1. Starving at
WHY BIG MEDIA COMPANIES ARE FAILING TO CAPTURE THE SHIFT IN
by Nevo Hadas
HEAD OF MEDIA CONVERGENCE, KAGISO MEDIA
2. Never before has so much media been seeing traditional media companies fail,
consumed and created, by so many. We even while their industry booms. The
are entering a media boom. question of “what business are you in” is
ever more relevant to media businesses
This boom, however, requires a signiﬁcant
today, as items that held value in the past
shift in media business models to ﬁt the
rapidly become commoditized and price
new paradigms of production and
points are threatened by the concept of
consumption. As with other historical
technological shifts, we are moving away
from an economy of “scarcity” of media to One of the impacted business models is
an economy of plenty. However, we are advertising supported media. Most media
businesses since the 1940’s have based
their income model on the availability of
advertising revenue. Like media
consumption, advertising revenue will also
boom; but how this takes form may
We are seeing the rapid growth in online,
and soon, mobile advertising. New
freemium models for content purchases
and cost per click advertising are
redeﬁning how advertisers and consumers
perceive value. Big media businesses,
which for a long time have utilized control
to impact markets, are now threatened by
the freedom of choice that new
technologies offer their audience.
But is it possible that new technology,
rather than spelling the end of media, can
bring about a new era? New advertising
models that are beneﬁcial to advertiser,
consumer and media owner will be
possible. Greater variety and choice will
demand higher quality content, beneﬁtting
the entire value chain from producers to
consumers of content. To thrive, the
media industry needs to spend more
time looking at new opportunities and
less defending models of the past.
3. but is often more visible in this
History of media in industry due to the inﬂuence that
three paragraphs. media holds. We have termed these
businesses “Big Media” and they
The concept of “mass media” as we control much of today’s traditional
know it is relatively new. The ﬁrst media structures.
newspaper was published in England
in 1620 but only became “mass” The economics of Big
media around the 1830’s. Radio
began in the 1920’s and TV in the Media.
1940’s. All in all, the entire industry is
less than 200 years old and was It is important to understand that, due
made possible by the industrial to its political inﬂuence and power,
revolution and the printing press. mass media is highly regulated. Big
Media have used this to their
Each of the technological innovations advantage by limiting competitors,
that followed -- the printing press, thus limiting the number of media
radio, television -- led to a boom that options available to audience. Limited
made not only new platforms but all competition and large audience
of the previous ones more valuable. numbers inevitably equal high levels
Why? Because new technology of proﬁtability due to high prices.
unleashes a large amount of beneﬁt to
society and the economy as a whole. Media markets that have rapidly
It is hard to imagine the consumer deregulated have dramatically
driven economic boom that started in reduced proﬁtability for the key media
the 1950’s without the advertising that players in them, even though the
promoted it. It can be construed that market overall has grown.
a strong symbiosis exists between
advertising, the consumption choices The music and ﬁlm industries are
people make and thus overall different, however, as their position is
economic stimulus. not regulated. That said, they have
used copyright law and distribution
As there are tremendous advantages agreements as protective tools to
to scale, the media industry has control the distribution of media.1
rapidly become controlled by
conglomerates, many of them The most critical tools used by mass
invested in a variety of media. This is media to protect their market power
not a phenomenon unique to media, are:
1It was the record industry that ﬁrst fought against copyright in the law courts as they saw it
hurting the then emerging record and gramophone market.
4. Distribution Frequencies and distribution economies to reach
Imperfect information The selection of data for buyer decision making.
Scarcity There is a limited quantity of advertising space and
ways to reach an audience.
Distribution is power. audience or consumer to engage with
content is through the media
Big Media has control of the airwaves company and their selection. As Big
(or cable) via their broadcast licenses. Media is about mass consumption,
Print, music and the movies have the decision for what is “good” and
scale and physical distribution to do “bad” is often made to ﬁt the lowest
the same for them. common denominator.
