The future of online advertising lies in the collapse of print

I guess it seems a bit negative to define the growth of a medium in the collapse of another, but here’s why:

For most media organisations, online advertising* currently accounts for less than 20% of the advertising pie, with print still taking the lion’s share. My 20% estimate is high. A world-wide, median figure is more like 15% of ad revenue. The question is: why are advertisers still choosing a medium that is under severe pressure as opposed to competing mediums that deliver a better service and (mostly) bigger reader numbers?

Here are some reasons:

1. Institutional bias in media companies: The company has been doing it that way for decades. Managers and employees have an innate bias to push the thing they know and push the thing that makes them revenue and meets their targets in the short term — even though it may not be in the company’s long term interest. It’s where the revenue is, although not the profit.

2. Institutional bias in advertising industry: The same goes for advertisers and advertising agencies. You’ll find the same institutional and arguably, cultural, bias directed towards certain mediums. You’ll often hear excuses like internet penetration and low click through rates as an excuse not to go online. You hear other excuses about mobile like it’s “too early”.

3. Online advertising still crude: Online advertising is by far superior to many other mediums in terms of measurability, targeting and flexibility, yet it’s woefully crude. There’s a lack of investment and innovation in the online advertising model and industry. It would be investment that aims to transform online advertising into a medium that is creative, properly targeted, properly cross-platform, and intelligently geared for multimedia.

Why is this? Because traditional media networks, from the buyers to the sellers to the advertisers, are still pushing money through traditional channels — even though it may not necessarily translate into best value for the advertiser or good profit for the media owner. So, innovation in the media sector is slow. Innovation is left to companies outside the traditional networks. Companies like Google are left to innovate. (And we should be saying: “Thank goodness Google bought Double Click. Maybe we’ll see a shake-up here.”)

So how is this cycle going to be broken? Well, it lies in the cost structure** of a newspaper. Despite the gloom, many newspapers are still raking in advertising money and are seeing growing circulation numbers. Where they are actually suffering is cost. The costs to produce a newspaper and to print advertising are out of control. When these costs point to bankruptcy — the institutional bias will be broken. Imagine a print sales force of 30-strong being told one day: “You guys must only focus on selling on our (much bigger) website. Start hustling.”

Do you think that online advertising sales would remain a mere 10% of print sales? I think not. Every little scrap of that website, from banners to sponsors to commercial features will be exploited. New models, nooks and crannies will be found on which to place an advertiser. Creatives will blossom as agencies demand more. Sales agents will fight for the online property and they’ll tell their clients that this is where things are headed, and this time they’ll really believe what they say. They’ll crow about how this is the future — and then say: sign on the dotted line.

Media companies won’t care whether its offline or online or in the great cloud. They’re making a killing out of their content on a variety of platforms. Their business is content, their business is attracting an audience to that content, and monetising that content. It’s just paper. Get over it.

* desktop web, mobile phone or whatever digital device connected to the net.

** This differs from company to company. Newspapers playing in target markets of high internet penetration will suffer more than those playing in emerging markets of low internet penetration. In fact, emerging market papers should be excluded from these claims as they operate in a market that’s still lucrative. Dailies will suffer more than weeklies. Weeklies have more sustainable cost structures.

Comments (6)

  1. Andries wrote::

    Spot on! But I think it’s a good time to start training sales forces – often training breeds enthusiasm and I fear that is what’s lacking.

    Thursday, April 30, 2009 at 12:53 pm #
  2. Tom wrote::

    Matt, interesting related point made by Tim Cronin of mobile ad company Mojiva at a mobile briefing I went to yesterday.

    Advertising on mobile will only kick off when people understand the potential of the medium. At the moment mobile advertising tends to be text message or banner – both borrowed from previous technologies.

    The first TV commercial ever was a completely static banner across a screen, with a brief radio-style voice over (Bulova watches, 1941).

    So perhaps the other point holding growth back is that sales people have yet to fully understand the potential of online ads to change the way their clients can reach customers.

    Thursday, April 30, 2009 at 1:56 pm #
  3. Sarah Britten wrote::

    Having lived for the past year in Australia, where online advertising is relatively mainstream, it was quite an adjustment to get myself back into a mindset of “only 15% penetration”. That’s the mantra that everyone repeats when the subject of online advertising comes up, and that’s why advertisers are so nervous about using it. In my experience, the problem is less with agencies, which are often only too keen to include digital as a core element in the big idea, and more with media planners and the clients themselves. The former haul out a Powerpoint slide showing internet penetration vs, say, LSM, and that pretty much ends the debate. In which case, you can blame AMPS.

    Thursday, April 30, 2009 at 2:40 pm #
  4. matt wrote::

    @Sarah — the penetration argument is nonsense, as regardless of what market you are in there are products that serve target markets that have to up to 90% penetration and some less than 10%. ie BMW vs Zambuk. Financial Mail vs Daily Sun. Depends on the market, really.

    Thursday, April 30, 2009 at 3:35 pm #
  5. Takes a lotta chutzpah to be in the position you are in and say what you say. I salute you for that.

    At the same time I think in what you say we can catch a glimpse into where the 24 corporation is going, and that too is commendable.

    My opinion is that it will take approximately 15 – 20 more years for the print-digital roles to reverse in this country as far as the advertising pie is concerned. With publications like Die Son, Daily Sun ans Isolezwe, print media has become a lot more affordable and the reach has intensified loads.

    Then, Independent News has just recently roped in NRS Media from Australia to help them maximise ad revenues among SMEs. The campaign was very successful (i dare say)

    So whilst digital media has all the right ingredients in place, the moguls in print are already fighting tooth and nail to keep and maybe even enlarge their slice of the ad revenue pie… and things are looking good for the next number of years.

    Monday, May 4, 2009 at 8:45 am #
  6. biobot wrote::

    People don’t notice online ads.

    Wednesday, May 6, 2009 at 2:22 pm #