‘It’s the end of advertising as we’ve known it’

I was surprised to hear those words come out of my mouth recently, during a strategic discussion about where our company, Morris Communications, needs to be in three to five years.

I heard myself say, “We need to realize that we’re witnessing the end of advertising as we’ve known it. Not this year, not next year, but over a period of not very many years.”

I’ll admit, there’s some hyperbole there. But there’s enough truth that anyone responsible for determining the future of a company built on traditional advertising revenue needs to start thinking that way.

I hasten to add that it’s not the end of advertising — far from it. But it’s the end — or at least the shrinking to near insignificance — of the Mass Media Era model of advertising that has been our way of life and the basis of our business.

Until I heard myself say it, I’d never framed the challenge in such extreme terms before. But I knew why I was saying it.

A few days earlier, I’d been preparing a strategic planning session for the fall board meeting of a small newspaper company whose board I chair. Each year, I begin the discussion by laying out for the board the clearest views I can find regarding the future of the business.

I had been putting together some charts to help the board see where our business stands and what may happen in the next few years.

First was a chart based on the National Newspaper Association’s public reporting of annual ad revenues among United States newspaper companies.

NAA ad revs

The chart shows total newspaper ad revenue, both print and digital. The steady decline is no secret in our industry, but seeing it in chart form points out how relentless it’s been.

As the stockbrokers say, past performance is no guarantee of future performance. And there are individual newspapers here and there that have beaten the trend for a quarter or two, or even for a year or two. But for the industry as a whole, it’s hard to picture this revenue slide ending anytime soon.

That’s where we’ve been. But for good strategic planning, you also need the best possible guesses about what’s ahead.

My No. 1 go-to source for ad revenue projections is Borrell Associates. They’re not the only ones who try to forecast local ad spending, but they’ve been doing it for quite a while, and their methodology seems reasonable to me.

I had prepared two Borrell slides for the board of directors.

Untitled

Local ad spending, 2013-2018 | Source: Borrell Associates

First was Borrell’s forecast of local ad spending from 2013 through 2018. In chart form, it tells a fascinating story for companies that rely on traditional ad revenues.

(Borrell defines local ad spending as dollars spent from within the market to reach people within the market. National spending from outside the market is not included.)

The chart shows the traditional advertising channels as relatively stable — some up or down a little, some down more than a little. But it shows “online” advertising rocketing upward at an astonishing rate.

Borrell counts all online ad dollars in the Online category, including those sold by traditional media. So, if you’re a newspaper, TV or radio company, you might be encouraged to see that Borrell thinks your core ad revenues will hang in there fairly well in the next five years. Personally, I’m skeptical about that.

But the big deal is the growth in Online. According to a couple of forecasting firms, including Borrell, local Online advertising passed newspaper print advertising in 2012. According to Borrell, Online will keep growing so fast that it will be roughly five times newspaper revenues by 2018 — substantially greater than all the traditional media combined.

Of course, Borrell could be wrong. These growth projections are quite a bit higher than those of BIA/Kelsey, for example.

So let’s say they’re wrong by half, and Online only reaches $44 billion in 2018. That’s still roughly equal to newspapers, radio, television and direct mail combined.

That’s in five years. I’d say that’s the beginning of the end of advertising as we’ve known it. And what will advertising look like five years beyond that?

Five years from now, it appears traditional media will still be capturing significant dollars, but they will be small fractional players in a big market. And the competitive landscape will be drastically different. The players in Borrell’s listed traditional media categories are so few that you could name them in most markets, but the players in Online are so many that nobody can name them all in any market.

What will be driving that huge growth in Online advertising? That’s the next chart, showing Borrell’s breakdown of Online advertising into its main components.

Digital categories

Online advertising spending by type — 2013-2018 | Source: Borrell Associates

The elephant in the chart is targeted display. That reflects Borrell’s belief that dollars will move in huge amounts into the kinds of advertising that can present a digital display ad to exactly the person who fits the buyer profile.

We’re all seeing more and more of this all over the Web. No matter what site you’re on, you’re seeing ads for things you’ve recently searched for, or things you have priced online, or read about online. It’s the whole world of real-time bidding on exchanges and networks, reaching prospects identified through Big Data about their characteristics, interests and recent online behavior.

That kind of advertising has exploded in the last year or two, and it keeps going up. At first it was just on websites, then in email, and now increasingly on mobile devices, too.

Never before has it been possible to reach active prospects based on who they are and what they’re shopping for, and regardless of where they’re looking. It’s a revolutionary change — advertising as we have never known it before.

The traditional media — advertising as we’ve always known it — were built in a time when the best you could do was scatter your ads across the biggest audiences you could find, hoping to hit a few live prospects.

How fast will dollars move from the old model to the new model? Nobody knows, but it’s already happening at a dizzying pace, and the Borrell forecasts give us at least a general indication of speed.

So what do we make of this?

What I make of it is that traditional media companies may be able to survive, but their solutions will be more and more marginalized by more precise, more instantaneous and less costly solutions. We have a choice: Fight on with our present set of solutions, or move as fast as we can to become the leading local sellers of the very best digital solutions available.

Actually, we need to do both, but we need to make sure we become the sellers of as much of that 2018 Online advertising column in our markets as we can.

There are huge implications in this, pointing in many directions. For example:

  • Our solution sets need to change as fast as the world is changing.
  • We need to be selling across much of the Web, not just into our own websites, emails, mobile and video products, so we can reach people wherever they are.
  • Our sales forces and go-to-market strategies need to change, so we can present advanced digital solutions with competence, ease and accuracy.
  • Our back-end fulfillment systems need to change to accommodate a far wider range of solutions.

This is a period of epic importance for traditional media companies. It’s a “Who Moved My Cheese?” moment. An “Our Iceberg Is Melting” moment.

It’s a time for vision, leadership and action.

To be where we need to be in five years, we need to be moving as fast as humanly possible NOW. A number of newspaper companies are doing that. We need to sustain our revenues from “advertising as we’ve always known it,” even as we create entirely new capabilities that enable us to be dominant sellers of  “advertising as we’ve never known it before.”

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Posted on November 13, 2013, in Advertising, Disruption, innovation, investment, Media business model, Revenue, Sales and tagged , , , , , , , , , . Bookmark the permalink. Leave a comment.

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