Monday, May 22, 2006

Funding Media, Saving Advertising

The Shifting Landscape of Advertising – Or: How To Finance Media?

There are many, many changes sweeping through the world of media, content, and news delivery, but for a brief few minutes, let’s shine the light of our attentions on the business end – the end where money comes in from. Yes, lets take a close look at the advertising-content nexus, and why things may be dramatically different in the near future, for advertisers, content businesses and consumers.

Ever since the birth of newspapers and magazines, there has been an unquestioned link between content, readers and advertisers. Readers want the news and entertainment that the media provides. Advertisers need to reach the readers / consumers. Media needs money to make up the difference between what consumers can afford and what it costs to collect and distribute content. This is what has bound these three constituencies together some 300 years.

The first newspapers date back to the early 1600s and the first print ads may have appeared even before them, in printed books. Discreet classifieds were the norm through the 17th century. The advertising industry grew more mature with the evolution of agencies in the late 19th century.

Of course, a key propellant for the growth of print advertising was that consumer goods had no alternative way to reach their consuming audience apart from through the print media. The industrial revolution created mass production, but to make mass production viable, you needed mass consumption, which would drive the scale up and costs down. Enter mass commercial communication aka advertising.

On the other hand, Media has always needed the funds advertisers have provided to make the business model viable. It’s well known that the price consumers pay for newspapers would barely cover the cost of the paper and distribution, let alone the content, editorial, production costs etc.

This has occasionally led to a conflict between commercial interest and editorial freedom. Newspapers and magazines usually work with a fixed spatial ratio of content to ads. Reduction in advertising often causes shrinkage in magazine sizes. A commercial and iconoclastic view of media as a business has been that it delivers eyeballs to advertisers. A major Indian newspaper owner created shockwaves through his organization and through the editorial fraternity in the early 90s by declaring that editorial content is the stuff that fills up the spaces between ads.

Again, given that media is a watchdog for democracy often and comes up against the other major societal force – political will, the matter has been further clouded on occasion by the political bias that business itself gets from time to time. It has been postulated that Fox News shaped the outcome of the US elections, by declaring George Bush’s victory before the outcome was actually decided leading to some Gore voters not bothering to go vote. However this occasionally uncomfortable nexus between editorial power, commercial power and political power has withstood many a stern test and survived till now.

In all of this consumers have largely accepted that if they want content it must be interspersed with advertising and consumer behaviour has ranged from ad avoidance to actual interest in the occasional advertisement. The marketing manager of today lives in this fuzzy world where he / she hopes that inserting an advertisement in a TV show or a print publication will get noticed by some people, some of whom will remember it and some of that subset will actually act on the advice of the advert.

But something big has changed in recent times , and is changing as we talk.

First, The Internet has provided a bypass for businesses to reach consumers without having to go through media. Post the hype and bust, one trend that has underscored the last 3 years is that newspapers are losing classified advertising to online businesses which are focused vehicles connecting buyers and sellers. For whom it has been said, producing content would be a “ridiculous distraction”.

Digital media has also become a byword for consumers in more and more regions of the world. Digital television and online publishing have both become the mainstays of their formats. In the UK, online advertising is set to outstrip print advertising, so the money is following the users away from print as well.

Further, the technologies available to consumers are also allowing them to avoid more and more advertising – especially on digital media. So the goal of actually reaching the consumer through mainstream advertising formats – i.e. slipped in between chunks of content – is becoming more and more elusive.

Bottom line, advertisers can’t reach their consumers through mainstream media and traditional formats, especially on digital media. Consumers are increasingly adopting more and more digital media formats. This leads to the big question for media content – who will fund content creation and distribution?

This is why this space will be a very interesting one to watch. There are a number of options and models which the market has already thrown up, and no doubt, there will be more to come. Among the models already out there are user generated content and more digital distribution (which over time will lower costs), paid for content (will only work for some consumers and some content), and opt-in advertising – where consumers agree to watch advertising in order to access free content.

The first of these, user generated content – is a subject of discussion all by itself, but if it works, it allows a news “aggregator”, to abdicate the tasks of both content creation, and editorial selection. Thus, largely removing the problem itself, by lowering the cost base of content creation.

The second, digital distribution, needs to be explored cautiously. Though it can lead to lower costs, technology expenditure can spiral if not monitored. You can also be sucked into a continuous cycle of technology upgradation and “running to stand still” in a race with competitors to be continuously cutting edge.

Paid for content clearly is a form of Nirvana – but it’s clear too, that this will work only for about 20% of the content which will capture 80% of the content revenues. In the UK premiership football is one of the key drivers which allows Sky to collect almost 5 billion pounds of revenue from subscriptions alone. And of course we’re all used to paying for movies. This goes back to content branding and value. Unknown serials, unknown musicians and even films with unknown directors and casts will need help to induce trial. This may be advertising funded, or samples, but clearly this is one area where sponsorships will go a long way. Of course the form of sponsorship may itself change from a traditional advertising to product placements, or more innovative formats, but that too, is a discussion by itself.

Finally, we have opt-in advertising, and this may be as radical as leaving content generation to the audience. If customers are actually going to decide if they want ads at all, why not allow them to choose the category of ads to watch? So that if people are looking for a car, they may be happier watching car ads instead of beer ads. Of course it leaves one with the question of when exactly people want to watch beer ads. But you can well imagine that the opportunity to talk with people who have already expressed an interest in the advertising category would be a higher value proposition to advertisers, and this will lead to higher revenues for media businesses for the same amount of advertising. For the advertiser, this would represent achieving a more focused ad spend while retaining the same budget.

All the underlying trends are in place for these scenarios – more connectivity, more on-demand content, shift of decision making power to the consumer and increased participation of users/ consumers in the media creation and delivery process, and even in its financing. What could be better?