Consumers now choose from an average of 119 TV channels, more than ever before in history, but those channels are competing for attention with a trillion internet links and more than a million mobile Web sites. According to Yankee Group’s “2009 Advertising Forecast: Getting the Consumer’s Attention,” this oversupply of media is driving a more than $2 billion decline in TV advertising, which, combined with the economic recession, will pull down the U.S. ad market by more than $1.6 billion in 2009.
The market power of television is being eroded by dramatic growth in IP networks and their corresponding capacity to carry advertising. Yankee Group forecasts there will be more than 477 million wired broadband users worldwide by the end of 2009, a boost of more than 50 million since 2008. In addition, Yankee Group survey data show that 12 million more consumers are browsing the mobile Web now than in 2008. As consumers become increasingly connected, behaviors are changing. New demands abound for Anywhere Media that is screen-independent, on-demand and easy to consume.
“As the Anywhere Network grows to connect nearly everyone on the planet, media companies must adopt new business models that acknowledge that consumers now have more power over their business,” said Carl Howe, Yankee Group director and author of the forecast. “Just as the music industry was forced to reinvent itself when digital downloads undermined its traditional strategies, the Anywhere Network’s abundance of content and advertising inventory will similarly reshape the TV, print and mobile media industries.”
Consumers that are always connected—what they call Anywhere Consumers—are changing their behavior in ways that are sending shivers through media companies. Media executives from most major media outlets are already seeing ad spending decrease. Why? Rupert Murdoch, CEO of News Corp., summarized it best in a February 9, 2009, Wall Street Journal article. “The problem is that there’s an almost infinite increase in inventory for Web sites and for display, so there’s constant downward pressure on the [ad] rates you can get,” Murdoch said.
This is a change born from the coalescence of the many specialized networks for TV, data and voice into one common market The dramatic growth in IP networks—what Yankee Groups call Anywhere Networks—and their corresponding capacity to carry advertising is eroding the heretofore unchallenged market power of television. Yes, consumers now choose from an average of 119 channels of ad-supported TV programming today, but those 119 channels are competing for consumer attention with a trillion links on the Internet and more than a million mobile Web sites.
The results of this oversupply of media combined with the economic recession will pull down the ad market in 2009 by more than $1.6 billion. This decline is driven entirely by a more than $2 billion decline in TV ad spending. This is not just because consumers have more choice. It’s also because the currency they are using to watch TV—their leisure time—has now become the scarcest commodity in the value chain.
As the Anywhere Network grows to connect nearly every human on the planet, media companies will have to adopt new business models that acknowledge that consumers now have more power over their businesses. Just as the music industry was forced to reinvent itself when digital downloads undermined its physical distribution models, the Anywhere Network’s abundance of content and advertising inventory will similarly reshape the TV, video, print and mobile media industries. The key to success will be recognizing the change and building new media models that acknowledge a universally connected world.
The spectacular growth of media across these three screens—TV, Internet and mobile phone—has been an unparalleled boon for consumers. But for media companies ranging from TV to newspaper publishers, the rise of an Anywhere Network full of consumer media choices has undermined their ability to control their own destiny.
Jeff Zucker, the chief executive officer of NBC Universal said in a February 27, 2009, New York Times article that “broadcast television is in a time of tremendous transition, and if we don’t attempt to change the model now, we could be in danger of becoming the automobile industry or the newspaper industry.”
Bob Iger, CEO of Disney Corp., was similarly quoted in a February 9, 2009, Wall Street Journal article saying that the broadcast networks show “signs of secular change as competition for people’s time is increasing and the abundance of choice is allowing consumers to be more selective.”
Zucker and Iger have good reasons to be worried. The growth of TV channels, Internet sites, and mobile content have affected all types of media, not just TV. Specifically, media technology and new consumer behaviors have changed the media landscape by:
Fragmenting TV audiences: The average minute of prime-time TV garnered more than 15 million U.S. viewers in 1980. In 2008, that number had declined to just more than 4 million viewers, with the most precipitous drop coinciding with the emergence of the Internet between 1997 and 2000. TV just doesn’t reach as many people as it used to.
Souring casual TV viewers: Watching TV is no longer a simple matter of turning on the TV and channel surfing until you find something you like. Electronic program guides, elaborate cable menus and slow cable boxes have made even finding an interesting program a multiminute quest.
Overwhelming consumers with ads: In the 1960s, an hour-long TV show ran 51 minutes of content with 9 minutes of ads. Today, an hour of TV consists of 42 minutes of content with twice as many minutes of ads. Not surprisingly, consumers have embraced DVRs such as TiVo that allow them to skip those ads. But those ad-skipping devices only accelerate the loss of audiences that advertisers are paying for.
Depressed Internet advertising rates
Although they project U.S. Internet advertising to accrue more than $25 billion in revenue in 2009, that ever-increasing inventory of Web sites has driven average Web display ad network CPMs below the $0.30 mark for untargeted space. Those CPM declines show no signs of stopping; the same trend is beginning to show up in mobile Web sites, even though the mobile Web is a much less mature medium.