Control of distribution provides This makes it very hard for small
signiﬁcant market power as you can content providers to get into the
limit access. The ability to grant or system and develop an audience as
deny access has always been a they have no cost efﬁcient way to
strategic position as far back as access the market. The high cost of
Leonidas at Thermopylai2. It provides alternative access to audience
signiﬁcant leverage on resources ensures that no competitors can
applied and thus proﬁt. In other easily enter the marketplace, thus
words, if you want to reach 6 million further maintaining the limited number
people in a speciﬁc market segment of competitors and the concentration
and I control access to those people, I of audience with big media.
am in a strong negotiating position. If
I have a small competitor set, my Big Media uses its size to engender
position is protected as, assuming trust via their own marketing. By
sufﬁcient demand in the marketplace, being pervasive in a way only scale
it is in none of my competitors’ allows, they promote their businesses
interests to signiﬁcantly undercut and content offering at no cost, which
prices. is a signiﬁcant strategic advantage
over all other industries. The bigger
Control of distribution also equals your audience is, or the more limited
control of what reaches the audience. the selection of media in that
The distribution channels are tightly category, the more powerful that tool
held and thus the only way for the becomes and the harder it is for new
entrants to gain a substantial footprint
in the market.
2Known in popular culture via the movie “300”. Leonidas held the Thermopylai pass to stop the
Persian advance into Greece.
5. campaigns tremendously. Thus, they
Imperfect information. know that advertising works, but
cannot speciﬁcally say what
The other key component for advertising works best.
advertising supported media is the
paucity of measurement available in For example, in the newspaper
traditional media. Most research is business at the moment (Dec 2009)
based on a small subset of audience Rupert Murdoch is publicly blaming
which is then extrapolated out to the internet and search for the demise
provide a view of the whole market. of print newspapers. However, if we
It’s a well known fact that the unpack the business model for
measurement tools for traditional newspapers we see that it
media are considered to be imperfect, consciously utilises wastage and
but as long as everybody is imperfect imperfect information to capture a
we accept that the big picture is higher return from advertisers.
Newspapers are sold on readership. A
This means that, as an advertiser, you reader is a multiple of the circulation
cannot be certain as to how your of the newspaper (the number of
advertising is performing without a newspapers printed and sold or
number of complex measurements in handed out). Let us assume that 3
your fulﬁllment mechanisms. Most people on average read a newspaper
advertisers do not do this as that and that a newspaper has around 100
would push up the cost of the pages including inserts. Each page
6. represents the opportunity to sell enough” for the majority. This also
some advertising. That means that for relates to music albums.
each copy sold we are assuming a
potential of 300 page views. We don’t Although it is rare for somebody to
know, however, if the reader actually love all the songs of a band’s album,
reads all the pages. They may just be the record industry’s multi-song
interested in the business section or album format is based on the delivery
just in sports. All the newspaper mechanism, i.e. an album, rather than
business has to sell, however, is an the actual value of the songs. The
estimate. We therefore have a same can be said for pay TV channel
business model based on imperfect bouquets and for most forms of
information. bundled pay broadcasting.
As with all imperfect systems, Big
Media behaves in ways that are either
inconvenient to its audience or even
dishonest to “cheat” the Where there is a physical limit to
measurement of their audience. advertising air-time on television,
Whether it is “bulking”3 by print radio and print space, there will be
publications, or the repetition of a upward pressure on the price of
radio station name and frequency advertising. Similarly in a world where
every 10 minutes 4 , both aim to create there are a limited number of options
higher measurement scores and thus to reach an audience, the more
increase revenue without providing audience you reach, the higher your
the advertiser with even a vaguely price climbs. The less advertising
accurate sense of the extent and space is available, the greater your
nature of engagement with their fee per spot. The key pricing game for
speciﬁc advertisement. media companies is managing the
yield per advertising spot versus the
Effectively, imperfect information number of spots that can be sold,
mixed with power of distribution while still maintaining audience
rewards mediocrity of content. interest. It is thus a “marginal value”
Content doesn’t have to be “the best” analysis where value is deﬁned by
for any speciﬁc member of your audience size due to their interest in
audience, it just needs to be “good the programming and the most
advertising breaks they are willing to
bear before switching channels.
