Thanks, but no thanks, to the estimable Charles Martin for sending me this column by Robert X. Cringely: How Pay-Per-Click Is Killing the Traditional Publishing Industry.
What happens this week for computer publications will happen next week for other types of consumer magazines and the week after that for newspapers. According to Forrester Research, online advertising totals only about five percent of the $400 billion spent on advertising of all types each year in the U.S., yet online consumption takes 30 percent of the media consumption time in most households. This is an interesting statistic that is generally interpreted to mean that the online ad market will eventually grow to $120 billion.
I don’t think so.
If this was the case, it would be a simple matter for print publishers to abandon paper and continue to grow as all-electronic media, but it doesn’t work that way.
Here’s a part of the problem that has been for the most part missed by media and business analysts: A website is not really an electronic magazine. It can contain all the stories of its print equivalent, but IT CAN’T CARRY AS MANY ADS.
For magazines to qualify in the U.S. for shipping by Second Class Mail, they must have a measured advertising-to-editorial space ratio of no greater than 75 percent. Second Class Mail is the difference between life and death for a print magazine, and to qualify for it, they carefully manage that ad-to-edit ratio so that just slightly less than three times as much space is taken for ads as for stories.
Now compare this to the edit-to-ad ratio for most web pages. The densest web page will have one banner ad at the top, eight to 10 Google ads down the right side, and maybe another Google ad or two at the bottom. That sounds like a lot, but on a strict real estate basis, it is very hard to exceed an ad-to-edit ratio of 50 percent, and most web pages have three times as much editorial content as ad space — the exact reciprocal of the experience with paper publications.
While this may not seem like a critical point, it is one, because it means that there is no way a print publisher can switch to all on-line without shrinking in just about every respect. Revenue drops because of fewer ads. You can make some of that up by simply producing more pages of content, but there is a limit to that effect. Ultimately, production and editorial standards falter under smaller budgets and what was once glamorous becomes just another job.
Even if 30 percent of our media time is still spent online, this budget effect means that the maximum size of the Internet ad market will still be smaller than the current market for print ads. So instead of growing to $120 billion, something on the order of $60 billion is more likely. That’s a lot of money and a huge success for pay-per-click, but it will inevitably put a lot of people like me out of work in the long run.
UPDATE: Guilty or not, the more important news may be this from the San Francisco Chronicle:
Terry Semel, the former movie studio chief who now leads Yahoo Inc., is back in show business. His Web portal has filmed a pilot for a reality series called “Wow House” that will be broadcast online within the next few months.
The program, which follows two families as they refurbish their homes with $10,000 in new electronics, is the most concrete example yet of Yahoo’s Hollywood ambitions. It’s just an early step, analysts said, in Yahoo’s ultimate goal: creating television of the future.
Semel is betting that online video’s popularity is about to take off. Internet users would flock to Yahoo to watch shows on their computers or other Internet connected devices, creating a potentially lucrative opportunity to sell advertising.
The Hollywood creative guilds better get on this immediately, if they haven’t. (via PJM)
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16 Comments
1. photoncourier.blogspot.com:I’m not sure the “real estate” comparison is very meaningful. A direct percentage comparison would only be relevant if a web ad of size “x” and a print add of size “x” were the same both in their effectiveness and in their price to the advertiser.
And the metric is even less relevant in the case of classified ads…the loss of which is going to be one of the major things threatening the traditional newspapers.
Jan 2, 2006 - 4:05 pm 2. Jim Rockford:I agree photon and a good example of the targeting effect is car ads.
According to a recent WSJ article, only 1% of the population each month is in the market for a new car.
Thus it makes sense to have ads on Edmunds, carfax, the other car buying research sites (such as MSN, Yahoo, Google etc with linked search-ads) than just spending millions to reach a lot of people who are not in the market.
Particularly since something like 80% of car buyers use the internet to do research for car purchases.
Of course the downside is that the internet just acelerates the balkanization of culture that Cable Channels and the emphasis on demographics pushed.
Jan 2, 2006 - 8:17 pm 3. Syl:Well, the article assumes that print ads will simply move and become web ads. I predict advertising itself will morph into something new for the web.
