Media industry executives who once viewed the internet as a serious threat to their business, soon grew to love it once dot.coms started spending billions of dollars on advertising. But now the fear may be coming back.
Dot.com advertising - which reached its apogee when Pets.com appeared during the Super Bowl, the most expensive television event in America - is drying up, and traditional media companies are suffering.
The impact of a declining internet sector, combined with an expected economic slowdown, has dawned on media industry analysts as the days have drawn longer. Last week's wobbles on Wall Street were partly prompted by once cheerleading analysts warning of the coming slowdown in advertising spending.
Among the hardest hit by this autumnal crisis in confidence to date have been online companies themselves. Shares in Yahoo! and Doubleclick, which depend on their internet peers for a large percentage of their revenues, have been crushed in the past month. Yahoo lost more than 200 online advertisers during the past quarter as dot.coms either cut their spending or went bust.
Even the mighty America Online, which takes money from more than 24m subscribers before it even starts charging advertisers, has been hurt by the dot.com fallout. The stock market value of the world's largest internet service provider has fallen so sharply - halving since the beginning of the year - that shareholders in Time Warner, the media group being taken over by AOL, have now started to question the value of the deal.
But the downturn is also being felt by traditional media companies. The question is, how much will it hurt?
In a report issued last week, Merrill Lynch, once the most bullish of US investment banks, revised its 2001 estimate for growth in domestic advertising expenditure from 7% to between 5.5 and 6%.
The dot.com fallout was the main reason for the downgrade, although rising inflation and lower corporate profits across the board also played a large part.
Last year, when fledgling companies thought nothing of paying top dollar for the most expensive advertising slots in the world, traditional media companies such as television networks and newspapers earned an estimated $3.5bn-$4bn from dot.coms, according to Merrill Lynch. Anecdotal evidence of this spending came when webzines such as Wired grew fatter than telephone directories.
Until last week, Merrill Lynch expected this spending to increase to between $7bn-$8bn this year. Lauren Fine, the bank's media and publishing analyst, admits that these figures were based on the assumption that "dot.coms could do no wrong". Last week, some time after they started to go wrong in a big way, she chopped $2bn from her 2000 estimates and remains pessimistic about 2001.
Most industry analysts expect the pain to be felt most keenly by national radio stations and newspaper groups in the US as opposed to broadcast networks. Figures from the Radio Advertising Bureau of America suggest that month-by-month sales growth more than halved from 25% in May to 10% in August. In the fourth quarter, revenues are expected to increase by a less than staggering 0-5% before falling again next year.
Advertising revenues at national newspaper groups such as Gannett, which publishes USA Today, and the New York Times are also expected to slow significantly next year.
Some media executives were at pains to suggest that the glass was half full rather than half empty last week. Gerald Levin, the head of Time Warner, was contemptuous of the panic stalking the industry. He described talk of a dot.com shakeout as "a kind of nervous Nellie".
Rupert Murdoch took a different approach when speaking to shareholders of News Corporation. This latecomer to the dot.com party admitted that advertising sales for the Fox television network looked "a little uncertain" and explicitly blamed the downturn in dot.com spending.
In some ways, both men are right. Dot.com's share of television and radio advertising in America's biggest markets during 1999 - its peak - reached 13-15%. The 20 largest hi-tech companies in America - giants such as Microsoft and Dell - contribute about 5% of total national advertising expenditure.
Huge media companies like the proposed AOL Time Warner, with assets that stretch from the internet to print, cable and film, will still attract advertising from traditional sources such as food and drug companies.
The worry is that, without the competition from little-known brands trying to make a name for themselves and with the added pressures of higher prices, advertisers will no longer be willing to pay a fortune to advertise. Media industry executives could then become nervous Nellies indeed.
