mermigas on media
Today's top 10 list: media b'band truthsThere are at least 10 good reasons why media companies should rethink the digital broadband interactive strategies they warily budgeted for this year, not the least of which are the dramatic changes already taking place in what were supposed to be rock solid assumptions about the future.
It turns out that some trends and so-called truisms that used to shape corporate growth agendas have the half-life of an online news headline. The key is to continuously reassess what you are doing and test your economic models against expectations. Try these on for starters:
The traditional television upfront advertising market no longer is viable. While surviving as a glitzy showcase for new programs and schedules, customized multiplatform advertising pacts are being fashioned year-round. Flexible, functional pricing will be increasingly influenced by new online advertising models and systems being developed by Google and Yahoo! Broadcast and cable upfront ad spending will likely go flat as Nielsen works out its user measurement system. This may be the year that new and old media's efforts to reinvent themselves get in the way of raking in advertising, marketing and e- commerce dollars.
Program-related costs have yet to substantively be reduced or effectively offset by revenue generated from new online and other distribution platforms. The major broadcast networks each continue to spend an average of $2.8 billion on programming, up nearly 3% annually, on what is essentially a stagnant ad base, according to Kagan Research. The economic success of content increasingly depends on aggregators who can connect it to advertisers and consumers interested enough to pay for access. Advertisers will increasingly be expected to make up for the content-related purchases and subscriptions consumers may no longer make. Advertisers now earmark nearly 10% of their budgets for the Internet, taking their cue from consumers, who will spend at least 17% of their media consumption online this year, according to Oppenheimer analysts. In just three years, advertisers will increase the online budget share to as much as 30%, or $12 billion of their traditional broadcast and cable TV spending, analysts say.
Privatization is going to hurt, and it will leave scars. So far, there has been more heavy cost-cutting, asset disposition and core operational consolidation than any enterprising plays from the wave of private equity transactions that occurred in media last year. The best turnaround plan set for 2007 so far is Time Warner's own long-planned cable system spinoff, select publishing selloff and potential AOL spinoff. If anything, investors are slamming on the brakes on private equity buyouts ? involving Clear Channel Communications, Cablevision Systems and even Tribune Co. ? for fear that they are giving away too much for too little.
Even the so-called new-media players are scrambling to figure out how to capitalize on the social networking phenomenon. There already is talk about MySpace losing its grip on key user demographics before News Corp. has had the opportunity to fully mine it. Commanding community eyeballs is one thing; knowing what to do with them is another.
That awesome challenge might be the single largest deterrent to the major TV networks joining forces to create their own video portal. Google may be excelling where others are not simply by making searches and search-related advertising more relevant to consumers. That strategy is getting its most meaningful application on YouTube, which has been a thorn in Google's side since it acquired the user-generated content site for $1.65 billion last year. The success of the transaction lies in Google's ability to customize ad-supported searches on mobile phones and other portable devices favored by younger consumers.
? The growing importance of wireless and mobile cannot be overstated. Telephone companies will have a leg up on competitors because a majority of the more than 1 billion mobile devices expected to be sold this year will be mobile phones featuring video, cameras, music, gaming and TV applications, according to a recent digital report by Oppenheimer. The wild, much understated success of the Sony Erikson Walkman phone and all the fuss over Apple's coming iPhone are just the tip of the iceberg.
? Personalization means much more than an iTunes playlist. It is all about user relevance on many levels and on all possible screens, devices and appliances. It means assisting users to integrate crucial information about their daily lives (grocery lists, doctor's appointments, etc.) with entertainment and information preferences and with emerging services (scheduled content downloads, at-home applications, etc.). So far, no one gets it, delivers it, makes money from it.
? The deconstruction of Big Media as declared by News Corp. chairman and CEO Rupert Murdoch recently at the World Economic Summit in Switzerland was not just a catchy headline. It is a reality. Media giants are losing power to emerging online forces. If media companies do not respond with deep, constructive change, they will be irreversibly challenged economically and competitively by decade's end.
? Distribution windows are becoming a tricky game of chess: VOD replaces PPV, PC replaces TV, the movie screen is in jeopardy and the mobile phone screen outnumbers them all. Underestimating the pace of change can kill your business. The VOD universe will grow to encompass half of all cable subscribers by the end of 2008. While exhibition windows in the digital video marketplace contract, adoption of the next-generation DVD depends on standardizing formats. Content downloading will gradually replace physical media, and user-generated and peer-sharing sites will grow to be major distributors of commercial content as long as some form of digital rights management can be imposed. Every new window provides new advertising options.
? What price copyright protection? Viacom is about to find out. Ordering Google to eliminate 100,000 unauthorized video clips from YouTube will be effective only if Viacom can monetize its content elsewhere on Web-supported and other new-media platforms. The viral exposure Viacom content received on YouTube had an unquantifiable value, especially since consumers today evenly split their use of time online and on television, according to BIGresearch. The $100 million Google reportedly offered to pay Viacom annually for use of its video clips on YouTube might have been justified during this critical industry learning curve.
Now Viacom has to hope that it and other traditional media companies can receive monetizable credit among the audience measurement chaos to generate revenue from Internet-connected platforms and devices.
? "Search," "tag" and "navigate" have become the watch words for 2007. Providing consumers with tools to tag online video is critical for "deeper use" and user relevancy of Internet content. Little wonder that search continues to command the largest percent of online advertising. With nearly half our lives spent with TV, radio, the Internet and newspapers, according to the Census Bureau, there is huge money to be made by managing relevant data and entertainment across media platforms.
Diane Mermigas can be reached at [email protected]