What and when, exactly, I don’t know. But there is the problem of space to overcome, and somebody innovative will devise a solution or two. That’s a basic fact of capitalism, no?
Jan 2, 2006 - 10:07 pm 4. WichitaBoy:Don’t feel guilty, Roger. Personally, I blame Al Gore.
Jan 2, 2006 - 10:55 pm 5. WichitaBoy:Don’t feel guilty, Roger. Personally, I blame Al Gore.
Jan 2, 2006 - 10:56 pm 6. Patrick Tyson:I predict advertising itself will morph into something new for the web.
Unlikely. A commercial is a commercial and balkanization has been the order of the day since some bright boy or girl “perfected” market research. The process by which you and the narrowing demographic into which you fall are presented with product in which you may have an interest will continue to be increasingly electronic and residence intrusive. Most of the non-balkanized advertising will be the equivalent, in whatever medium, of junk mail.
…and so it goes
The remnants of the cable television enterprise for which I worked until 2000 finally closed up shop a couple of months ago. The junk e-mails bearing their domain name and my old login began arriving shortly thereafter. Is this a great world, or what.
Jan 3, 2006 - 12:12 am 7. klrfz1:What is the ratio of advertising to editorial space on TV? During the last 10 minutes of a movie it can be up to 50%. If a sitcom has two three minutes commercial breaks that’s only 25%. And yet TV seems to struggle along anyway.
I have not seen a magazine ad with flashing lights and blaring sound (yet). My webmail site has an ad like that. Seems like internet advertising is more like TV than it’s like magazine ads. More intrusive. More annoying.
Does a multi-media Flash presentation cost more man hours to create than a full page magazine ad? Wouldn’t it take all the same creative people plus someone who knows how to program Flash? Not yet, of course, the money’s not there yet. But eventually, why not? I wonder what year it was when TV ad revenue exceeded print ad revenue in the U.S. I bet it was just a few years after the first broadcast of the World Series.
Speaking of which, Monday Night Football is moving to ESPN. I don’t have cable so don’t whine to me cable boy! Just kidding! Print is dead, broadcast is dying and I’m getting old. And cranky.
Jan 3, 2006 - 3:03 am 8. Bill Schumm:“…there is no way a print publisher can switch to all on-line without shrinking in just about every respect. Revenue drops because of fewer ads.”
The revenue loss is offset by the drastic reduction in production costs. Just look at the expense of paper, printing plant, physical delivery to homes, street boxes, etc. I believe that there is a business model (yet to be found?) for a newspaper to publish mostly online and still maintain their news-gathering capability. This will happen once they stop navel-gazing and get creative. So far, they have not moved away from their 20th century style of doing business. I could go on and on with this, but you probably can too.
Jan 3, 2006 - 3:37 am 9. photoncourier.blogspot.com:I’m sure many ways will be found to make money in on-line publishing, but it’s very unlikely that the incumbent media will be well-represented among those who survive and thrive. Experience in many industries shows that when disruptive innovations occur, it is rarely the incumbents who are able to take advantage of them…see Clayton Christensen’s book “The Innovator’s Solution,” which I review here.
The traditional media would have a difficult time in any case, given the technology and demographic changes; they are making it much worse for themselves by their political bias and rigidity.
Jan 3, 2006 - 6:30 am 10. Sandy P:What struck me is less ads, less ads.
I very rarely read the ads when I read Pravda by the Lake (Chicago Trib).
I guess I don’t understand what the big deal is. And it wouldn’t be the first nor the last……
Jan 3, 2006 - 7:48 am 11. Old Dad:Interesting. Saw my 10 year old nephew watching an old TV show that he downloaded from Apple.
More competition coming for old media.
