Last week, Paid Content touched on a number of articles looking at the potential impact of a mortgage credit fallout on online advertising. For the record, I’m not too sure long term this is really that enormous of a problem for one reason:
In 2001, the Nasdaq crashed and investors bailed, realizing that the net or intrinsic value of many of the companies in question was drastically lower than they previously believed. A series of events, including 9/11, led to a recession.
Today, sure, a lot of homes and dwellings have lost value, many people won’t be able to afford mortgages etc., banks have pretty large exposures, but last time I checked, in economics class, we made a big stinking deal about real assets: an asset that is intrinsically valuable because of its utility, such as real estate or physical equipment.
A nominal asset, which is what a stock is, holds its value largely from the confidence it instills. Not sure Pets.com raised much confidence in anyone come 2002… but a condo in Miami? Yeah, that’s valuable. Maybe not as valuable as the young broker trying to sell it you suggested, but valuable nonetheless.
In laymen’s terms, while there were no buyers for nominal assets that were wildly expensive, there will always be demand for real assets, especially ones you can live in, rent etc.
Anyway, now that this is out of the way, let’s answer the question:
If tomorrow you had to cut 10, 25, 50% of your ad budget, would you cut print, radio, tv, or web?
This ain’t 2000 when the bubble burst and the Nasdaq crashed, or 2001 when 9/11 happened; then, few F500 companies spent heavily or were experienced with web advertising, then it was a matter of “we don’t have the resources to experiment with the Web.” At the time, there were also less people online. It just did not offer you as much reach x frequency as the other medium.
In technical terms, online advertising’s beta (the ratio compared to the average) was much higher so in a downturn it suffered a deeper decline.
Today, the secret’s out of the bag: print advertising is pretty ineffective, TV is expensive and random, no one listens to radio etc., and online is where it’s at. If an externality - say the sub-prime credit situation turns sour - online advertising might be affected, but TV and other more expensive (and inefficient, effective etc.) formats will be hit harder, faster, and unlike the Web, they simply will not recover.
In other words, once advertising budgets recover, a much larger portion will be allocated to the Web, but if something does happen, the Web will be the least affected thanks to the 3 Ts:
- tracked
- targeted
- timely.
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WatchMojo NewsletterFake Steve Jobs chimes in on the Apple iTunes vs. NBC brouhaha last week with some insight into why TV is doomed.
Reading it, you get a sense that the real Steve Jobs feels somewhat similar:
[Y]ou run a television network. Now let’s think about this. What the f*ck is a television network? It’s a system of affiliates designed to help carry a broadcast signal across the wide continent of America on airwaves and into television sets owned by millions of people. In essence, you are in the distribution business. In the second half of the twentieth century you had the great good fortune to be granted a kind of limited monopoly over the distribution of a very valuable commodity. There were only so many airwaves, hence only so many networks. There were way more advertisers than there were channels to carry their advertising. So you sat there with your choke-hold on the garden hose, controlling the flow of programming and getting fatter and fatter and fatter.
It was a wonderful system. For you anyway. Except that it had one huge flaw. Which is that for you guys, the middlemen, to get rich, you needed to f*ck over the people at both ends of the value chain — the consumers who had no choice in what they watched and spent years being fed mountains of dog shit, and the producers of content who were at your mercy and had to negotiate with this tiny number of networks who operated, let’s be honest here, as a kind of cartel.
It’s over now. Your business model was a historical anomaly built on scarcity of a valuable resource and the willingness of a small group of network operators to not slit each other’s throats and to collaborate in exploiting the content producers.
All right, that is one damning accusation. Fake Jobs suggests that Apple has become the digital distribution choice du jour, and that over time, traditional content producers will favor turning to Apple, in lieu of ABC, NBC, CBS and FOX (basically) for distribution. In his words:
You know what the new network is? It’s me. I don’t think people have quite figured this out yet, but just as Pixar was once a medical imaging company until I decided to make it into something completely different — ie, the most important entertainment company of the 21st century — so Apple is not really a computer company anymore, or even a consumer electronics company. We’re a network. We take content and distribute it out to millions of people, who play it on handhelds (sold by me) and computer screens (ditto) and yes, maybe, sometimes, on actual TV sets. At one end of the value chain, the consumer end, people have already voted. They like my system better than yours.
