11/03

The End of Advertising?

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We all know the folks in the print business are being squeezed by digital.

At the New York Times total revenue fell 1% while Gannett Co. reported revenues down almost 9%. And remember, those declines take into account any growth in digital.

But this note from MediaPost is particularly telling:

It’s worth noting that [circulation] revenues now make up 59.7% of NYTCO’s total, up from 41.3% in the third quarter of 2010. The proportion derived from advertising has fallen from 51.8% to 34.3% over the same period.

In other words, ad revenue is falling much faster than total revenue, while all revenue growth is being fueled primarily by subscription. In other words, NYT readers are increasingly paying for what they’re getting.

And it has happened with alarming speed: Six years!

It’s safe to say that in a broad sense the ad market for print is drying up.

Meanwhile, Facebook and Google appear to be getting virtually all of the growth in digital spending, even suggesting that total digital spend outside of these behemoths is declining.

That is, digital spending is up, but it benefits you only if you’re Facebook or Google.

But look what else is happening: Facebook is predicting that their own ad revenue growth will begin slowing down next year:

Facebook says it has finally maximized ad loads — or the volume of ads that it can show each user before totally ruining their user experience. That means it can’t continue to grow revenue by simply increasing the number of ads it crams into your News Feed, which it has been able to do up until now.

This slowing growth will not happen because Facebook lacks sellable real estate on its platform. It’s happening because Facebook values the quality of the user experience more than the incremental growth in advertising real estate which, in the long run, risks turning off users and destroying its future potential.

Does this mean Facebook will have to find other ways to fuel its growth? Yes it does. And that’s why their other platforms – Instagram, Messenger, and Oculus – exist.

In TV, meanwhile, it’s well established that everything you see on your cable box (assuming you use a cable box) is being paid carriage fees by the cable operator. In other words, that’s not ad revenue, it’s subscription revenue, and you are paying for it directly through the middleman of Time Warner or DirecTV or U-Verse or Cox.

In 2015, for example, Disney’s media networks derived 51% of their overall revenue from affiliate fees (a.k.a., you and me) and only 37% from advertising.

So there’s a moral to this story for folks in the radio space. And it’s three-fold:

First, why expect straight advertising revenue to rise year over year when it’s not rising for Disney or Facebook or the New York Times?

#Radio: Why expect straight advertising revenue to rise when it's not rising for Disney or Facebook or the NYT? Click To Tweet

Second, what is your portfolio of money-making initiatives? Where are you placing your bets on future business model success? Not doing this? Disney does. Facebook does. The NYT does. The future of growth is a portfolio future.

Third, Facebook is deliberately putting the user experience ahead of the opportunity to crowd more advertising messages into your newsfeed. The newsfeed can be thought of as a linear strip of programming – just like your radio station. Are you putting as much concern into YOUR “newsfeed” as Facebook does? Do you value YOUR user experience? Especially when digital alternatives to your station have perhaps half the clutter of the average radio station?

Food for thought.

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