Commentary
Maybe TV Networks Are Smarter Than We Think
- by Maarten Albarda , Featured Contributor, January 12, 2015
The good news is that marketing and advertising spend continues to rise. The bad news is that if your job is in any form of printed media, you’re not selling a whole lot, and you will sell even less by the end of the year.
In fact, media agency Zenith Optimedia predicts that between 2014 and 2017, newspapers will go from a 15% share to a 12% share of global ad spend, and magazines from 7.3% to 5.9%. Can you say “dodo bird”?
The demise of print media saddens me. I actually love reading a newspaper, and I do -- every time I’m offered one on a plane or in a hotel room. Or when I spend time at my parents' home or at my father-in-law's. But buying one myself, or subscribing to one: nope. Not even a digital one.
In fact, last year I canceled my last two remaining printed magazine subscriptions, despite the fact that they are now dirt-cheap -- offers of 90% off are not uncommon -- and come with digital access as well.
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According to Zenith Optimedia, television’s share of global ad spend also continues to decline, albeit at a much slower rate. Zenith predicts that the 2014 share of 39.6% will decline to 37.4% by 2017.
In some markets, TV ad cost is still relatively low (like in India, Turkey and some other up-and-coming economies). So the TV number is perhaps a little rosy because of the influence of these markets. In the markets with high media saturation (like the U.S. and most of Western Europe), the decline of the share of TV advertising is far more pronounced.
I think that all these small changes (declining ad share; the number of people cutting the cord; U.S. prime time not selling out anymore, just as in some other developed markets; digital share of advertising larger than TV) are all indications of the true seismic shift of TV advertising.
We know that digital isn’t the savior for either print or TV. Yes, digital ad spend continues its meteoric rise over the next few years (from a share of 23.8% in 2014 to 31% by 2017). But the income from digital simply does not make up for the loss of traditional ad dollars for traditional media companies.
Perhaps the real truth is that some TV networks have already realized that advertising is cumbersome, labor-intensive and in perpetual decline. Plus viewers hate it. So for as long as they can, networks simply keep jacking up the prices, because there are still plenty of advertisers buying.
But the TV networks’ real interest is in how they can ultimately replace those ad dollars with income from you and me directly. TV networks seem to focus a lot more on new forms of (paid) distribution and other ways to monetize content. At CES, CBS CEO Leslie Moonves said that CBS Television is 50% advertising-based. Which means he could also have said that 50% of his business is not dependent on advertising revenues. And I think he’s decided that’s the 50% that is going to grow. Ad dollars are nice, but they aren’t the future for TV.
Two comments.
"50% of his business is not dependent on advertising revenues." - Growth in retransmission fees are subscriber based but not the kind that is tied to thriving audience growth but rather to flat/declining payTV bundles.
"But the income from digital simply does not make up for the loss of traditional ad dollars for traditional media companies." - you cannot apply linear math here. Advertisers are realizing that buying an audience of 5M households in DMA 1 is one tenth cost with digital than broadcast TV, hence the math will not be linear.
TV broadacst networks have been smart up till now protecting the legacy model but...
The rise in digital ad revenues is, as yet, having only some impact on network TV ad dollars. Other factors that loom far larger are the fact that cable now attracts well over half of the average viewer's TV time, so naturally, it is pulling away dollars from the broadcast TV networks---and, by dollars, I mean branding dollars, not direct response/promotional dollars, which are fueling most of digital's growth. The TV networks are also involved in profit sharing deals with program producers, whose shows earn lucrative incomes after their network runs in syndication as well as product placement deals and "digital sponsorships". As for getting most of their future revenues from consumers directly via special programming designed for that purpose and distributed directly, that's certainly something that the networks should be taking a look at, but as far as this being a replacement for their ad revenue streams, that's a long, long way off. The economics just aren't there.
I'm unsure of the case in the US, but in Australia 'digital' includes 'search' and 'classifieds' (e.g. real estate and car sales). Traditionally, Yellow Pages and classified advertising have been excluded from our reporting of advertising volume and channel shares (largely because they didn't go via an agency). It would be interesting to rework the historical data to see what TV's share would have historically been if listings and classifieds had always been included.
John, the basic problem with all of the numbers that are being quoted is the distinction between branding and other forms of "advertising". While there are no hard and fast facts on the number of ads that are branding vs. non-branding, I would guess that barely 20% of digital ad dollars come from such budgets and that most of digital's branding money is being siphoned off from print media----mainly magazines----not TV. TV remains, without any doubt, the dominant branding medium and this is not likely to change in the near future.
The perfect storm of thinking for disruption of an incumbent legacy model: "being a replacement for their ad revenue streams, that's a long, long way off. The economics just aren't there." But the audience and technology is already there.....
If the audience was really "there", you can rest assured that the TV networks, cable channels, etc. would be adjusting and adapting real fast to find ways to recapture their allegiance. And advertisers would be screaming at their agencies to find ways to reach the "audience" that is suddenly eluding them. The reality is that there is movement in the direction of alternate ways to watch TV----especially among the 18-34s -----and it is slowly growing. However, even the 18-34s do the lion's share of their TV viewing the traditional way, for a variety of reasons---in-home convenience, much larger screens on "regular" TV sets, lack of enough interesting content on alternative channels, etc. I am confident that, being astute business people, the TV Networks and cable channels will follow their audiences anywhere they go----but only when enough of them move to other venues and do so with a high degree of frequency.