Big J Institutions Ignore the Digital Truth

January 2019 was another tough month for media companies struggling with ongoing revenue declines. Layoffs came in bunches as Gannett, Buzzfeed, Verizon, The Huffington Post, and others tried to balance the books against losses on the inbound side of the ledger. The problem, however, isn’t those always‐evil “market forces;” it’s now and always has been an inability to correctly read the declines and respond accordingly. To use a very old illustration, if the railroads had known they were in the transportation business, they would’ve owned the airlines. But, no; they assumed they were in the railroad business, which allowed the disruptors in. Same with media: they’re not in the news business; they’re in the advertising business.

The digital advertising market is far bigger than local media companies understand, and this remains the top obstacle in all efforts to “save” local media (and “media” in general). The most baffling element of this is how these companies refuse to even compete for all the dollars locally, choosing instead to compete only for dollars already spent on their models. As a result, the local digital media market is only 15 percent of what’s available totally. And, the saddest part of all of the indictments of media managers is that the market is growing while the traditional forms of advertising are shrinking, so you’d think these corporate managers would want a different business model. They don’t.

Nobody knows this better than Gordon Borrell, the man who provides the measurements for how well or bad these companies are doing. Borrell provides details sliced many ways, but perhaps the most revealing is his recent data on what he now calls the “addressable” digital market. This is a percentage of the total digital advertising market that believe the local media company sales pitches and spend money with these companies. This figure is the share of the market that media companies serve, and it has been shrinking for as long as I’ve known Gordon. What media companies don’t seem to understand is that their model is inefficient, because it’s based on the archaic marketing rules (reach/frequency) governing mass marketing. Meanwhile, digital pure play companies (those who exist to provide targeted ads to individual browsers based on those browsers’ history) get 85 percent of the total market.

In a webinar last month, Borrell provided data about this “addressable” market, and while it remains a big number, it’s nowhere near the overall marketplace. Here’s a snapshot of that (provided to us by Borrell), and it shows the futility of chasing only those dollars spent with a mass marketing model.

Data provided by Borrell Associates

This graph reveals that all of these media companies today are competing for only 15 percent of the total market. In Texas, they call this “dumber than a bucket of hair,” but Borrell is much more circumspect, calling this obvious failure a product of the environment in which local media companies operate. That’s fine, but shallow industry thinking is never created by “the devil made me do it;” it’s a question of knowledge, tools, and the intelligence on how to proceed.

Many years ago — before I went to work for AR&D in 2006 — I was invited to make a presentation to a media group in Tampa. Sweeping changes were just beginning to impact their business, and they wanted a summary of those changes, so they could figure out what to do. At the end of my session, I was asked a question that completely altered my focus on “the problem” they faced. “This is all great, Terry,” the top dog said, “but where’s the money?” I didn’t have a very good answer for them, so I spent the next 10 years studying the question. The conclusion I reached early on was that if these companies continued to proceed with only mass marketing as their model, they would soon fade from relevance altogether.

So, to me, the issue wasn’t about content, because while media content was certainly being disrupted, the blow to their business model was the only one that really mattered. Nobody listened, in part because these companies are run by mostly older men, who seek first to help themselves and their families in a comfortable retirement. Rocking the boat isn’t conducive to that end, and this is another part of Gordon’s “environment” that contributes to making foolish decisions at the top.

On another occasion, I was making a presentation to the top managers of an east coast media company. Among the strategies I recommended was to get into the local search business. The owner of the privately‐held company was present, and he asked me, “You really want me to compete against Google?” I said, “Of course. Google is competing against you.” The company tried a couple of things I recommended, but their need to move every innovation into their mass media business model proved me right.

I simply couldn’t convince anybody that targeting individual browsers in the community was the Holy Grail of digital advertising and abdicating this to the pure plays was corporate malfeasance. At core, the problem begins with executives believing they’re in the news business. They’re not. They’re in the advertising business, and that’s where their focus should be.

And, here’s the most chilling aspect of this: local media companies are unable to see the impact the disruption to advertising is having on the local communities they serve. Here’s another image from Borrell’s addressable market presentation:

85% of digital advertising money that originates in the community goes to pure play internet companies. That money leaves the market forever. These companies pay no local taxes, employ no local people, contribute to nobody’s community chest, and are a net drain on the economic well‐being of the community. This money drain is staggering compared to what local media companies are getting, and it shows no sign of a reversal any time soon.