At the other end it’s trickier. We don’t deal directly with the content producers. Instead, we have to deal with these network gatekeepers. But why? What value are they adding? As far as I can see the only thing the networks add is an extra step and a big scoop off the margin.
The producers of content don’t like the TV network system but can’t quite see the way across the divide into my digital world. Some musical artists, like Prince, are figuring it out, but they’re isolated examples.
I’m not saying I agree or disagree with the entire argument he’s making, but the boldfaced part is something I’ve actually encouraged technology companies to do:
- I wondered why MSFT did not get into the content business again (incidentally, in the post announcing GE/NBC’s $250M New Media Fund, something, Fool.com agreed a couple of months after our suggestion.
- I demonstrated why and how the stock market would immediately reward both MSFT and Apple if they bought the record labels.
- I dubbed digital media the new software.
Anyway, let’s continue, Fake Steve adds:
Trust me, however, when I tell you that TV and movie people will figure it out too. These are not stupid people. And they are not un-greedy. Which means their desire for more money and more control and more freedom will lead them to apply their energy into figuring out how to get out of the plantation the TV networks have created for them. They will break free. Mark my words.
The talented ones will go first. Bad news for you, TV networks. You’ll be stuck with the shittiest creators, the timid ones who don’t dare cross the chasm. Your shows will get worse and worse. Your sitcoms will grow lamer, if that’s possible. Your reality shows will grow stupider.
Interestingly, a lot of the online video producers such as Next New Networks, My Damn Channel etc. draw from the smartest folks in TV: Next New Network, for example, was founded by Herb Scannell, former Vice Chairman of Viacom.
Judging by the growing heap of reality TV slop on the tube these days, you wonder if Fake Steve is right about the impending, further decline of TV. To drive his point home, he focuses on news:
What’s left? You’ve already gutted your news divisions, which was a truly moronic move since that was the only place where you really could continue to add value. Your news shows will continue to devolve into not-really-news Fox-style argument shows where retarded bullies like Bill O’Reilly come on the air and shout at people because some gangsta rapper has a deal with Pepsi, or argue with straw men about whether we should put more troops into Iraq. Where once we had Edward R. Murrow and Walter Cronkite, we’ll instead have John Gibson and Sean Hannity ranting about patriotism and calling people names. All heat, no light. Well done, TV networks. When you finally die, the world will celebrate. Because you’ll deserve it. Totally.
We know that history repeats itself, right? While I don’t think that offline, traditional media is about to join dinosaurs, 8-tracks and virgin first-time brides any time soon, I certainly have come to the conclusion that what happened to print media is actually a diluted prelude to what TV media can expect?
I wrote Will TV companies face same fate at Print Companies? some time ago, since then, there is little room in my mind that TV’s technological and economic challenges will rape the industry at a faster rate than what was in store for print. One major reason for this, basically, was that the dot com bubble and 9/11 hit all of advertising dollars, but since online advertising was far more nascent and traditional marketers had not experimented at all, those externalities (Nasdaq crash, 9/11) affected online advertising more harshly than it did all of advertising. In technical terms, online advertising’s beta (the ratio compared to the average) was much higher so in a downturn it suffered a deeper decline.
Today, the secret’s out of the bag: print advertising is pretty ineffective, TV is expensive and random, no one listens to radio etc., and online is where it’s at. If an externality, say the sub-prime credit situation turns sour, online advertising might be affected, but TV and other more expensive (and inefficient, effective etc.) formats will be hit harder, faster, and unlike the Web, they simply will not recover.
[Side note, Paid Content has run a couple of entries on that very question, yet no one has ever suggested that online would actually win, dollar for dollar, as it would accelerate the flow of ad dollars to the most effective medium, see more of our thoughts in this post].
For the record, I don’t think the sub-prime credit situation will have a very material effect (to see why, read this post), but even if all is well in general, what can TV networks expect?
Well, print ad sales just hit a 10-year low. That’s not good. The simple truth is that online is siphoning away dollars so that even if some media companies boost their digital fortunes, these are largely coming at the expense of offline. Indeed, Digital Revenues are Never Incremental for Old Media.
