Broadcasters, marketers and media buyers agree that, because we now live in a video-on-demand world in which consumers control what they watch and when, the broadcast advertising model is broken. And while the media industry is still sorting through their predicament on television, perhaps the even more troubling news is that, due to the tough economic conditions the world faces going into 2009, all indications are that online ad spending will dip over the next year. What can media companies and advertisers do in this floundering ad ecosystem? The short answer: they will have to change the way advertising is bought and sold, measured and delivered.

Traditional television audiences are eroding. In October, the four biggest broadcast networks reported declines in audiences between the ages of 18 and 49. Many analysts believe that those eyeballs are moving from television to online. Advertising Age, in a study on social networking and its impact on television, found that 25% of users of social networking sites like Facebook indicated they were spending less time watching TV because of the time they were spending online. And more than a third of all 12 – 64 year olds online indicated they used social networking sites regularly. With audiences being siphoned away from television, and using time-shifting digital video recorder (DVR) technology like TiVo to skip ads while they are watching TV, advertising dollars to be had in the broadcast medium are on the decline.

So media companies should simply follow their audiences online, right? The picture is not that clear. The current economic climate is eroding ad spending across the board. TechCrunch indicates that in the third quarter, Google, Yahoo, Microsoft and AOL collectively eked out only a 0.6% increase in online advertising revenue quarter over quarter. MediaPost.com reports that, while online ad revenue is up 11% year-to-date, compared to last year’s growth of 26%, growth has all but stalled in 2008. They predict that 2009 will be the first flat year for online ad spending since 2003. Others offer an even gloomier outlook. In a survey of attendees at AdTech New York, private equity firm Halyard Capital found most predicted digital-marketing budgets would be down 10-20% in 2009.

And even worse news for media companies: rates that advertisers are paying for digital ad space, as traditionally measured by cost-per-thousand impressions (CPM), are trending downward. According to research by Morgan Stanley, the average CPM for a banner ad has dropped from $3 to $1 over the past decade. Consensus seems to be this is because of the proliferation of available inventory (places on the internet to display these ads). In China, advertisers are paying as little as $.05 CPM because of the rapid explosion of inventory. And MediaPost predicts that this decline in the rates advertisers are paying will extend to online video advertising in 2009, which is an area that has been enjoying a two year spike in CPMs.

But what about those social networks to which television viewers are being drawn? Do they offer hope? Halyard Capital found that 68% of those surveyed believed social networks are in the “strongest position to expand” among the alternative marketing channels over the next two years. Advertisers see vast potential in social networking as a channel in which to better target advertising to consumers because of all of the personal information being shared. And content providers see opportunities to tie together traditional media and social networking. Broadcasters are starting to incorporate community features into their online video players. Companies like Joost are tapping into social networks like Facebook for social video sharing.

At first glance, then, social networks seem to  apple search ads offer promise as an advertising haven in an economic downturn. Sites like Facebook, MySpace and YouTube boast a tremendous number of pageviews, a higher than average number of pageviews per user, and a longer average time-on-site. In a CPM-driven world, this massive pool of pageviews represents a virtual treasure trove of “inventory,” because of the sheer number of eyeballs. The problem, however, is that the data shows that the actual performance of ads on these social networks is absolutely dismal. Click-through rates on these sites are 10 to 100 times lower than the average for banner ads, which were already in the 0.1 percent to 1 percent range.

According to Dr. Augustine Fou, Senior VP of Digital Strategy at MRM Worldwide, a digital marketing agency, the very nature of social networking sites make them unsuitable for traditional advertising:

“While the largest Web 1.0 sites (Yahoo, CNET, New York Times, etc.) were content sites that aggregated massive audiences and supported large numbers of pageviews, the largest Web 2.0 sites are social networking sites. The nature of these two types of sites is very different. Users go to Web 1.0 sites and portals to read content or do e-mail by themselves. Users go to Web 2.0 social networks to interact with others and are usually so immersed in socializing they are even less likely to see, let alone act upon, ads, despite the large number of pageviews generated per session. This may partially explain the dramatically lower click rates for ads on social networking sites. ”

Ted McConnell, general manager-interactive marketing and innovation at Procter & Gamble Co., postulates that social networks are not only ineffective channels for advertising, they are wholly inappropriate places to market in which attempts to do so alienate consumers. McConnell poses the question to advertisers: “What in heaven’s name made you think you could monetize the real estate in which somebody is breaking up with their girlfriend?” He makes the point that “social media” is not really “media” at all. Media is a one-way communication that contains blank spaces that constitute inventory for advertising. Social networking is a dialog between consumers, in which advertising becomes disruptive. Consumers were not intending to create media, they were intending to talk to someone.