Future * Convergence * ThinkPLANK

The Future Of Broadcast Revenues

The last time, we spoke about the impact of convergence on telescoping the AIDA cycle. But what about its impact on media revenues? 

Historically, brands, media and consumers have been comfortable with a 3-way contract that has survived for decades, or rather, centuries. Consumers understand the need for advertising and accept the presence of interruptive advertising in the media they consume, and occasionally even like the advertising. Media depends on advertising to fund the business model as consumers would never be able to cover the full cost of media creation and delivery. Brands have always found it a highly cost effective way to reach high volumes of consumers – to go through media which does the job of aggregating eyeballs, and often segmenting them.

Let’s take a 2-minute walk through 2000 years of history.

The earliest advertising was by way of posters in gladiatorial Rome, announcing contests and events. There was no “media” so the message had to reach consumers directly, presumably appearing where the maximum number of people were likely to see it.

The advent of printed newspapers around the 17^th century quickly led to the insertion of simple textual ads, and the next 300 years have seen the complete intertwining of advertising and all forms of media. To understand the implication of this, you only have to look at the size and shape of the advertising industry, which is about $650 billion according to Plunkett Research

The overwhelming majority of this number is made of fees garnered by commissions on media placements of advertising. For WPP, almost half of the annual income comes from “advertising and media investment management”.

Back to today – what this effectively means is that advertising agencies through much of the last 50 years have been the sales and distribution agents for media businesses. Although over the last 10 years, major brands and big media businesses have sought to disintermediate this model by talking to each other.

With the advent of convergence, there are some significant challenges facing both the advertising agencies and media businesses. In this post, let’s focus on media revenues.

You only have to look at the plight of publishing to see how this plays out. Classified revenues – a major source of revenues for newspapers has gone completely out of the door, and to dedicated classified sites such as Craigs List or even to commerce models such as ebay. Even display advertising has been on the decline. And recently Group M and WPP suggested that print revenues might fall drastically in 2009, leading to many well known titles vanishing. With contraction estimates between 19% and 32%!

What does this mean for television though?  Is the future of television revenues any safer? Or any more defendable? The answer, whichever way you look at it, is clearly, no. First, there is the much higher accountability of emerging digital platforms – which allow brands to measure and monitor their spends with greater accuracy and predictability, minimizing wastage. Second, there is the overall growth of the online audience. Third, the clutter and fragmentation in traditional media means that traditional advertising has become less effective anyway. 

But it’s not simply a move from TV to online – it’s more fundamental a shift. This is a shift away from media based advertising. The 3-way contract we spoke about earlier, is no more. Brands can reach increasingly greater number of consumers without the help of traditional media. And consumers themselves are getting a taste of free content and access to product information – so their dependence on traditional advertising is falling as well. Note that the advertising dollars are not simply shifting to banners and prerolls on websites. They’re moving to completely different models such as Google. Or, as in the case of the TFL campaign in Bebo, they’re becoming a part of the story itself. Thereby questioning the very nature of interruptive advertising around which media businesses are built.

It doesn’t help that PVRs are encouraging ad-skipping.

Worse, there is also the emergence and spread of devices and alternative networks. The time is not far when a share of the advertising you will see on TV are being served from your set top box, rather than being included in the broadcast stream. Similarly you could see ads on your mobile phone. In future, you as a consumer will have a home network and a mobile network (which will connect your car systems, your mobile phones etc.) and access to these networks directly will come at a price for brands.

And to top it all, consumers will get a choice of viewing or consuming content which as ad funded or paying for it themselves, as in the case of Spotify. Of course this will mean that premium and most attractive consumers will escape the net and the value of the remaining eyeballs will drop.

Bottom line, the traditional and linear model of television is truly reaching the end of its life.

Does this mean that well known Television companies will all die? Of course not! They know all of this as well as anybody else. A lot of smart people are involved with television businesses. The model will die but the smarter companies will mould themselves around the new models. In short, I expect many of the same companies to be around for years, but their business models will have morphed significantly. And yes, the slower to adapt will suffer greatly.

So what changes and innovations can we expect to see in television and media in general over the next few years?

-          Agile strategies which allow traditional and slow moving businesses to quickly try new ideas, align resources, experiment and learn quickly and scale efficiently into the successful ones. The New York Daily News has recently launched a small business social network. Note, it’s the New York Daily News and not the NY Times.

-          Acquisitions will form a big part of this strategy because many of these new ideas will not come from inside the business. But the ability to spot winners early, rather than pay gazillions for proven models will be key

-          Success will come from innovation and “judo” strategies and not from strength and financial muscle.

-          A tighter operational integration between the revenue and product teams within media businesses will be essential. The current model for most broadcasters involves an-arms length relationship between ad sales teams, who believe they are the key people since they bring in the money for the business, and creative teams, who believe they are key since they bring in the audience. With brands set to talk directly to consumers, these two groups of people will have to collaborate closely to create innovative new models in order to get brands to work with them again.

