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In 2009, the Internet Advertising Bureau and PricewaterhouseCoopers published figures indicating that the UK had become the first major economy where advertisers spent more on internet advertising than on television advertising. The statistics underpinning the report, as is often the case, are somewhat open to interpretation, but they did show that TV’s place as the dominant advertising sector, held for over 50 years, was being significantly eroded by the rise of online advertising in just a decade.
The timing of this report was significant. While online ad spend had been charging upward, the economic downturn let to a drought in TV ads. Since then, TV has begun to stumble back onto its feet, but so far it seems there’s no abating online’s growth.
What does this mean for television as a medium? What are broadcasters and media buyers doing to defend their revenue? And how will this affect us viewers?
Broadcast television has had an uneasy relationship with the internet. From the issue of piracy, and what to do with their own online presence, to falling audience ratings and advertising spend. But at the same time, the internet has offered broadcasters a new distribution and syndication infrastructure, additional functionality such as timeshifting and on-demand, the opportunity to distribute content complimenting broadcasts and also new revenue streams.
But paramount in many broadcast owners’ minds is the time people spend in front of the television, and how more and more of it has been lost to the internet. Also, as a practical point, the fact that anyone can now broadcast globally without the huge cost of television infrastructure must have been a bitter pill for many TV executives. Perhaps these two observations are more connected than first they appear.
Broadcast media used to operate simple terms of engagement. There were broadcasters, viewers and, later, advertisers. Everyone knew their place, and the relationships between all three were clear and transparent to all. There was also not much television from which to choose, because of the high cost of broadcast infrastructure, and other technological constraints. But with the arrival of the internet, two things changed: the broadcast infrastructure was devalued; and also the roles of those involved in broadcast media, most notably the viewers, changed too. The traditional model of “we show, you watch” was disrupted, since anyone could now broadcast more-or-less anything. Not only did the internet offer many new sources of information and entertainment to rival TV content, it also encouraged consumers to become creators. In short, the internet offered people a means of participation to an extent that TV never could.
Much has already been said about the impact of the internet on TV, not to mention the radio, movie and music industries too, but this is not the only change in the ecosystem. The broadcast media industry was already evolving way before the internet was commonplace, in a way that had a significant impact on how we watch TV.
The traditional ménage à trois of broadcaster, viewer and advertiser did not remain so simple for long. The advertisers quickly organised themselves into brands and advertising agencies. Those agencies diverged further, in various directions, such as the conceiving of advertising, production, strategy and also media buying. Media-specific agencies were formed just to buy airtime from broadcasters in bulk, and then sell it on to brands. While all this made it easier for broadcasters to secure revenue, and for campaigns to get exposure, the relationship between viewer and advertiser had become much more opaque.
Then, the technical and financial constraints of broadcasting declined, more and more broadcasters and channels appeared. This led to a fragmentation of the audience: roughly the same number of people spread over a lot more content. This proved a headache for brands and the strategists working on their behalf, as they had to buy an ever-increasing quantity and diversity of airtime to reach the same target audience. Superficially this proved good news for the broadcasters as a whole, as ad spend climbed ever higher, although any one broadcaster is likely to have seen a decline in revenue as a result of increasing competition.
All the while, another key shift was occurring. Our relationship with television was changing. For some, TV played an increasingly significant role in their lives, whereas for others, less so. This has meant that some audiences, and indeed some individuals within audiences, have become harder for advertisers to reach. Some have found themselves trying to tackle the change in frequency distribution by buying more and more airtime, but this is a blunt approach: much of their money is effectively wasted, or worse, by showing the same messaging over and over again to only a small slice of their intended audience.
Put simply, even before the internet, TV didn’t keep pace with its viewers’ habits. Little has changed in the way TV advertising has been planned, bought and measured for decades. Yes, the internet compounds the issue by fragmenting the audience still further, but the internet brings as many opportunities as risks.
