Television advertising, at more than $65 billion annually, may seem impervious to erosion by interactive digital forces, but it’s just a matter of time before widespread consumer adoption translates into sizable shifts in marketer spending. That time is near at hand, according to the experts.
The major catalysts for this change are Google and Facebook. as they tap into connected consumers’ mobile social, search and e-commerce habits in ways the static television ecosystem cannot counter. To be sure, Google -- like Apple -- is moving aggressively to tap into a gradually emerging interactive television option.
For now, industry analysts are lowering their forecasts for overall domestic advertising growth this year and next due to a lagging economy, despite the 2012 national elections. CitiGroup analyst Jason Bazinet lowered his ex-political spending advertising growth forecast to 2.8% in 2011 (from 3.4%) and for a mere 1.7% in 2012 (from 3.9%), expecting only digital and cable to gain share.
Television, radio and out-of-home are considered cyclical, no-growth media that will lose share if cyclical demand falls short.
Barclays Capital analyst Anthony DiClemente also lowered his domestic advertising forecast in response to weak macroeconomic data (such as GDP and personal consumption), to only 1.4% growth in 2011 (from 2.9%) and to 4% growth in 2012 from (5.2%) growth -- not including an anticipated 2.5% boost from political-year ad spending.
Although television and online could prove the most resilient -- and they are on diverse trajectories, DiClemente said. Internet advertising has nowhere to go but up, commanding more than 36% of consumer media time and only 15% of overall advertiser spending. Online advertising is now 16% of global ad spending and roughly at least 20% in more developed markets (such as the United Kingdom, where it is 29%).
While television ad spending remains dominant for now, its structural trends and metrics are a zero-sum game. Broadcast TV ratings especially remain flat at best. Soft demand for fewer ad units, coupled with digital revenues from Netflix and Amazon, are impacting core declines, DiClemente said.
But the unbundling of the TV ecosystem by Netflix, Hulu and TV Everywhere threatens as much as half of its total $150 billion economics, anchored by advertising, according to Needham analyst Laura Martin. Nike, IBM, Levi’s and Energizer are among the major brands that have already shifted considerable ad dollars away from TV to other marketing silos.
The trend will gain momentum as consumers continue to embrace over-the-top streaming video options (negating the need for the home TV); advertisers improve campaign efficiency by using multiple Web and mobile platforms; specific data demonstrates the unique relevance of digital media to individual users; and the ameliorating cost of accessing video across devices and platforms.
While the big four broadcast networks still command pricing power, a growing number of advertisers are shifting out of higher-priced network TV ad inventory and into less expensive cable TV ad inventory, which allows them to maintain flat annual budgets even in the face of rising CPMs, Martin points out.
Consumers face their own economic schisms. Watching TV costs an average $70 a month in cable fees compared to about $40 a month to view video over a high-speed modem. As the prices converge in the coming years, broadband wins, Martin said. Television advertising’s best days are behind it.
Skeptics need only look at how the already-dominant Google and Facebook ecosystems are enjoying double-digit ad growth and improved ROI, per Bernstein analyst Carlos Kirjner. Both are positioned to seize the new revenue pools, formats and advertisers. The small business opportunity alone could be at least $10 billion annually. "Consider these data points from a new Internet report from Kirjner:
*Google’s share of search advertising is 80% on a global basis, but significantly higher in some countries (such as in Western Europe and the UK, where it is as high as 95%). Recent 30%-plus growth in search advertising does not reflect emerging forces, such as social, local or mobile.
*Google will capture an increasingly large portion of untapped revenue pools as new ad formats are introduced, ad targeting improved (using location data), new pricing and advertising models emerge (e-coupons and e-wallets), new delivery platforms, such as mobile smartphones and tablets are adopted, and better sales and support channels are developed.
*Google’s display-related revenues will grow to $16 billion by 2016, driven by its end-to-end technology and services platform, where advertisers and publishers pay a commission to trade and deliver ads. The global display ad market will more than double to $60 billion by 2016.
*Facebook will compete with Google for advertisers’ display budgets and may have been behind the slowdown in Google’s display advertising growth last quarter, although Facebook’s negative impact on Google ‘s 2015 paid-search revenues will likely be less than $2.4 billion.
*Facebook’s ad revenues will grow by $12 billion between 2010 and 2015 to $13.5 billion. At least 67% of that $12 billion, or $8 billion, cannibalizes online advertising spending in other media. Many advertisers will report social advertising as a new budget line in 2012.
As Google and Facebook grow their share of domestic display advertising by double digits, other online players losing share are aligning with the enemy. Just this week, Yahoo, Microsoft and AOL announced partnerships with Google and Facebook allowing each of the companies to sell each other’s unsold premium advertising inventory. The defensive move increases appeal and reach to brand marketers while conceding the runaway lead enjoyed by Google and Facebook.
If you believe that Google and Facebook -- as well as Apple and Amazon -- are at the center of the digital interactive universe with their informational, social, entertainment and transactional dominance, then the erosion of television revenues is inevitable.
The only questions: how quickly does it occur and how will TV-centric players, such as the broadcast and cable networks, respond?