Finally, I had a telephone conversation once with a guy from an ad exchange about the possibility of partnering with local media companies. In what was an embarrassing reality, this sales executive told me, “We don’t need to partner with anybody, Terry, because we already have access to 100% of the browsers in any market anyway.” 

You can ask Borrell about all of this for yourselves at his annual Local Online Advertising Conference March 11–12 in New York.

If I owned a local business, I certainly would want my money to go where it’s the most efficient and effective for growth, and all the evidence loudly screams that targeting local browsers is the way to go. The sales pitch of the account exec representing my favorite TV station seems shallow and archaic in comparison. There are no secrets that media salespeople can manipulate to their advantage anymore, and maybe that’s the real problem.

Regardless, managers who wince as if I’m calling their baby “ugly” have only themselves to blame, because the things I preached back then have certainly all come to pass. It ain’t rocket science, folks, and here’s a final prophecy for consideration. Either local media companies band together to attack the problem at the local level, or there will only be room for one “winner” in each market in the not‐so‐distant future.

Local advertisers to increase online spending this year

In what is clearly yet another threat to the health of the traditional local media business, a new survey from Borrell Associates reveals that advertising’s shifting sands have made their way to the local level. In preliminary results (1,800 participants) from an ongoing survey of thousands of small and mid‐sized businesses (SMBs) around the country, the largest number — 57% — say they plan to increase online spending this year. That number is significantly higher than any other form of media in terms of increasing ad spending. According to Gordon Borrell, “If overall local ad budgets are increasing only about 10% in 2015, the high growth in digital is coming at the expense of other media choices – notably print.” Yellow Pages, newspapers, and magazines are the hardest hit media categories, with each being targeted for spending decreases of over 20% or more.

Click to Embiggen

Click to Embiggen

The most interesting aspect of this new Borrell’s survey is that the majority of those who advertise in traditional media channels say they’re in a holding pattern on those expenditures this year.  That is, 51% to 65% of them said their print, broadcast or outdoor ad budgets would probably remain the same in 2015.  

(NOTE:  These results come from surveying active advertisers in more than 100 markets across the U.S.  If you’d like to know how YOUR local advertisers compare with these results, the Borrell survey will remain open until April 15th.  To participate in Borrell’s massive SMB survey, contact Greg Harmon at gharmon@borrellassociates.com.)

VCs find value where traditional media can’t won’t

money2smThe venture capital research firm CB Insights reported this week that VCs are “Bullish on News: Funding to Media/Fat Content Startups Jumps 145% YoY.” Although it appears on the surface to have nothing to do with traditional media, that’s illusionary. VCs are always looking for problems to solve, and the problem here is where, how and through whom people everywhere get their news. And it’s really not so much about content as it is money, for the Net isn’t disrupting content, it’s taking money from local communities. That includes the pockets of traditional media.

According to CB Insights data, “digital news and media companies raised $813M in 2014. In 2013, startups in the space raised $331M.”

Investors appear bullish that the new wave of media startups relying on digital technologies can create sustainable (and hopefully lucrative) business models. One such investor, Chris Dixon, a partner at Andreessen Horowitz, wrote after a $50M investment into Buzzfeed:

I believe the future of BuzzFeed – and the media industry more generally – will only get brighter as the number of people with internet‐connected smartphones grows, and the internet solidifies its place as the central communication medium of our time.

That’s $813 million that traditional media companies didn’t wouldn’t spend on development, because, in part, they’re convinced their brands will always give them a seat at the marketplace table. Meanwhile, what’s really happening is that, unrestrained by competition, pureplay websites continue to siphon off millions of dollars from the neighborhoods of legacy media. This has been the constant caution of Borrell Associates research data for the past 15 years. Newspapers are dying, and local television is being artificially propped up by cable retransmission fees, while their corporate owners are unable to respond with anything other that defensive comments.

I believe this will continue unabated, until something like private local ownership of media is resurrected and stems the tide. I just don’t see it happening any other way.

