Analyst – “Advertising is simply not a sufficient revenue model to sustain content companies into the long-term future”

June 5, 2008 by Dave Haynes

Media analyst and writer Jack Myers has a piece from his website republished in the Huffington Post about the state of the digital media industry, focused on underperforming ad-based networks.

It’s about online, but you could pretty much switch that out for digital screen networks.

Advertising is simply not a sufficient revenue model to sustain content companies into the long-term future.

For the foreseeable future, the pool of available advertising dollars will be stagnant. There are new media alternatives virtually every day and ad budgets are splintering into micro-fragments. Advertisers are being pulled in multiple directions. Dollars are seeping from traditional budgets into search engine marketing, event marketing, cause-related marketing, merchandising, experiential marketing, location-based marketing, public relations, conversational and word-of-mouth marketing, social and mobile media, and consumer and trade sales promotion.

This year’s national television Upfront market could be a bell-weather for determining advertisers’ continued appetite for paying significant cost increases for eroding audiences. Unfortunately, the “tried-and-true” no longer can be relied on to deliver steady growth. Compounding that reality, “steady growth” is insufficient when investors require double digit — and even triple digit — increases.

Myers suggests advanced media targeting tools are hurting, not helping, generate ad dollars because that pool of money is being distributed even more broadly to more and more things like blogs that would never, in the past, be able to get real ad dollars.

The digital media industry will under-perform ad-revenue expectations if it continues to define itself with outdated values, metrics and marketing initiatives that are undifferentiated from those of traditional transaction-based mass media.

There are two paths for advertising-dependent content companies:

1.) Drive mass audience reach and build powerful advertising engines for delivering targeted audiences at cheap costs based on traditional mass media metrics with added measurable interactive capabilities.

2.) Invest in building relevant and differentiated media brands that generate multiple revenue streams, and invest in organizational resources that enable marketers to connect in meaningful ways with their consumers through your brands and brand extensions, understanding this requires risk and a long-term commitment to innovation.

The ideal media companies of the future will offer both. Content companies that fail to deliver either will continue to struggle in a purgatory of under-performance.

I’d expect most of us engaged in conversations with new and existing companies getting into this space are most comfortable with companies that are not pure play third-party ad models, or have the means to either build a mass audience network quickly or have a very tightly focused and unique vertical they can service like no one else.

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