Sure, when Google’s VP of [what does he do, again?] Vint Cerf warns TV executives of impending doom, it’s easy to disregard what he says as scare tactics, Viacom, after all, is suing Google’s YouTube for $1B.
Which suggests, that eventually, instead of offering $500M to the gatekeepers ABC, NBC, CBS, FOX, etc. for the rights of the content, Google might, as Fake Steve suggests, actually go direct to the content creators.
Hitherto, Google has not shown enough madness to do that, but whereas TV networks come up with content somewhat randomly and have very little track record to show that they can launch hit shows at a high success rate, via YouTube’s data, Google, can in fact determine what will work vs. what won’t.
But, there’s more: Google is already, via YouTube, signing licensing agreements with content producers. In fact, I know because as Executive Producer of WatchMojo.com and President of Mojo Supreme, I’ve signed one with them.
I’ve written about how a lot of what Google does well (technically, a couple of things, only, but still…) is a result of luck and timing, but the fact remains, their position of strength allows them to leverage these lucky bounces quite well.
What is important to note is that Google is chasing the online video opportunity better than most of the TV companies are, and that is ridiculous, but you can’t blame the TV firms, because Web Video Represents $150B market cap in 2011, but not for TV companies.
Reading all of this, I’m not surprised if you ask: If You’re Old Media, What Would You Do?
I don’t know, but as much as I want NBC/News Corp.’ Hulu to do well, admittedly, I envision Hulu.com being one more distribution point we have… but, I know one thing you don’t do is yank your shows from one very popular destination point (iTunes.com). I do not think that the action will have a great impact on either Apple or NBC… but all that proves is that distribution is now a commodity and content is more important than ever.
Historically, yanking content from ABC, NBC, CBS or FOX was the death knell for a producer, today, it’s just one more outlet, nothing more, nothing less. That’s why if Hulu.com won’t want to work with WatchMojo.com, for example of course, it’s their loss, not mine, because WatchMojo.com already reaches well over 95% of video watchers online… In that sense, Fake Steve is right: distribution has changed, as I’ve written ages ago in the commodization of distribution and the scaleability of digital content. On this front, you have not seen anything yet…
Bottom line: TV won’t disappear, but pick up your most recent newspaper or magazine and you’ll see what’s in store for the folks in La-La-Land.
In Part 2, we’ll look at the micro environment… expect that this week.
Adblocking plug-ins have been around for some time, but as online advertising becomes a greater force in marketing expenditures, the mainstream press has began to cast a greater spotlight on the issues that surround it.
Last month, Danny Carlton, a Web site designer and author, blocked Firefox users altogether, arguing that it was the only way that he could ensure that those who might have downloaded the adblocking Firefox plug-in would not access his site.
My thoughts on the matter at large were that we users had become more and more demanding: we want more and better content, but we don’t want to pay for it, and, we now don’t even want ads around it. That’s a dangerous and unreasonable position… because online advertising is just gathering steam and publishers - both traditional and new - are embracing this trend and opportunity, which means consumers have more access to great content than ever.
Mind you, as a web publisher, I would be naturally biased in the debate. The flip side is that we produce videos and hitherto have not served a single pre-roll before our content.
But, this post will show how the plugin creates a downward spiral that brings web users, marketers and publishers to a race towards a lowest common denominator, something we presume the developer was not aiming for.
Today, the NYTimes runs with the story:
In the larger scheme of things, Adblock Plus — while still a niche product for a niche browser — is potentially a huge development in the online world, and not because it simplifies Web sites cluttered with advertisements.
The larger importance of Adblock is its potential for extreme menace to the online-advertising business model. After an installation that takes but a minute or two, Adblock usually makes all commercial communication disappear. No flashing whack-a-mole banners. No Google ads based on the search terms you have entered.
From that perspective, the program is an unwelcome arrival after years of worry that there might never be an online advertising business model to support the expense of creating entertainment programming or journalism, or sophisticated search engines, for that matter.
Nick Carr adds some thought here, too, focusing on the reaction that Google has had to AdBlock Plus (none) to that of MSFT. What did MSFT say?