3 Bulking pertains to giving away free copies of publications and reporting it as added circulation
to drive up readership and thus reach. This in turn increases the price of advertising space.
4With per track pricing now available via iTunes and so many other online music sellers, it can be
seen that most blockbuster artists do not sell albums, but rather that individual “hit” songs. This
has impacted label revenues dramatically even though a greater volume of purchases is being
7. Record labels such as EMI are in
The scarcity of content is also bankruptcy, newspaper revenues in
relevant. By controlling the content the US have tumbled from $60 Billion
ﬂow, you consolidate audiences on a to $37 Billion and amid ﬂat advertising
smaller number of platforms. This growth, internet advertising has
increases efﬁciency and proﬁtability. It overtaken television as the largest
therefore isn’t in the media owners’ advertising medium while radio
interests to have too much choice, as revenues and proﬁtability are down
creating high quality content is signiﬁcantly in developed markets.
While all of these changes are not
driven by the emergence of the
Is the impact of the Internet, it has dramatically shifted the
internet the end of Big speed with which these changes are
The challenge for Big Media is that
From the late 90’s the online media the internet reverses the key elements
tsunami has been coming in. The that provide their market power and
cliché that major technology shifts fundamentally changes price
always take longer to arrive then structures.
anticipated but their impact is always
more severe than imagined, seems to
be coming true in the media space.
8. Distribution From control to anarchy.
Imperfect information From lack of data to in-depth data.
Scarcity From limited ad space and audience to unlimited
ad space and audience.
From limited content to unlimited content.
Second, audiences can utilize more
Distribution. media with no switching costs,
increasing the diverse amount of
The internet fundamentally changes media they consume and making it
government’s ability to regulate media excessively hard for media companies
and thus the ability of a small number to be a viable way to reach an
of companies to access to audience. The increasing use by
consumers. Whether content is free, individuals of multiple media means
“freemium”, or behind a dedicated that the same person could be
pay wall, it can be delivered cheaper, targeted across a variety of platforms,
faster and without a license. reducing the power any single
platform has to demand premium
We have moved from the limitations advertising based on scarcity. All this
imposed by lack of frequency or the creates new advertising models and
cost of a subscription to a pay technologies which will be discussed
service, to unlimited quantities of at a later in this eBook.
content, available through multiple
providers and from anywhere in the The loss of distribution power is
world. effectively the loss of Big Media’s
monopoly. There are limitless new
This loss of control over distribution entrants, signiﬁcantly large numbers
impacts the business model of competitors, increasing numbers of
fundamentally. ways for advertisers to reach
audiences and dramatic impacts on
First, the cost of entry drops enabling both price, and how media is sold.
almost anybody to provide media to
an audience. In fact, the shift from
scarcity to plenty presents a new
problem for consumers: they have to Imperfect information.
sift through all of the content available
to discover what they feel is useful. The move from imperfect information
“Search”, provided by companies like towards perfect information will
Google and Microsoft, is therefore a dramatically change the price of
critical tool in selection of media, advertising and have a signiﬁcant
effectively becoming its own impact on the beneﬁt to advertisers.
9. Traditional advertising pricing models planners will prefer simple
are based on a measure of measurability over broad targeting,
“wastage”5. The selling of media is and this will shift media spend
based on targeting an audience using towards a medium or model where
rough reach measures and broad Return on Investment is simpler to
Further, the difﬁculty of measuring
efﬁcacy limits how reﬁned an
advertisement can be to target
speciﬁc consumers. The old adage, “I Living in a world of scarcity is
know half of my advertising works, I something that we are all familiar and
just don’t know which half,” rings comfortable with. Though many New
true. Age types would disagree, scarcity is
common in the physical world. The
The new models, though not internet, however, has developed to
foolproof, offer far greater enable a “wealth” of information at
measurability of advertising success, our ﬁngertips. Though not limitless, it
making it easier to monitor both reach is generally abundant.
