It might seem counter-intuitive, but while this post is all about media and advertising, let’s start with technology and software.
There are now a lot of options for consumers in terms of free software. Google has been coming strong, and they’re not alone. This week, Microsoft announced a free, ad-supported of MSFT Works. Of course, giving away Works for free is just the beginning, some would argue, if it proves to make sense, then one day you can expect to see versions of MSFT Office available for free. Sure, corporations need 100% uptime and robust versions of the software and would pay for it regardless of the cost to avoid being targeted by ads, but it could be argued that many small businesses and consumers would opt for an ad-supported Office if it’s reliable and not ad-heavy.
Also this week, MSFT CEO Steve Ballmer said that his company was “hell-bent” on making more money from ads. As more and more consumers get online, are connected 24/7 and broadband continues to rise in adoption, it could be argued that online advertising will become far larger than we expect. But in 2006, online ads clocked in $16.9B in the US and $25B worldwide. In 2010, the global number is set to be in the vicinity of $60B, as high as $90B (I did see PriceWaterhouseCoopers peg the Asian ad market alone at $110B by 2010, but despite my attempts to get a clarification from them, I am not sure how reliable that figure is).
Point is: yes, online ads might be huge. As a web entrepreneur, I sure hope so. But, I fear we’re seeing some irrational management. It’s great for MSFT to get online, they’ve bought aQuantive for $6B, so they will have plenty of exposure to web advertising, but shifting sales of software to advertising seems unwise.
MSFT generates a large portion of its $51B per year from the sale of software, I touched on this in “Should MSFT spin off MSN.com/Live.com into Yahoo!” after seeing MSFT’s own Don Dodge comment on MSFT’s various revenue streams. Whether this Google-envy proves wise, time will tell.
But MSFT’s decision to put a relatively weak product (Works) instead of a lighter Office version is actually quite symbolic of the issues facing media, old media that is.
When a media company cuts outakes of the Sopranos and pimps it online, then calls it premium content, they are dreaming. That’s an ad. It’s not premium. A few years ago (a whole 2 years), iFilm would run movie trailers and call it premium, too. It was laughable. Viacom paid $49M for iFilm. Then, YouTube took its spot as where people went to see videos.
This week, News Corp. made it official: it bought the parent of Wall Street Journal and Barron’s, Dow Jones. A lot of people came out and said News Corp. Chairman Rupert Murdoch should make the WSJ.com free. To put this into context, I asked if Print should go free some time ago, but whether or not WSJ.com should be free - when it’s the most successful paid site on the Web is not an easy question.
Fred Wilson is right pretty often, but his math is off and some of the figures are wrong in his post, though his heart is in the right place. Mainly, he got blinded by the major trendline in this graph:
Yes, the NYT is larger than the WSJ, but guess what, they’re both trending downward. Why? Mainstream media just isn’t what it used to be. They’re slow to react. That statement could apply to business or editorial. Business we’ve seen that: print companies were slow to get online, and those who did, like the Chronicle, just killed their businesses faster.
Bottom line, the Web shrinks the media business by making it more effective for consumers and advertisers, but the result is a smaller advertising market.
Back to WSJ and News Corp.: the Globe and Mail (Canada’s answer to the WSJ, basically)’s own Mathew Ingram refers to a story in WSJ that mentions Murdoch has looked into making the Journal’s website free:
To make a portal work, News Corp. may have to convert WSJ.com to a free site. Mr. Murdoch said yesterday he hadn’t made up his mind about the wisdom of such a move. In June, Mr. Murdoch noted that a study he commissioned concluded that “you’d have 10 times as many visitors and let’s say five times as much advertising” with a free site. The increased ad dollars were offset by loss of subscription revenue, making the move a wash, he added.
Let’s repeat: by going free, yes, more people would get the Journal, but it would make less money. To an old media company like News Corp. that just paid a 67% premium for DJ, that’s not a realistic thing to do then. I respect Murdoch’s business savvy, I dispespect his pro-war stance, and yes, for the sake of disclosure, I don’t quite appreciate that he bankrolled my former partners’ jealous, petty, frivolous and ultimately unsuccessful vendetta against me… but it’s very odd how one Board’s reversal from “no” to “yes” made everyone suddenly come out post-deal announcement and love Murdoch.
Will Murdoch make DJ stronger? Probably. Without Murdoch, the NY Post might not exist today. Will he do everything he said before the deal? No. Example:
“What if, at the Journal, we spent $100 million a year hiring all the best business journalists in the world? Say 200 of them. And spent some money on establishing the brand but went global — a great, great newspaper with big, iconic names, outstanding writers, reporters, experts. And then you make it free, online only. No printing plants, no paper, no trucks.”