In a statement, Microsoft spoke of its success in permitting third-party developers to “add value to the browser experience through the creation of add-ons.” The statement continues: “The range of add-ons available does include ad blocking software. It would not be appropriate for Microsoft to comment on the merits or demerits of a specific add-on, or group of add-ons. Provided they have not been designed with malicious intent and do not compromise a user’s privacy or security, Microsoft is pleased to see new add-ons that add to the range of options that users have for customizing their browsing experience.”
To which Carr adds:
Microsoft’s laissez-faire attitude may seem surprising, but it reflects a cold strategic calculation. Microsoft knows that ad blockers pose a far greater threat to Google than to itself. As they say: The enemy of my enemy is my friend.
Indeed.
What does this all mean?
As a voracious consumer (both reader and viewer) of free online content, the appearance of such a plug-in is a net-net negative in that if it does grow into something that is widespread, then it will reduce the propensity for more free content. Oddly enough, the developer does not seem to have an ideological aversion to advertising:
Wladimir Palant, developer of the open-source Adblock Plus project, wrote in an e-mail message that he had not heard anything from large companies like Google, because, he suspects, the program “isn’t popular enough yet. Attacking it would be a waste of time for these companies.” He estimated there were 2.5 million users of Adblock Plus around the world.
“The numbers are rising steadily,” he wrote, adding that his figures do not “show exponential growth any more (luckily, the server has limited traffic), but there are still 300,000 to 400,000 new users each month.”
Mr. Palant, a 27-year-old programmer in Cologne, Germany, is not an ideological opponent of online advertising. For example, he counts himself a fan of the ads that show up with a Google search, saying they are useful and unobtrusive. That does not mean Adblock will not block Google’s ads, however. It means Mr. Palant has to customize his own version of the program to allow them in.
Mind you, as a web entrepreneur, I’d be lying if I said this was welcome, especially when I read how Mr. Palant looks at the chicken vs. egg debate on what is obtrusive advertising:
“There is only one reliable way to make sure your ads aren’t blocked — make sure the users don’t want to block them,” he wrote. “Don’t forget about the users. Use ads in a way that doesn’t degrade their experience.”
The problem is, if users block ads, they will block them all, so a good ad becomes akin to a tree that falls in a forest. And, let’s face it, given the choice, 99% of consumers would prefer seeing no ads at all…
CONCLUSION
The objective, as a member of the online content/community/commerce ecosystem, is to get more quality advertisers focusing on using the Web as an effective and efficient advertising platform so to remove the more dubious advertisers and advertising creative. Good companies develop good creative, which in turn are less annoying or seedy. But, by creating and spreading a tool that blocks all ads, then less, and not more advertisers will migrate online. And if that happens, Mr. Palant will find himself programming out of an online future. Of course, we’re not blaming him or anything, because if he does not do it, someone else will… and by developing this, he is in fact setting himself up to develop antidotes to adblocking software.
He even offers one tip:
One response by Web sites would be for them “to serve ads from their own servers,” Mr. Palant wrote in an e-mail message. “For them, this has the advantage that they will probably escape common filter rules, which are usually targeted at large advertising servers.”
This confirmed how I figured the software would work, which confirmed another way around it. Mind you, as a web video content producer, this was the first thing I thought of when I begin to read the articles on this, but video content + video advertising will be able to probably circumvent this kind of blocking pattern. I won’t get into the specifics of why that is, but judging from the how the software works and how video advertising is different from display, banner or text ads, definitely one result of this is a greater adoption of video advertising.
While I just gave Mr. Palant a challenge, it does reiterate my point: video advertising, when pushed to the extreme, is far more annoying than display/banner or text links, so the net-net result of such a plug-in is a downward spiral and race to the lowest common denominator and not an improvement of advertising creative that users would welcome.
Ultimately, adoption of any plug-in, software, application is the challenge, and something tells me Google, MSFT, Yahoo! and company will never bundle this or encourage this, and as such, it will hit a wall sooner or later, hopefully before it is, Mr. Palant will have spooked enough of the major web players to develop antidotes for his current incarnation.
PLAY