Jan 3, 2006 - 8:45 am 12. JBlossom:Roger,
Great post, very interesting points. There’s definitely a revenue potential gap right now between print and online that’s going to be very difficult for magazines to fill. But at the same time the fixation on that “golden ratio” has limited the potential transition of print media into a different kind of marketing vehicle. With higher print ad rates you can stay comfortably within the ratio and sustain higher revenues for a greater body of editorial material. We’re starting to see that a bit already in magazines oriented towards elite audiences. There’s also the likelihood of print becoming more of a packaging tool for editorial content that’s assembled on an on-demand, personalized basis and delivered with a wider variety of physical marketing media. The print publication then becomes less of the traditional “flagstaff” vehicle for a fixed editorial staff and more of a delivery vehicle in which the ads wait for the editorial content to show up from a variety of channels. Google is already on this concept in an electronic form with its efforts to tap ads into their new wireless network based on a user’s profile and location. As print publishers detach editorial staffs from ads, composition and physical delivery we’ll see a new kind of print media evolving that will be robust in its own way but without a lot of the historical baggage that no longer needs to apply to the medium.
At the end of the day this probably means that the most talented and connected writers have little to fear. Your meal ticket may be harder to come by during the transition but the most talented people will find their efforts easier to monetize in the long run – albeit on a pay scale that’s a bit more flat for most but with greater potential for add-on income.
The points made regarding online are all pretty valid, both yours and the comments. Online is less about real estate (it’s infinite, with fleeting ideal locations) and more about multimedia and context. It’s also a lot more about Mars and Venus, as recent research has shown: advertising as objective-oriented seduction versus advertising as ongoing relationship-building. Advertising will always have an “id” seduction element to it but online advertising is pushing it to become more relationship-oriented, which will have more value per click but a more evolutionary quality to monetizing the clicks. In short, marketing as we know it is coming unglued through online media. We may actually get to the point of learning about what we need through advertising rather than being told what we should want. Early days, but this will all shape how we’re paid and how we choose what to write about, I am sure.
Jan 3, 2006 - 9:05 am 13. Mgmax:The 75% ratio only matters if we assume that online media will be exactly as efficient (which is to say, NOT VERY EFFICIENT AT ALL) as old media.
Ultimately, I expect online media to be far more efficient than mass media. Maybe by hundreds of times. I expect people to invent measurement and tracking systems that make it far more possible to tell exactly what your spending produced. And for the folks who invent such things, and the media who make successful use of them, to get filthy rich. Look at the GRPs that, say, an automaker buys versus the number of cars they actually sell. They could easily be buying a thousand exposures to their ad for every car that will finally be sold. Or ten thousand. There’s a lot of room there to tighten things up and be more effective.
But yes, we’re in the painful-confusing-shakeout-period before that happens, and some members of the herd will die first.
Jan 3, 2006 - 12:25 pm 14. calvinist:Ultimately, I expect online media to be far more efficient than mass media.
This sounds right to me, but the effects of this are unpredictable.
If efficency of advertising increases, is it possible that the amount advertisers need to spend decreases?
If so, you could see smaller total expenditures for ads, supporting smaller infrastructure (bad news for CBS, NBC, ABC, let alone mass-market print).
Then end effect could be to reduce the cost of getting the word out about your product. Thus making the former mass advertisers more profitable (by reducing a cost of business).
Jan 3, 2006 - 4:42 pm 15. chuck:Most of the non-balkanized advertising will be the equivalent, in whatever medium, of junk mail.
Ah, carpet bombing. Time to move on to smart weapons.
I still prefer paper to the LCD, but it is hard to find compelling content on paper. On the other hand, displays are improving, getting lighter and bigger, so I expect they will replace paper at the office and at home someday. Reading at the beach — when the electronic version of that problem is solved the world will change. Posters? Every wall a screen? And still the bugs will lead their buggy lives, oblivious.
Jan 3, 2006 - 6:32 pm 16. Godzilla:There are ways to increase the number of ads on a web page. Rotating banners on pages, plus judicious use of links to ’spread’ out the editorial material will also yield more space, ie, a page 1,2,3 for a story, each page with its set of ads. Yahoo, for example, if you click on one of their photo slide windows (for example the current one on the trapped miners), you will see a diferent ad show up with each photo. Print media cannot even come close to schemes like that. There is literally nothing that programmers cannot do with web pages, which can easily be made to represent print media, and without killing trees in the process. Remember, that article was written by a member of the tree killer media, so consider the source.
Jan 3, 2006 - 7:45 pm