this already-profitable business grows.

Comcast, EchoStar, Hughes Electronics/News Corp, Time Warner: Look for these cable and satellite TV providers to push DVRs and more digital programming services to boost revenues.

Scientific-Atlanta: Looks to be the big set-top box winner as the two top cablers, Comcast and Time Warner, push DVR technology in 2004.

Atari, Electronic Arts, Microsoft, Vivendi Universal Games: Video game makers are set to increase revenues from in-game advertising product placement.

ALSO IN MOTION

Anti-spam crusaders: The election year prompts state and federal lawmakers to press passage of tougher anti-spam laws.

Search turf wars: Google and Yahoo, the current leaders in search-based advertising, face new competition from Microsoft, which plans to launch a similar service.

Interactive marketing: Interactive TV has been promised for years, but now with DVRs, digital cable and satellite infrastructures have finally emerged.