At the Local Interactive Marketplaces Conference in LA yesterday, Kelsey Group CEO Neil Polacheck shared the research firm’s forecast for local advertising spending in the U.S. through 2013.
The outlook is grim.
Kelsey sees local advertising spending — which they define as any advertising message with a geographic locator included — declining from $155.3 billion in 2008 to $137.0 billion in 2011, and then recovering to $144.4 billion in 2013. Local advertising makes up 25% of all advertising spending, according to Kelsey, and will decline from 1.09% of GDP in 2008 to 0.94% of GDP in 2013.
The biggest shifts in share will come at newspapers — declining from 23.1% to 13.9% in the period — and digital media — increasing from 9.0% to 22.2% in the period. Other media will generally hold their share or slip slightly, but with the overall pie shrinking, advertising receipts at all non-digital media are forecast to decline.
Where does Kelsey see opportunity? Polacheck observed that the “lines between media are blurring rapidly,” and that a much higher percentage of the $144.4 billion of spending forecast for 2013 will be considered “digital” in some form, even though the originating media may be traditional. This is a “multi-platform, multi-product” world, Polacheck said.
He also spent some time speaking to the shifting dynamic of consumer attitudes toward shopping, citing a BigResearch study that showed that a high percentage of consumers intend to “consider each purchase more carefully in the future.” Polacheck postulated that this intention will benefit media that offers search and comparison features to consumers — obviously a strong advantage in the digital presentation of data.
While the shift to digital spending in local media is imminent, Polacheck observed that the product set and players are still fluid. Consumers generally are satisfied with their experience on search engines — 63% satisfaction level — but less satisfied with more specialized search, such as vertical sites — 17% satisfaction level.
He also pointed to a significant difference in the online/offline investments by marketers in the top 25 verticals in terms of ad spending versus the second 25. The top 25 vertical spend more than $6 billion on local advertising, with only 9% going to online. Meanwhile, the second 25 vertical spent around $2.3 billion, with 38% of the spending online.
There is still significant opportunity for expansion and new players, both in terms of targeting specific verticals and creating higher-quality consumer experiences. Polacheck said that only 33% of the SMB’s in the Home & Trade Services categories have websites. Those businesses spend on 10% of their budget online.
A note: I’ve known the Kelsey team for 20 years. They build their forecasts up from detailed market level data and are generally very reality-based. Their forecast may be overly bearish, but I’d warrant that they are in a reasonable range of how things will turn out.