So, in the five years following that report suggesting UK online advertising had overtaken TV, what has the broadcast industry done to protect itself from losing further ground? Many broadcasters have now fully embraced the internet as an additional channel, offering on-demand services to numerous devices. Some have also turned up the volume on content—-a battleground in which they have the advantage of experience over their relatively immature online competitors. This is a smart move: while this is the era in which anyone can produce as well as consume, it remains difficult to scale this up to the level at which big broadcasters can afford to operate. At the beginning of this month, BSkyB, the largest pay-TV broadcaster in the UK and Ireland, launched a YouTube channel of whole episodes of their shows. It’s both a brave and smart move by a broadcaster determined to hammer home that they have quality content on offer, especially when competing against other strong content-driven propositions such as those from Netflix and the BBC (whether the public-service BBC is a “competitor” is debated, but typically commercial broadcasters view them as such).
The challenge of TV advertising being a blunter implement than online is also being tackled. Five years after first announced as a work-in-progress, BSkyB has now rolled out its tailored advertising offering: AdSmart. This new style of broadcasting advertising allows Sky to play out different ads to different households, based on customer profiling. With the prospect of allowing advertisers to target specific audiences or regions—-and to have their ads played only when people are watching—-this targetted approach could make TV ads viable to new advertisers, and feels heavily influenced by online advertising.
Meanwhile, the media agency world, and indeed the whole advertising industry, has also evolved at pace. Adland was quicker than the broadcasters to embrace the internet, but not quick enough to stifle the monumental growth of two new advertising giants: Google and Facebook. Google’s dominance of the search and online video markets has afforded it more than half the market share in UK online advertising, and Facebook’s dwell time is high enough to rival some broadcaster’s viewing figures. The handful of holding companies that own most of the advertising world have also found themselves under attack from the technology industry outside of advertising, from the likes of Salesforce and Adobe.
Several things are changing. WPP, currently the largest advertising holding company, is about to be knocked into the second spot by the merger of two others: Publicis and Omnicom. This merger will leave POG and WPP a long way ahead of their sector rivals in terms of revenue. How the two big players from Adland will fare against the two big players from the internet remains to be seen, but the merger (not to mention WPP’s own digital growth by aquisition) does suggest that the boardrooms right at the top of the advertising industry are taking the threat from Silicon Valley seriously.
A third of the world’s media-buying market is controlled by GroupM—-a WPP-owned parent company to all their various media-buying agencies. Some in the broadcasting industry have voiced discomfort about GroupM’s market dominance, particularly as it negotiates on behalf of all its agencies. Richard Desmond, owner of UK commercial public service broadcaster Channel 5, went so far as to suggest GroupM was using this dominance to pressurise broadcasters into making the production companies they use to develop TV programmes work with Group M’s entertainment division, which bankrolls programming opportunities. This claim was disputed by Sir Martin Sorrell, chief of WPP, but it did cast light on the media-buying industry’s move towards funding TV shows.
That’s right, the media buyers went into content. The challenge for smaller broadcasters, such as Channel 5, is that the cost of content production is high. If the broadcaster doesn’t have the budget to commission a show from an independent production company, few options exist. Enter GroupM Entertainment or GME, who will invest in return for a stake in the format—-sometimes as much as 50% of the global rights to the show (production houses typically get much more favourable deals from broadcasters directly, providing they can afford the commission at all). While GroupM is quick to stress that GME uses its own money to fund shows (and not that of GroupM’s clients—-the advertisers) , many broadcasters are concerned that GroupM’s dominance over ads and increasing investment in programmes leaves them with little power over their own output, and perhaps even their editorial freedom.
The online giants have up until now not produced any content, preferring instead to allow their users to do both the creating and the consuming. But even with content-focussed propositions, both broadcasters and media buyers are under considerable threat from technology-driven offerings, either with business models that don’t rely on advertising (Netflix, Apple, etc.), or formidable powers of diversification (Google, Amazon, etc.). The fight for our attention may lead to further financial innovation from all players, perhaps even some that don’t yet exist, but also risks further fragmentation of the audience.
So what does all this mean for us, the viewers? Clearly, we can expect to see considerable investment in content from both the broadcasters and Adland, but it’s hard to see where the balance of quality and quantity will fall. Regulatory bodies will no-doubt be kept busy on the thorny issue of editorial bias, but we are left with a highly complex relationship with both broadcasters and advertisers. If the well-established separation of advertising and programme-making becomes blurred, we may find ourselves losing confidence in the media industries as a whole… assuming, of course, we notice it happening.