 

We need to get into the ad serving business

Inventory management is an industrial age conceptThere is a 20th Century marketing term being used in 21st Century marketing that doesn’t belong, and if local media companies are ever going to truly comprehend and benefit from digital advertising, we’re going to have to let it go. The term is “inventory,” and it hearkens back to industrial age models of doing business. If you don’t believe we’ve entered into a new age, I feel sorry for you, but that’s a different problem than what’s on my mind today.

I want to review (again) why I feel that not only the term but the concept is holding local media companies back from embracing the digital disruption. Here’s part of what I wrote two years ago:

In introducing the concept of Local Ad Networks to media companies — where we place ads on as many sites in the marketplace that will have us — I’m often met with the following response: “Why would I want to increase the number of sites I’m advertising on when I can’t even sell the inventory I’ve got on my own site?” It’s a logical question given the world we’ve created been handed. The answer is simple, but understanding it means thinking outside the conventional realm of reach‐frequency in a display advertising model.

Implied in the question are at least seven assumptions…

  1. The CPM method of selling and accounting is the best way to handle online advertising.
  2. All ad impressions are created equal.
  3. Eyeballs are eyeballs, and inventory is inventory.
  4. Cumulative reach is the same as real time reach.
  5. Banner blindness isn’t a real problem.
  6. The value of online advertising is determined by the advertiser, not the publisher.
  7. Local advertisers are happy with the CPM model.

In the old days of the Web, media companies built static pages, and those pages contained code for advertising. In this context, media companies sold “inventory,” because the weight of the site included a limited number of “avails,” despite the reality that the numbers of views depended on the number of people visiting. We could mathematically calculate a “real” inventory, just like we did with newspapers or local television, but this was always an unknown until after the fact. Eyeballs were determined by audience estimates, and that was often highly obscured, which benefited us.

Today, however, ad “views” are precise and web “pages” are generated dynamically based on a myriad of choices built into templates that come alive when a browser cries (in a hypoinstant) “Lazarus, come forth!” This allows advertisers to target specific browser windows, because in that hypoinstant the browser doing the calling is fully vetted electronically by the ad server for identifying information, such as IP address and cookies. In this sense, the ad server cares less about the ad slot — the inventory — than it does the browser that’s making the request, so “inventory” at the very best is a hole. Fewer people are buying holes these days; they’re increasingly buying specific browsers. This is what “targeting” is all about, so your inventory is only significant if the data available for the user meets specific criteria. It’s not that the holes aren’t important; it’s simply that they’re not the important part that an advertiser is buying. As long as media companies offer only sterile holes, we’ll never get on the side of real money in digital advertising, and this is as true for mobile as it is the desktop.

Today, Gordon Borrell released new revenue projections for newspapers and beyond, and there’s one slide that caught my attention. It projects local digital revenue into the future, by advertising type. Take a look:

Borrell Revenue Projections

The big growth opportunity is with targeted display advertising, and while “targeted” is a big word, the real money is in browser targeting, mobile or otherwise. According to Borrell, advertisers are no longer interested in CPM run‐of‐site buying, the mainstay of the old world. They’re interested in reaching specific categories of watchers or readers, and the ability of a news website to provide detailed targeting is limited (Wait, we have a pet section!). The 3rd‐party ad companies that serve ads on our sites have more detail about our users than we do, which is why they can target via our inventory while we really can’t. My fear is that media companies will get caught up in believing that they actually provide targeting within their infrastructures and will continue to cede the real money to pureplay web companies (and ad networks) that are able to do beyond.

In a very real sense, the actual “inventory” that a media companies provides is its audience, not it’s advertising avails.

The solution is for media companies to build their own local ad networks, but that’s one of those things that media companies simply don’t appear to be interested in exploring.

See “Why I’m leaving AR&D” below.

Aereo’s gauntlet has been cast

Should broadcasters disrupt their own business model for the sake of building something that fits better with tomorrow and tomorrow’s technology?

An insightful article in yesterday’s New York Times makes the chilling point that the disruptive nature of Aereo, Barry Diller’s broadcast antenna farm for digital users, “might lead to a larger breakdown in the bundling of content over time.” In other words, it’s a threat for broadcasters to take seriously.

And they have. A judge’s refusal to grant an injunction against Aereo this summer is being appealed, and broadcasters are confident they can win on grounds that it’s a copyright violation. Aereo argues that by providing antennas and DVRs to subscribers, they’re doing nothing more than a consumer could do for him or herself.