and interaction. With measurability
comes the ability to understand the The cause for the abundance of
efﬁcacy of advertising mediums and media the ease of adding and
executions and deploy advertising accessing information. Where before,
spend more effectively. Bob the Butterﬂy Collector couldn’t
afford to publish a weekly magazine
The change in the level of information and the editors of the local
available to advertisers will have a newspaper didn’t give him a Butterﬂy
signiﬁcant impact on price. It can be Beat column, now he can reach an
expected that over time the price per audience. And for thousands of other
interaction will increase and wastage butterﬂy enthusiasts this is a real
will decrease. Advertisers will be beneﬁt.
willing to pay more per interaction (or
person reached) than they are today. This same story is repeated literally
millions of times, from bloggers to
So, we may see an effect where even specialist publications. The net result
though advertisers are spending less is that media no longer serves the
overall on advertising, they are paying “mass market” only, it starts to serve
more per advert. The biggest threat those at the edges. “The long tail.”
this transition poses to traditional The interesting thing about the long
media is that CFO’s and media tail is that every person is part of a
long tail for something.
5 Wastage identifies the target audience reached that is not core or interested in the offering.
10. Now these butterﬂy enthusiasts are will have very little competitive
not only into butterﬂies. They ﬁt into differentiation as broad tools of reach
other target markets too. They buy and frequency.
cars, go on holidays and have mobile
phones. Reaching them through
Butterﬂy Beat is as viable an option
The declining cost of
as it is via the New York Times. If the advertising.
message is crafted, in fact, it may well
be more effective on Butterﬂy Beat. The increasing number of media
providers and methods in which the
The abundance of media choices audience can be reached will force a
creates another price shift for decline in the price of advertising as
advertising. The easier it is to reach we know it today. Alternative forms of
your audience through a variety of reach will devalue even traditional
suppliers, the less market power each advertising models. This will create a
supplier has, and the lower the price signiﬁcant challenge for media
they can charge. The fact that you as owners unless new models in which
an individual in a target market value can be unlocked are found.
consume 10 different media providers
by the time you ﬁnish your morning
coffee at work gives the advertiser the Relevance over reach.
option to choose how to reach you.
Although each medium may have As already discussed, mass media
different beneﬁts and qualities an advertising is currently sold based on
advertiser may wish to employ, they a reach model that incorporates high
11. levels of wastage. It reaches not only context, i.e. the purchase of a search
the target market, but segments that keyword.
are not in the market. The advertiser,
of course, pays for all of them. Search-based context allows the
advertiser to be where the consumer
From an economic standpoint this is is without having to guess which
inefﬁcient and advertisers have been media they might be consuming. This
looking to ﬁnd a way to ﬁne tune the is relevance driven by demonstrable
targeting of audiences to reach key consumer demand rather than
markets more effectively. relevance driven by media supply. It
provides the insight that people who
Ideally, providing an advert only to are in the market for a car may not
relevant consumers in the market necessarily be reading car magazines.
would optimize the spend. Relevance
however, is based on a number of The relevance model increases the
factors including propensity to buy value of the audience for both
and timing, e.g. you may have advertiser and media owner. The
propensity to buy, but won’t not for more an advertiser can target an
the next few years. Currently, audience, the lower the wastage and
relevance is achieved through the higher the success rate, thus the
context, i.e. placing adverts for cars in more they are willing to invest. Their
car magazines. return on investment increases even if
New advertising models, such as they are paying more per interaction
search advertising, have allowed because they have stripped out the
advertisers to purchase relevance cost of wastage.
without needing to buy a speciﬁc
12. By contrast, traditional media owners
Demand versus supply are caught in an old paradigm where
based pricing. they generate content and have
limited audience that comes to them
The Google pricing model has done for that speciﬁc content. This means
away with the rate card to enable that a certain minimum amount needs
keyword auctions. The advertiser sets to be charged for the efforts to be
the price of what a keyword typed proﬁtable. Letting advertisers select
into a search engine is worth, and as price would be difﬁcult as there is an
many advertisers compete for the insufﬁcient audience size to do this
same keyword (seeing it to be highly effectively.
