Advertising's Seminal Moment: New Challenges, Old Problems

The launch of inventive new behavioral marketing platforms by Facebook and Google just as the writers' strike begins to cast a shadow on network television's value proposition to Madison Avenue will eventually prove to be a seminal event for all media advertising.

Whether a brilliantly timed assault or a coincidence, announcing the details of new advertising platforms and services at Google, Facebook and MySpace while a writers' strike is shutting down original prime-time production on the television networks provides a riveting contrast of the differences that will shape their economic futures.

The traditional and newer gatekeepers take completely different approaches to the way they pursue, price, place, define and mine advertising dollars. The broadcast television networks and local television stations face stagnating advertising growth; save for the cyclical political election ad spending that is slowly oozing onto the Internet. Advertising-related revenues on the Internet and other digital interactive platforms are growing unabated at double digits.



The Internet search and social networking kings are giving advertisers new options to connect with engaged target consumers, establish ongoing relationships, push cost-effective pitches and make certain transactions. They provide click-accountable direct consumer connections and immediate, personalized communications.

The TV networks will have to offer advertisers some form of makegoods for the ratings and demographic shortfalls in their handicapped program schedules and streaming video Web sites. Their best-guess connections to viewers are dependent upon the performance of high-priced, low-return content, the only sure financial offset to which is advertising sales. The collective jolts to the stability of television advertising have never been greater.

What a prolonged strike and absence of new scripted prime-time and daytime dramas and comedies--as well as late-night talk shows--may demonstrate is the willingness of viewers and advertisers to permanently move outside the realm of television networks to competing digital interactive advertising-supported outlets for entertainment and information. These options include professional and user-generated video on Web sites like YouTube, playing video games, locating vintage TV shows of choice of choice on non-sanctioned Web outlets, watching more pirated films online, Internet socializing, shopping and surfing. With 80% of all U.S. adults online, according to a new Harris Poll, the time and money historically spent by consumers and advertisers on television will be seriously challenged.

In the context of these confluent factors, bigger shifts in the flow of advertising dollars will come as a result of increasing destabilization of traditional static media such as television and print, and the increasing value proposition of interactive media such as the Internet. Even television's 2009 mandated digital conversion will not reconcile the fundamental technical differences with so-called new media. However, the certain makegoods that will be made to advertisers this season based on falling ratings exacerbated by the writers' strike bring insult to injury for Madison Avenue players struggling with metrics, return on investment, and new forms of creativity.

Without debating the important issues at the heart of the writers' work stoppage--and similar potential actions from directors' and actors' guilds whose pacts also are being renegotiated--the strike poses a greater-than-normal economic threat to the television networks in that it underscores the vulnerabilities and shortcomings of television's advertising-supported system at a time when new interactive media alternatives are on the rise.

The millions of dollars in advertising makegoods that could be at stake in a protracted strike will not only cripple television networks' thin profit margins, but permanently damage the business link between television companies and advertisers. On the film side, piracy continues to sap hundreds of millions of dollars in annual revenues, and the maturing of DVDs (which have extended the profit life of films) is beginning to taper off and decline.

In other words, the writers' strike is not helping an already tenuous media and entertainment situation.

The ultimate irony is that the studios, networks and other traditional media companies are arguing they can't assign a portion of the revenues from so-called new digital media because they don't know what it will be worth. Suffice it to say that the Internet, mobile phones and other digital interactive platforms will only appreciate in value and importance, and will continue to suction dollars from static old media. It's probably more worthwhile pondering just how fast and far old media revenues will fall off their historical highs.

As long as the media companies frame the writer's negotiation, as if the status quo was safe and the economic impact of digital interactivity is light years away, they risk losing even more of their core advertising revenues to alternative platforms in which they have only just begun to dabble.

Therein lies the tipping point of change in advertiser spending.

Eventually, the TV networks' series will be competing with unlikely content options that are personally more relevant to individual consumers such as location mapping and directions, electronic commerce, target marketing, video communications, and managing a series of entertainment and news clips all from a small-screen, portable digital handheld device. Media companies should be furiously studying constructive ways to compete with that instead of questioning whether they should be sharing new media revenues with their content creators. On the advertising front, television networks have only a dwindling mass audience to offer, which they cannot muster during a strike.

Google's meteoric growth into an advertising-supported search powerhouse using fundamental practices, metrics and pricing that are radically different from traditional media is a testament to just how fast consumer and advertiser sentiments can change. The new advertising game plans from Facebook and MySpace that feed on immediate, direct connections between engaged consumers and advertisers with mutual interests are attracting support from television's blue-chip advertisers including P&G, Ford, Toyota , Microsoft, Chase and Coca-Cola.

Their self-service advertising interface services are making it easier for small to medium businesses to participate in an online advertising market that siphons ad dollars away from local television stations. As the marketing game churns, the television networks are confronted not only with keeping pace with the change, but salvaging their existing ad revenue base.

Analysts are mulling the adverse impact that general and strike-related ratings shortfalls (even using the new C3 metrics), and advertising makegoods, will have on overall TV network revenues in the fourth quarter and first half of 2008. Although companies such as CBS--which derives 70% of its revenues from advertising--are especially vulnerable, no media company with television and film ties is safe from a negative financial backlash from a prolonged strike. Even the most diehard TV viewers will be able to stomach only so much reality and rerun programming, making advertiser makegoods essential. The broadcast networks' aggressive sale of scatter inventory at as much as 40% premiums to upfront prices has created an artificially tight market that pushes the inevitable reconciliation of advertiser makegoods into early 2008.

While the strike plods along, Facebook will intensify its controversial trials with viral advertising, social ads paired with the social actions among member friends, and advanced marketer metrics that walk the fine line between privacy and marketing research. Facebook's new advertising models are driven by the use of community and user recommendations as marketing tools (not unlike what Amazon has done). It is the antithesis of the time-honored separation of editorial and advertising in the print world.

Google, Facebook, MySpace and other new advertising and social platforms will remain open and accessible to developers, marketers and users, whose active participation will hasten the rise of the new digital world order and its new business models, hinged on following global interactive consumers-not content--wherever and however they go.

The group of key target consumers that are mainstays of both television and the Internet will provide the most intriguing insight to how old and new media will fare during these times of high drama. "With TV already less important to the all-important 12- to-34-year-old demographic, a prolonged strike, particularly for television, risks further eroding consumers' interest in the medium," observes Pali Capital analyst Richard Greenfield. Unlike the 1988 writers' strike, television can expect to reclaim even fewer of its loyal viewers and advertisers when the dust finally settles on the current conflict, since the media world is now dominated by many more viable competing options for their time and money.

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