-          Broadcasters will have to modify their businesses from being channel centric to being asset centric. In the channel centric model, business revolves around units of channels. Profit and loss is typically ascribed to channels and decisions are made at a channel level. In the asset centric world, the unit will be media assets, and a portfolio of distribution options will need to be maintained. Importantly, the financial performance will need to be based on assets, and value and cost measured across distribution platforms.

Of course this is not comprehensive. You will see Omnimedia companies rather than “print” or “tv” or online ones. Product placement will certainly come in, as will content labelling. And many, many more innovations. But more on that later. For now, let’s just see who’s innovating and who is in danger of becoming “the weakest link”

The Future Of Advertising - Telescoping AIDA

Revisiting the age-old discussion about the future of advertising in a converged and Google dominated world, it was interesting to look at the impact of the growing mainstream adoption of convergent technologies and the expanding might of Google. Of course, this being advertising, everybody has a view, and so do I.

A key axis of advertising is the long-term v short-term continuum. Advertising plays a role in the immediate term getting you to actually buy stuff – at the point of sale, through coupons and offers, or at least initiate the buying process through “calls to action”.  At the other end Advertising seeks to create awareness, bring a brand and its values into your consciousness and create aspiration. Now, it can be argued that this is not about creating purchase but about creating aspiration. But can you really divorce advertising from purchase intention totally?

It’s a bit like the weird offside rule in football – arguing that a player standing 1 meter in front of the goalkeeper and obstructing his view is not interfering with the play. (apologies to non-football types). At best you can argue that advertising can seek to influence your decision in the short term or in the long term. Or that it can influence you directly or indirectly (by influencing people around you, for example).

In fact, I would argue, that the reason brands spend so much money on creating awareness and brand values “for the long term” is for two big reasons. First, because they historically have not been able to reach consumers effectively at the point of sale – because there isn’t an effective way of getting to consumers at that point. And second, because consumers typically go into a purchase with a short list of brands and products and it’s important to be in that short list. The first reason has changed, the second hasn’t.

So what’s the influence of Digital Convergence on this, then? My view on this is that we are going to see a telescoping of the AIDA cycle – the classic Awareness, Interest, Decision or Desire, Action stages of how we buy products. Thanks to convergence we will move much quicker from awareness to action – and there is no better example of this than using the Shazam on a smart phone. You can hear a song that you’ve never had before, like it, and use Shazam to find out what it is. (If you didn’t know, you just hold up your phone so it can “hear” the song, and it samples and submits it to a central service, which then performs some complex algorithms to tell you what the song is. This takes about a minute. You can then buy the song from your iTunes account which takes another minute. A final minute for your song to download – and you can go from never having heard the song to owning it in 3 minutes.

Of course not all products are not downloadable to a phone. But in this case, you can argue that with the spread of smartphones (and smartphone owners having higher incomes on average) will mean that music advertising will move from simply telling you about an album (on TV, print, posters etc.) to actually getting you to hear the song. As a marketer of a large record company would you not look to spend more money getting people to hear a song in as many places as possible – malls, movie theatres, in offices, on radio etc. and less on “traditional media based advertising”?

What of other products? Toothpastes, cars, home furnishings, consumer electronics? Well all of those will make a move on the long term – short term axis, they will spend a little bit less on traditional “brand building media” and a little more on “action oriented advertising”.  That action can be as simple as encouraging people to look on a website, or seek more information or order a free catalogue.

 

Here are some specific reasons why this will happen:

• Emergence of smartphones – truly converged devices which do voice, data and video and are “always on”, location-aware and personal. This makes everywhere a point of sales, as with permission, you can be reached with context sensitive offers and calls to actions you can respond to.

• The power of Television advertising is waning because of ad-skipping and time shifting behaviour. Also because emerging platforms are showing up traditional media for the paucity of effective metrics.

• Worth noting that the shift isn’t simply to “online advertising” – the shift is really from “interruptive advertising” to “search”. In a nutshell, rather than getting people to notice you while they’re reading or watching something else that you hope to distract them from, you want to pop up at a time when they’re actually looking for something your brand has a relevance to. It’s still not clear that they’re looking for products, but at least they’re looking for similar information.

• Universal connectivity and growth of broadband – with ever increasing broadband and connectivity everywhere, people are accessing data services everywhere and the incidence of dual-screen experiences at home is on the up as well. Combined with media fragmentation – it’s ever harder to attract and retain attention. The “attention economy” is a term that’s been used a lot of late.

The economic downturn that coincides with this at present provides conflicting directions. On the one hand, the tendency to stick with the tried and tested is high. On the other hand, the “long term” has become ever more elusive – who knows what will happen in 10 years or even 5? Ask companies like GM – if they had created less aspiration and more short term sales through their advertising – would that have served them better?

Coming up: the Impact on Media Businesses