relevant), the value of the keyword
increases as there is still a ﬁnite However, in the face of a changing
audience typing that keyword into market paradigm and such attractive
Google. pricing models, it is critical for media
to differentiate its pricing and provide
By helping smaller publishers (as value to advertisers or face immense
small as a single blog) to solve the pricing model pressures which will
problem of selling their sites by make it a struggle to succeed.
providing a self-service system,
Google has given itself the Targeting.
opportunity to rapidly expand its
audience. The business is built on the Demographic information is already a
basis that advertisers will pay for key value driver for advertisers as it
results (there will be a “cost per click”) makes it possible to target a speciﬁc
and will not be concerned which market. Demographic targeting is
media provided them the results. This currently done using broad research
means that, through their network of tools and extrapolation of ﬁndings
publishers placing Google advertising across the total market.
spots on their websites, Google can
efﬁciently sell media. With the ability to target advertising
on an individual basis (i.e. deliver x
And so, their search engine model is banner to y target audience and z
leveraged with a network model banners to w audience) advertisers
providing almost limitless inventory can enhance their messaging to be
space at no cost. In this way, it’s not more persuasive and effective, thus
an issue whether one site is achieving more with their ad spend.
successful or not. Google can This capability is far more effective
therefore have a success-based than traditional broadcasting, where
model and auction-based pricing the same message is delivered to the
because they can deliver a large array entire audience.
of advertisements to make even a Beyond demographic targeting,
0.02% clickthough rate highly behavioral targeting allows
proﬁtable. advertisers to deliver messages to
13. customers whose actions and
interests are aligned with the target The changes in how advertising is
market. Behavioral targeting is priced will mean that, by controlling
gathered by viewing the individual’s the amount of reach they are willing to
journey across a site or even across target, smaller advertisers will now
the internet to discern their interests have access to the advertising
and potential buying patterns. opportunities previously only available
to bigger advertisers.
Behavioral learning can be across a
network of properties and media In simple terms, if I can only afford to
owners and not just one site, allowing reach 1000 potential customers this
an advertiser to reach an month, I can purchase advertising
unduplicated6 audience more exposure equal to that. Even if the
effectively. price per quality interaction is high,
the overall price I am paying will be
This means that the new value for far more effective than the price I
media owners is not just would have had to pay in the old
understanding the behavior of media paradigm. The timing and
individuals, but in helping advertisers potential cash ﬂow is also more
use this understanding to more favorable as I am more closely
effectively target advertising. aligning my revenue stream with my
Segmentation drives This ability to purchase smaller
revenue growth. chunks of advertising was not
possible with the traditional broadcast
If you’re able to make advertising or print media, where one had to pay
more relevant, targeting smaller for the total audience, whether they
segments of the overall audience will were relevant or not. The type of
increase. The sum of the segmented advertising could be changed -- you
audiences is likely to be worth more could advertise in the classiﬁeds or
than the unsegmented, or bulk, on the opinion pages of a newspaper
audience currently being sold. -- or the timing could be adjusted,
but the impact and quality of your
Smaller audiences can be sold at a advertising would inevitably be
higher yield than the current bulk compromised in ways you could only
advertising deals. guess at without detailed reporting.
So, lower prices and more segmented
The shift to a bigger sales methods should increase overall
market. demand for advertising as the value of
the audience would be deﬁned both
6 Duplication of audience refers to reaching the same person through a variety of media, thus
spending more than is needed. Unduplicated means that you have reached the person with the
targeted frequency (number of times) and not more than that.
14. by its reach and by targeting factors. The convenience and simplicity
This can be seen in the wide range of argument would show that the trend
advertisers that Google and its would be towards the simpler option.
competitors attract. With more than 2 Consequently, advertising networks
million customers, their client base are becoming more powerful.
ranges from Fortune 500 companies Networks place advertising across a
to neighbourhood yoga instructors. variety of platforms, allowing the
advertiser to reach a targeted
audience more easily, all through an
The change in how automated interface.
advertising is sold.
