Price of Online Advertising Drops

The price of online advertising plummeted last year, which isn't a surprise as businesses have been increasingly tightening their belts and looking for ways to cut costs. Advertising budgets are often one of the first things to go, but this represents an interesting trend as print has long been suffering for the lower prices and wider reach of online advertising. The fact that online outlets are having to slash prices in order to attract advertisers gives us a new indicator of how tight corporate budgets have really gotten.

"The price for advertising on Web sites dropped by about 53% from Q4 2007 to Q4 2008, according to Douglas Quenqua, citing the Pubmatic AdPrice Index. The numbers show every vertical category suffered steep declines, with business and finance leading the way at 61%. Prices held up better on sites focused on technology, sports, entertainment, gaming, and music."

"Price drops had been expected, but not the rate and amount of declines. Quenqua explains that the news is slightly better for sequential results and provides some analysis. Prices declined slightly from the third quarter in 2008 to the fourth, compared with more severe drops in previous quarters. The index is a quarterly measure of online ad network rates for publishers." ("Display Ad Prices Cut In Half")

Here is another article in follow up to our recent post: "Demand Pricing Update - Apple and ITunes":

"Although Apple Inc. announced this month that some songs sold on its market-leading iTunes online service would be available for 69 cents instead of the 99-cent tag Apple had insisted on for years, the change won't necessarily put more money into the pockets of music lovers.In fact, record companies are the ones that plan to come out ahead.

"While some songs will be 30 cents cheaper, popular songs likely will be marked up to $1.29. That price breaks a psychological $1 barrier and prepares consumers for a new strategy by labels to bundle songs, videos and other exclusive content together — all in the hopes of reversing years of falling music sales.

"According to NPD analyst Russ Crupnick, the music industry has been faced with a vexing question as fans bought more digital singles but fewer albums: "As the album as we know it goes away, how do we replace a $12 or $13 item with something that costs more than 99 cents?"

"If the new variable pricing can make several songs packaged together seem like a relative discount, it could finally entice some consumers to pay more.

"You've got them spending $4, when yesterday they were spending 99 cents," Crupnick said. "Is this going to be the salvation of the industry? No. But all these incremental things that we do will be helpful."

"Music sales have declined in seven of the last eight years. The industry peaked in 2000, only to face the advent of the file-sharing program Napster, which made it easy for people to trade songs for free. Since Apple CEO Steve Jobs introduced iTunes in 2003, downloads of single digital tracks have exploded, but not in the volumes necessary to offset what last year was a 20 percent drop in sales of physical albums, which hold 10 songs or more."

Read the full article: "Changes to iTunes prices raise music labels' hopes". Will this pricing strategy pay and finally put record companies back on top? We will wait and see. Consumers have been increasingly reluctant to pay for music since they realized there were ways around it with the advent of P2P, Napster and the link. Although many of these methods have been shut down, consumers will not necessarily just jump right back on the bandwagon of paying premium prices. What do pricers think? How will consumers react? Time will tell - EM