There is a lot of talk these days about the challenges being faced by media companies with single revenue streams, like broadcast TV networks and local affiliates and radio stations. All have
seen very significant year-over-year and quarter-over-quarter drops in advertising revenue, their only true source of income. It's hard to find an interview of a high-profile broadcast media exec
these days that doesn't contain some envious statement about the dual revenue streams of their cable network brethren, most of whom receive substantial affiliate fees in addition to ad revenue.
Yes, it's easy to bemoan the whipsawing that broadcasters endure when their single revenue stream hits one of those terrifying, roller-coaster-like plunges in ad expenditures, like what we're
seeing in this current recession. However, I do not believe that all is lost, or that days are numbered for media companies with single revenue streams. Quite the opposite, in fact. I am a big
fan of ad-supported media companies. I just think they may need to change some of the ways they operate their businesses going forward. Here are some suggestions:
Recognize that
domestic media advertising is a mature business. Yes, it's troubling but true: Media advertising is a mature business and as a category is not likely to grow very much in the U.S. over the
next 15 years. It will continue to be a really big business for a long, long time; it's just not likely to grow a lot.Manage cost structures to harvest value. Like
businesses in other mature industries, the ad-supported media industry needs to structure its businesses to "harvest" value out of those areas that are not growing or in decline. It is all about
taking out costs. This isn't fun, but it is necessary.Leverage science. Technology can help companies do more with less, and do it more predictably. This is the
time for media companies to automate and optimize as much of their businesses as possible. It will not be possible to compete with Internet-driven low-cost producers of content, context, audience and
advertising (like Google, Facebook, Craigslist, et al) without taking this step.Focus. When you make all of your revenue from a single revenue stream -- advertising
-- make sure that each and every one of the company's activities and investments is measurable against the revenue it produces. No exceptions. Single-source dependence on a mature revenue
stream with declining margins requires nothing less. If it can't be tied to ad revenue today or in the measureable future, jettison it.
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Yes, it's nice to have two revenue streams, but many, many
media and marketing businesses will never achieve this goal. It doesn't mean that single-revenue companies can't survive. It just means that they need to be operated more efficiently. What do you
think?
I think they need another revenue stream. It's prudent business. As ALL advertising becomes more measurable (and as a result all audiences become more "niche-ified" and granular), there is no guarantee their business models will hold up to the scrutiny.
As we begin to realize Wanamaker's dream and figure out "exactly" which half of the advertising spend is wasted - some of these media companies will discover that their audience is largely in the wrong half.
They will have to transform (and find more valuable audiences) or die. A second, third or forth revenue stream will provide stability through the storm. Many have the cash to buy those streams today and supercharge them via their own promotional channels. It's a buyer's market - they should be doing just that.
Dave,
Thanks as usual for thoughtful commentary.
I disagree that single-stream media companies are dead. They are excellent at coming up with new channels that mega media companies can't--simply because of the inertia of large companies. However, those smaller media companies should absolutely be building themselves to be sold into larger companies once the network has been built and revenue model established to fit within the likely acquirer model.
Trouble is that right now the channels can be set up but there aren't enough advertisers to go around. I'm still surprised that more networks don't simply use the performance marketing/affiliate marketing space to test which advertisers are most relevant.
David Shor
Principal
Quillion, Inc.
www.quillion.com
Dave, Put your investor hat on, would you fund a company that came to you tomorrow with a business model with a single revenue stream and no interest in pursuing secondary or ancillary opportunities?
Even if you lumped everything they did under the one umbrella of advertising, to your point about leveraging science, networks should investigate multiple opportunities within the advertising realm, which I argue they don't currently do.