What’s behind these declines? Media everywhere has saturated consumers’ attention, with the average consumer engaging with 13.3 hours of media every day. Consumers now average 4 hours online per day and 3.5 hours of TV watching each day. In fact, assuming a consumer sleeps for eight hours a day, U.S. consumers are spending significantly more of their day with media than without.
Doing more than one thing at once: According to the Yankee Group Anywhere Consumer: 2009 U.S. Survey Suite, Wave 1, 53% of consumers with a TV also regularly surf the Web when watching TV, and 56% of consumers read and write e-mail in parallel with their TV watching. This trend is even more profound when looking at phone use: Two-thirds of consumers talk on the phone while watching TV. Even if a consumer is in the presence of media, there’s no guarantee they are paying attention to it.
Rejecting content that doesn’t meet their needs: Newspapers and magazines are rapidly falling by the wayside because consumers don’t find much point in reading day-old news printed on dead trees, when they can get fresh news off the Internet.
In short, these dramatic changes in the media business result in three fundamental changes media must address:
Too much media supply
More consumer choice
Limited consumer attention
Despite the doom and gloom quotes from media executives in this report, the Internet isn’t going to kill television. It will, however, reshape TV watching into a more on-demand and directly measurable activity. In the process, content companies, advertisers and network operators will all have to change some of the ways they do business.
Recommendations for Content Companies
With an abundance of media being distributed through TV, broadband and mobile networks, it’s harder than ever now to succeed as a media company. Our top three recommendations for content creators are:
If you have a three-screen strategy, start with video. This almost goes without saying, but the only medium today that works seamlessly across TV, Internet and mobile distribution is video. So if your company plans to conquer the world by aggregating audiences across those three media types, you’ll need video assets and infrastructure to succeed. Said another way, if you don’t own any video assets, you need a strategy to get some.
Embrace the content platform. The world is now media-centric instead of screen-centric. That means that media companies must be able to deliver their products in ways that any distributor can use.
Think twice about committing to an ad-only business model. It’s tempting to think that someone is going to pay megabucks to advertise on your new American Idol meets Star Trek media Web site, but every Internet property out there from MSN to Dlbert.com is seeking advertisers too. Great content companies will find ways to monetize media assets with more than just ads, even if it means selling T-shirts with their media on them. Companies that don’t do so will find the ad market a stingy backer for years to come.
Recommendations for Advertisers
The recognition that consumer attention now limits media consumption will bring changes to the advertising industry. Specifically: Integrated campaigns are a must. The whole concept of Anywhere Media is that the audience reachable through multiple screens will be larger than that available through any one screen. But that means that the ads and information presented through all three screens must reinforce one another, not approach the topic from three different viewpoints. Insist on consistent words and visual vocabulary, even if it feels redundant.
Negotiate extra inventory with ad buys in 2009 or 2010. Just like everything else in this economy, it’s a great time to be a buyer. TV advertising has a huge ecosystem that assumes ad rates are stable or going up, so advertising discounts aren’t likely to be more than a few percent for the next couple years. However, ad sellers know that the market is soft and will happily negotiate more ad spots for media buys. Build that extra inventory into your media plan and reduce your effective CPM rate, even though the purchase order shows a higher listed rate.
Make advertising more consumer-friendly. Digital video recorders that skip commercials and Google’s unobtrusive text ads have changed consumer expectations of how much time they should expend viewing ads. Now in-your-face advertising is out and relevant advertising is in. Successful ad campaigns now must start from a consumer goal and engage the consumer in achieving that goal rather than just consuming their time.
Budget time every week to gauge response rates and plan improvements. Advertisers no longer have the budgets for the old saying, “I know half my advertising budget is wasted; I just don’t know which half.” Major Internet ad networks such as Microsoft Ad Center and Google Adsense, and mobile ad networks like AdMob and Jumptap have programs to help you understand your Internet advertising performance and offer ways to improve it.
Recommendations for Network Operators
Network operators trying to add value to Anywhere Media must understand that they function as distributors for media companies, just as local affiliates do in the TV world. This distributor role means that operators must: Recognize that video is the lead property. Despite their comfort with broadband and wireless services, most Anywhere Media will have video as its centerpiece. Why? Because video is really the only media type that works on today’s major three screens, and TV household penetration still outstrips broadband Internet services with consumers.
Focus on content first, screens second. AT&T started driving its Anywhere Media strategy by scooping up deals for major sporting events such as the Masters Tournament and the NCAA March Madness basketball playoffs. Any telco planning to deliver Anywhere Media should tap media-savvy executives to bid on this type of exclusive content. Without exclusive media content that can be distributed across any screen, carriers risk being at a disadvantage to competing cable companies like Comcast and Cablevision who cut such deals, thereby reinforcing customer views that they just are “dumb pipes.”
Limit promises to provide behavioral ad data. Operators think they will add value to media companies and their advertisers by tapping into operator customer data and telling the media companies who is viewing their content. The problem is that government regulators will take a keen interest in this practice and likely will restrict how much information a carrier can disclose. Operators should set realistic expectations with advertisers about how much information they can disclose and work with the Network Advertising Initiative to ensure that they are within industry best practices.