Recurring theme: It’s all about your advertising

advertisingThe digital disruption has given clarity to what is the artificial belief that a media company’s advertising infrastructure is tied to its ability to create content. This is important on many levels, so I thought it would be useful to take a step back and examine its essence.

In the broadcast world, it’s how many commercials you can run inside the closed system that is a broadcast signal. Since the signal can’t expand, the only thing to do to make more money is to buy other channels, raise rates or add more commercials. I recall a study I did a few years ago of the program Law & Order. When the show first aired in 1991, the average program length was 48 minutes. By 2008, that had declined to 43 minutes. What happened to the other five minutes? It had evolved into commercial time.

We can call this many things, but the motive for NBC was to increase its advertising infrastructure. The ad infrastructure inside a newspaper is limited to the pages of the paper. To increase the infrastructure, you must add pages, whether they are in the form of more “news” or special sections.

The important thing to understand from an historical perspective is that advertising infrastructure was tied to the properties owned by the media company. The value of that infrastructure was the size of the audience it delivered, whether in total or specific demographics within the whole.

It’s a different world online, however, because the reach of one’s advertising infrastructure doesn’t have to be tied to property ownership. In fact, it’s actually more beneficial (and profitable) that it not be. This is why I’m so adamant that the most important product we can create as media companies in 2010 is a local online ad network, a business that leverages our relationships with local businesses and our roots in the local advertising community.

A story in the New York Times this week spotlights the issue. The piece, about how a newspaper in Manchester uses a third-party content provider to boost traffic, quotes Doug Hardy, the paper’s Internet director, as recalling the general thinking when website traffic declined:

“We needed new strategies,” Mr. Hardy said. “We needed new ways to draw traffic to our site and to improve our product and make it more compelling.”

What Mr. Hardy is really saying is that their advertising infrastructure was shrinking with declining traffic. This comes from the belief that a media company’s ad infrastructure is tied to only the content it creates or hosts. Strategies were needed to create more page views and keep people around, the only two ways to increase an advertising infrastructure within a closed system.

If I’m in a university town, it might be a good idea to create a niche vertical site dedicated to that university’s sports teams. But it might actually be better to serve ads on the other niche sites that already exist in the market. Think about it. The purpose of creating such a vertical, in all likelihood, would be to grow our advertising infrastructure with ad impressions dedicated to loyal university sports sponsors. I mean, why else go to the expense of building and maintaining such a site? Such a venture would certainly fulfill that purpose, especially with a TV station or newspaper to drive traffic to it.

But if such an audience already exists on one or more other such sites, why not avoid all the expense and simply split ad revenue with them? This carries no risk, because the job of generating the content lies elsewhere. You might be able to make a case that you could do both, and I’d probably agree. But Google has learned that, as the Web grows, it’s better to put ads on everything rather than try and control the growth, and this vision can apply to local markets as well.

The point is that there is no way we can create an advertising infrastructure that will compete with the entirety of the Local Web. This is what Yahoo discovered and why it works with a consortium of newspaper companies to increase its reach. Half a loaf is better than none, but Google’s way is preferred. Why? Because in the end, online advertising is all about data, and you can get much richer data from a wide variety of websites — especially if many of them are retail — than you can from a combination of media sites.

AOL’s “anti-portal” strategy relates only to content; its advertising infrastructure is the same across all of the vertical sites it runs. They recognized the truth about online advertising: that you can separate your brand from your advertising and do quite well.

So the lesson is this: Revenue is not (necessarily) about your content; it’s about your advertising.

(Originally published in this week’s AR&D Media 2.0 Intel newsletter.)

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