Sunday, 8 March 2009

Advertising Supported Media

The strapline for this blog was originally "The Purpose Of All Media Is Deliverance To Advertisers." These words of wisdom were originally passed onto me by an old mentor. However, this was back in the late 90s just prior to the launch of digital television.

The media landscape has changed so much since then that I am not convinced that this phrase rings true anymore.

One of the reasons for this is that what we now classify as media is a lot broader than ten years ago. For example, a stock ticker plugin for Firefox is media in that it is a distributor and carrier of information. However, a number of these do not serve any commercial purpose. Cloud based services now reposition software as media. It is unlikely that decent enterprise packages will base their business model on advertising.

However, the main motivation for this post has been in what the perceived role of advertising is in the future of television and music industries.

Over the last few weeks the traditional advertising supported role of television has been brought into question due to the downturn in the advertising industry. Besides the economic climate, this is due to the proliferation of choice and segmentation of audiences. This started with the emergence of digital television but more recently has been affected by the growing proportion of advertising spend being used online. As I mentioned in a previous post, Google now generates more money than ITV.

It is only now that we are really starting to see the slashing of budgets for programming on commercial broadcasters. Notably, ITV and Channel 4 are really feeling the pinch. Last week Michael Grade announced the slashing of high budget productions and laid off around 600 members of staff.

In really simple terms, the smaller an audience is the less the programme will be able to generate from advertisers. As television has always been referred to as "the blunt instrument," it is nigh on impossible for advertisers to know who they have been reaching. The only way commercial television will be able to compete with the likes of Google is with mass adoption of internet protocol television, with Phorm-like technology for ultra customised targetting.

Another ramification which this has for the future of television is that production companies may well have to look for new sources of funding to produce and commision content.

However, on the flipside we have the music industry. The emergence of the free version of Spotify has resulted in the growing assumption that the future of the music industry could well rely on advertising supported music services. This is interesting for a couple of reasons. Firstly, that services like Spotify are increasingly making music being thought of as media. In turn, the collapse of one business model within the entertainment industry is being held up as a potential solution for another.

Whilst I believe that one way of monetising the consumption habits of music fans is to subject them to advertising, I am not convinced that this is sustainable. In a recession it is a great way to grow your customer base. However, somewhat paradoxically advertising is one of the first industries that is hit in a recession.

It is widely known that premium subscribers of internet services are a lot more profitable than free customers. It is fine to build your customer base first and monetise later. However, the importance of monetisation is imperative as the traditional IPO exit route is not one that is a viable option in the current climate for entrepneurial startups. Twitter and Facebook are perhaps the best and most often quoted examples of web businesses facing this dilemma.

The upshot of all of the above is that what we now classify as media offers a lot broader scope than the days of yore, and that the way forward is to rely less on advertising. This is likely to be economically viable but it is not yet clear how scaleable this will be.

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