Get Used To Those Internet Ads
It's no secret that the current recession has hit media companies hard. It's not only consumer demand for their product that suffers -- advertisers are also cutting budgets. While this has affected some types of media more than others, advertising's contraction has been felt across the broad spectrum. But once the recession ends, where will advertisers go?
Of all the types of media, newspapers and magazines have probably been hurt the most. Their turmoil has not only been caused by the recession, but also by fewer subscribers who increasingly prefer to do their reading for free online. A prime example of the industry's troubles comes through Condé Nast. The New York Post today reports particularly bad times at the company:
Nast is reeling from what is expected to be a loss of 5,000 ad pages this year, translating into a revenue shortfall of between $275 million and $350 million -- and very likely pushing the publishing giant into the red.
After Condé Nast's ad-page tally last year fell 10.5 percent to 34,966 from the previous year, according to Media Industry Newsletter, the company behind mags like Vogue and Vanity Fair is expected to see the ad-page count fall more than 20 percent this year.
Through the numbers shown above, that 5,000 page ad loss would be a decrease of an additional 15% this year, after last year's 10.5% decrease. The firm has even hired an outside management-consulting firm McKinsey & Co. to help. (For an amusing imagining of McKinsey's thoughts check out The Atlantic's Jeffrey Goldberg's post from a few weeks ago.)
Things aren't much better in television. A recent Wall Street Journal article provides an example of TV's troubles through its report on Disney's earnings. They own several TV networks, including the popular sports channel ESPN. WSJ says:
At ESPN, a drop in ad sales, higher programming costs and the absence of money that was deferred into last year's third quarter combined to diminish revenue in the latest quarter. Currently, ad sales are about 10% lower than they were at the same time in 2008, Disney said.
So while TV might not be hurting quite as badly as print media, it's still feeling the pain.
A part of TV's troubles come through the digital video recording systems like TIVO. They're gaining in popularity, allowing viewers to fast-forward through commercials. While that's great for viewers, it's terrible for the TV shows and networks that rely on revenue from the advertisements that can now be fast forwarded through. From the example above, ESPN should feel this effect even less than most stations. Of all the types of TV you can record, sports is among the least desirable, since people like watching sports live. And yet, ESPN's advertising is still suffering.
DVR should continue to gain popularity in the near-term. A recent Supreme Court decision cleared the way for getting rid of the boxes altogether, allowing cable subscribers to store their recorded TV shows remotely.
The biggest threat to DVR in the long-term, however, is the internet. As new televisions continue to become more compatible with the internet, DVR will become less necessary, as people can simply enjoy the TV shows they missed online instead. TV station websites and others like Hulu have already begun streaming some shows.
An article from Multichannel News characterizes CBS's chief research officer David Pollack as having exactly that belief. The article says:
Poltrack presented data from a variety of sources and studies indicating that Web video streaming is hitting critical mass, that older viewers are increasingly plugged in and watching video online, and that young viewers are increasingly consuming TV programming through a combination of free over-the-air and broadband service. Overall, consumers overwhelmingly say they would choose to watch ads rather than pay for content.
He further posited that the DVR is poised to go the way of the VCR as near-term technology advancements will make it simpler for consumers to hook their computer directly to their TV screens, allowing online video streams to be played on the biggest tubes at home. DVR will essentially be replaced by computers.
So what does it all mean? The internet is the future of advertising. I have always found it odd that advertisers are willing to pay so much more for ad space in a magazine than they do online. I can flip a page just as quickly as I can scroll past a banner. And the internet has a huge advantage over print since you don't have to be a subscriber to see the advertisement -- anyone casually surfing might stumble upon it.
The same can be said for TV versus the internet. I can fast forward through TV shows with a DVR or VCR. But most streaming content I've watched has short video clips that you can't fast forward through. As viewing of online content continues to grow, so that online audiences come closer in number to TV audiences, I will be shocked if online advertising revenue does not also increase dramatically.
The challenge, of course, is preventing the proliferation of software designed to avoid that online advertising, like the DVR does for TV. That's a technological barrier that media websites must overcome. I don't think that task is necessarily impossible, but I worry that, for every smart programmer the media industry hires to prevent such software, there will be a smarter hacker than can write more code to undo those preventative measures.
Still, the idea that such niche software can become widespread enough that the media industry's advertising efforts can be mostly neutralized seems doubtful. The majority of Americans are not computer savvy enough to visit hacker websites to download and install software to block legitimate ads. If I'm wrong, and most people do find a way to systematically eliminate commercials from online content, then advertising in entertainment will cease to exist. The only alternative that media will have under that circumstance will be subscriber fees or some other mechanism forcing users to pay for content.
As David Pollack is said to have asserted above, consumers overwhelmingly prefer ads over paying for content. So we might be better off just letting those commercials run, unless we'd rather pay for all the media we consume. As much as I love my DVR, I still find myself pausing recordings to run to the bathroom or grab a snack. Such errands could continue to occur in the future just like they did in the past -- during commercials. But now they'll be online, instead of on TV.