Advertising networks could displace a
Selling segmented markets and a large volume of sales both from a
larger base of advertisers will require media sales force and media buyers,
new models for advertising sales both of whom require a higher
transactions. Improved systems to transaction cost. Many large
enable higher volumes of more advertisers have already taken media
complex transactions with a lower buying in-house as these tools
revenue per transaction will need to continue to demystify the media
become a core capability of media purchasing process. Smaller
houses. Self-service, realtime, advertisers who interact only with an
automated systems are already part advertising network will completely
of the backbone of the online circumvent much of the value chain
advertising. Traditional media will created by today’s media industry.
have to match these standards. Advertising networks at the moment
operate as an unsold inventory
The challenge for most media owners channel, buying up available stock at
is that they don’t provide enough the last minute (“unsold inventory”)
access to speciﬁc markets. E.g. and using that to deliver advertising
would I, as a small business, want to for its clients at a low cost. The move
place my advertising with 10 different away from unsold inventory solutions
media owners and negotiate for the to include premium sales has already
best price at each one? Or would I begun with Google’s DoubleClick’s Ad
prefer to work with a single provider Exchange program and smarter
that can purchase the advertising targeting of site visitors. It is a critical
space for me across a variety of development as digital media buyers
media owners and still achieve my will not want to access multiple
objectives? systems to procure advertising. They
will standardize on a small number of
systems and those may control the
bulk of advertising spend.
15. The strategic requirements for media media is purchased on GRP’s7 rather
houses may end up being to expose than the quality of the audience by
data and simplify integration points, media planners. The ROI structure of
rather than building and owning their ad networks creates a further threat
own advertising networks. The ability as low quality audiences can easily be
to provide and receive information offset by price, thus creating a
from multiple ad networks, numbers-based purchase that erodes
dynamically select optimal price and all brand value.
run the advert will become a critical
part of the value chain. What this signiﬁes is a potential shift
in market power, away from media
In a world ﬁlled with higher levels of owners towards advertising networks.
targeting, the advertising networks As these networks have reach
gain signiﬁcant power. Advertisers will through their networks of media
be more interested in Return on owners, they have a better ability to
Investment in an audience and less direct advertising spend than the
worried about where the audience is media owner directly, especially for
originated. This will dramatically the smaller advertiser. A large number
reduce the power that media brands of small, targeted media platforms,
have to command a premium along with advertising messages
advertising rates based on the quality tailored to ﬁt, will be a proposition
of their audience. This has already hard to beat.
happened in traditional media, where
7 Gross Rating Point – a measure of reach and frequency to reach a target market.
17. The battleﬁelds of the future.
While segmentation provides hope for a more proﬁtable future, the route to
customers is getting ever more complex for media owners.
Reducing media buying to a function of reach or frequency within a broad target
market is a growing risk. With higher levels of automation the ability of sales
forces to inﬂuence sales will reduce, further limiting revenue optimization
opportunities. Media houses have to review their channel strategies, develop the
capacity to serve the emerging broad-base advertising market and strengthen
relationships with key purchasers that live outside automated systems.
Behavioral targeting will favour either mass media platforms like Facebook,
where large audience numbers aggregate but reveal profound insights into
personal preferences and behaviours, or sites that hyper-serve deﬁned niches.
It’s premature to predict which system will be the winner in the new media
world. Behavioural targeting? Aggregation? Google? Facebook?
It is, in fact, likely that there will be a number of systems which will succeed in
providing better media experiences for both advertisers and users. They are
certain, however, to have one thing in common:
To survive -- and to thrive -- Big Media must develop the ability to analyse and
segment markets, along with the ability to share the information in a meaningful
way with advertisers. Reviewing existing content and product strategies is a key
component to creating the depth of inventory needed to compete.
The change from supply to demand side pricing will drive a growing reliance on
strong yield management software. Decisions regarding which advert to run
based on the highest possible price received from different ad networks will be a
key factor in optimizing proﬁtability.
Already, there are Big Media players who are adjusting their perspective and are
succeeding. Many, however, have their heads in the sand. Perhaps the question
most worth asking is:
Where do you stand?