Another New Ad Medium

Even as established media worry about wrestling with the prospect of slower growth in 2008, they will also have to deal with more competition from a new class of competitor: the social networking sites.

Assumptions about the potential of social networks as an ad medium, at least among some experts, can be gauged by Microsoft's willingness to pay $240 million for just 1.6 percent of Facebook, the reigning social-networking champ. That sum implies that the privately held company's total worth is a staggering $15 billion.

An initial effort to realize Facebook's potential as an ad medium, with an ad program called Beacon, fell flat over users' privacy concerns. It suggests that Facebook and its rivals—whether other multimillion-member sites like News Corp.'s MySpace or small, narrowly focused networks like Woophy, which is for people interested in travel photography—have to find a way to deliver ads tailored to their members' interests without appearing to spy on the members themselves.

"There has to be a trust factor that people who go on these networks are not being compromised and that things not meant for general consumption are not being abused,"  says Brad Adgate, a senior vice president and research director at Horizon Media, the world's biggest privately owned media planning and buying firm.

Jim Nail, chief marketing and strategy officer at Cymfony, a self-described market influence analytics company, says social networks will have to walk "a very difficult tightrope" in 2008.

"They clearly have to introduce advertising and marketing, because they have to have a revenue stream," notes Nail. "But if they do it wrong they'll drive away their users. And, for the most part, advertisers will push them to do it wrong."

In Nail's view, doing it right means giving users total control over how they want to interact with marketers.

Watching the Audience

It's hard to understand the stampede of advertising from old to new media without talking about the tremendous advantage that digital media have in measuring and defining their audience.

"The level of detail companies in the digital sector can get down to about the visitors on their site is really impressive," says Phillips, the investment banker. "It's hard for traditional media companies to provide that level of information."

But it's getting easier. For the 2007-08 TV season, networks and advertisers agreed on a new ratings model, called C3, which takes into account people who watch playbacks of programs on TiVos or other digital-video recorders. Previously, Nielsen ratings reflected only live viewership.