IBM Global Biz: Seismic ad shift coming

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NEW YORK -- The ad industry will experience more disruption in the next five years than it has in the past 50, with traditional advertising companies at risk for major revenue declines, according to a new report from IBM Global Business Services.

With Internet ad sales expected to grow at a compound annual rate of 22% -- five times as fast as traditional ads -- during the next four years, advertising agencies and broadcasters must make major changes to survive, according to the 24-page report, "The End of Advertising as We Know It," which was released Thursday at the Dow Jones/Nielsen Co. Media and Money conference.

IBM surveyed more than 2,400 consumers and 80 advertising executives worldwide for the study, which found that "increasingly empowered consumers, more self-reliant advertisers and ever-evolving technologies are redefining how advertising is sold, created, consumed and tracked."

As a result, broadcasters have to "change their mass audience mind-set to cater to niche consumer segments, and distributors need to deliver targeted, interactive advertising for a range of multimedia devices." For their part, ad agencies must "experiment creatively, be¬coming brokers on consumer insights."

According to the study, amateurs and semi-professionals are increasingly creating low-cost ad content that threatens to bypass creative agencies, while publishers and broadcasters are broadening their own creative roles.

"The advertising industry is going to have to change their models," said Berman, IBM Global Business Services media and entertainment strategy leader. "If they don't, their future success certainly will be at risk. They need to change how they deal with consumers, their business models of where and how advertising is sold and their business structure to deal with this new environment."

The IBM survey found that half of DVR owners watch 50% or more of programming on replay and that 40% of respondents feel that ads during an online video segment are more annoying than any other format. More than half of ad professionals polled expect that in the next five years, open advertising exchanges -- now led by companies like Google, Yahoo and AOL -- will take 30% of the revenue now commanded by traditional broadcasters and media. Nearly half of the respondents expect greater than a 10% revenue shift away from the 30-second spot within the next five years.
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