Yeah, guess what? $100M on 200 writers means $500,000 per writer. If that’s the case, I’ll sell Mojo Supreme tomorrow, cash out, then go sit on a beach and pump out business articles for Murdoch anyday. The point I’m making is that there’s a good chance Murdoch won’t make WSJ look all that much different, apart from leveraging it to help make FOX Business Channel a worthy competitor to CNBC and Bloomberg TV.
Will Murdoch invest in the Web, for sure, he must. But he won’t forget that he needs to protect and strengthen TV, because that is where News Corp. makes its money:
In fact, it will need all of the help it can get. Just yesterday, CBS’s stock was brought to reality because, as Forbes puts it: Is Anybody Watching TV?
The Tiffany network told Wall Street that its second-quarter profit tumbled, as top-line growth was stung by the absence of UPN, the timing of the semifinals of the NCAA Men’s Basketball Tournament and the impact of radio and television station divestitures.
Television revenues for the second quarter of 2007 decreased 4.0% to $2.2 billion, stung by the timing of the semifinals of the NCAA Men’s Basketball Tournament, which aired in the first quarter in 2007 versus the second quarter in 2006. UPN had also stopped broadcasting in September 2006.
Advertising revenues fell 11.0% from the same prior-year period. Radio revenues for the quarter, CBS said, also dropped 11.0% to $463.4 million, reflecting the impact of radio station divestments in ten markets, as well as continued weakness in the radio advertising market. Adjusted to compare revenue of stations owned in both quarters, revenue decreased 5%.
Yikes.
Chairman Sumner Redstone, still upset about losing MySpace to archnemesis Murdoch said in a separate announcement that the company is eyeing strategic acquisitions and selective investments for the future. More on this later.
I’m not sure. I don’t. It’s inconvenient and the quality of the content is not all that good. TV executives are, in my humble opinion, in one of two boats:
Boat 1 (The Titanic): believers who think that the Web obsession will pass, sticking to their guns, even as the fundamentals erode.
Boat 2 (The Mayflower): crossing the chasm and coming online, but a good portion come on with the same approach (largely) as they had for TV… mainly, a lot of these executives are tired of the TV environment and don’t get online thinking of consumers and viewers. These are smart, experienced people, but figuratively speaking, you can’t teach an old dog new tricks…
It’s not so much that old media doesn’t get it, they do. Problem is that investors are fickle and advertisers get it too. But steering a large ship out of the way of an oncoming iceberg is not an obvious thing to do.
You saw Redstone say something about eyeing strategic acquisitions and selective investments for the future, if the old media companies are smart, they would:
- do their best to leverage their offline assets to get a foothold online, but
- protect their offline revenues, because the Web is and will remain a smaller ad market, and
- buy up as many assets as they can for reasonable premiums, because small, young, lean companies will get a better portion of web revenues and only these will really be incremental; revenues off web assets of traditional offline assets are in fact cannibalistic.
Ultimately, with all due respect to people like John Dvorak, yes, we might be in good times again, but one thing is quite different, this generation really did not grow up on radio, TV and never cared much for print. They’re online, on their wireless devices and outdoors. Trying to serve up Madison Avenue’s messages to them via old media will simply old media become irrelevant, faster.
Now, whether or not Madison Avenue is as relevant as it was in the 20th Century, that, my friends, is a different post, for a different day.
But to connect the dots and get back to where we started. We opened this piece on media and advertising with technology and software: despite what many said about how the Web would make MSFT irrelevant, we see that its software is as relevant as ever in technology and leveraged it to get into the ad business overnight with the aQuantive deal.
In turn, we saw that Madison Avenue stalwart WPP get into software with the purchase of 24/7 Realmedia… indeed, the lines are blurring and that is a threat to some, but an opportunity to others.
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August 2nd, 2007 at 2:24 pm
The thing I love about this “new media” is that it can do everything that the “old media” can do, and it actually makes sense for it to do it all at once.
I bet when TV came along, Radio execs were saying “No way, people can LISTEN anywhere. They actually have to SIT DOWN to watch.” It was the likes of ABC and NBC who saw the need to have their fingers in both tills and are still around today because of it.
I’m banking on portals such as the WSJ going MULTI media just because there’s no reason why they shouldn’t. In fact, with what Murdoch is doing with MySpace and video programming, I’m sure that it’s in the works.
Speaking of which: why aren’t you podcasting?
August 2nd, 2007 at 5:15 pm
[…] Mainstream media just isn’t what it used to be. They’re slow to react. That statement could apply to business or editorial.–Ashkan at HipMojo […]