There are other players in the space, including those blessed by the National Association of Broadcasters, but Aereo gets the publicity, because of the clever way it skirts the status quo.

The real conundrum for broadcasters is this: should we pursue this disruption for ourselves instead of playing defense, defense, defense? The answer is tougher than you think. The Web is not a sustaining innovation for broadcasters anymore than it was for newspapers, as noted by Gordon Borrell two years ago:

Is the Internet a sustaining technology to their radio, yellow pages, TV companies and newspapers, or is it a disruptive technology? The key to how companies think about that is the key to success or failure, and the key to why some companies in the local Internet space are succeeding so well, 10 years later.

As Borrell noted, you can tell what companies believe by how they’re behaving, and a Johnny‐one‐note of defense says much. There are many who would like to see the Web function as a giant cable TV system, but that position looks a lot like wishful thinking, regardless of how much money is poured into it. The Web is a 3‐way communications medium, not one‐way, and pulling broadcast signals into the mix doesn’t change that.

We’ve all heard the stories about how Blockbuster “should” have been Netflix, Kodak “should” have owned digital photography, and railroads “should” have been airlines. Here we have a case where the broadcast TV industry has an opportunity to cannibalize itself and create an advantage in the world of digital, unbundled TV, instead of sitting back and watching somebody else do it instead and at our expense.

The problem is that that would take thinking like the tech industry and not the media industry, and I’m afraid that’s just too much for us to handle right now. We have little energy for it, because managing threatened bottom lines is a full‐time job all by itself.

Is this is a case of fighting to win the battle while losing the overall war? Only the cold reality of future history can answer that.

Borrell’s DMRs are a refreshing change

Borrell Associates announced its innovative Digital Marketing Regions (DMRs) last week, a move designed to give local digital media and digital marketers an organized and sensible area within which to ply their trades. Long overdue, it’s a practical solution to defining areas of influence that plays much better with the more precise targeting available via the Web. Instead of using television’s 210 DMAs (Designated Market Areas), for example, the Borrell DMRs offers 513 slices of the digital pie.

Local advertising is sold, not bought, and this should help local sales by injecting more precision — and eliminating some of the guessing and waste — into local or hyperlocal ad deals. Some people want to touch as broad an area as possible, but that makes no sense at all to others. I’ve spent a lot of time in hyphenated television markets where certain ad rates couldn’t be justified to merchants who only cared about one community or the other. DMRs are designed, in part, to overcome that.

Borrell Associates has given both buyers and sellers a whole new frame of reference for today’s digital world, and I think it’s a very big deal. I caught up with Gordon Borrell via email to find out how people are reacting.

Gordon BorrellHow do mainstream media companies view this? I can’t imagine they’re really happy, especially where you’ve actually carved up their territory.

Depends on who’s viewing it. If it’s a mainstream media company that manages its digital ventures solely through the lens of their core product, they’re going to always look for gold in the shadow of that umbrella. If it’s a mainstream media company that understands the new medium as more than just a digital product extension, they’ll embrace the DMR concept. Neither way is bad, by the way. It’s just a choice that a media company makes. TV stations or newspapers won’t be doomed if they think of online media only as a way to extend their deadlines and sell a little more advertising to their current customers.

Who benefits the most from this innovation and why?

It’s just another piece to the digital puzzle, so anyone who’s earnestly trying to figure out the big opportunity will have another jigsaw piece to work with. They benefit from being able to have a more realistic, manageable marketplace geography to work with. The biggest advantage is that now, for the first time, we can gauge the size of the market opportunity for any one media company. Most people are shooting for incremental growth over last year. If you look at the DMR and know what your share SHOULD be, you might start shooting for 100% or 200% growth. And given the right resources, you’re likely to get it.

Have you had discussions with reach measurement companies to adapt your new schema?

No. They gauge traffic, and oddly enough traffic doesn’t relate that much to digital advertising. I know of a site that gets less than 30,000 monthly unique visitors and is making about $4 million, and in that very same market there’s a site that gets about 2 million uniques and makes about $5 million. It’s not the massive audience that advertisers want on the Internet. It’s a specific audience. There’s riches in niches.

What’s the reaction been? Any surprises for you?

Very, very good. Lots of “it’s about time!” and “we REALLY needed this!” type of messages. A few sharp people have pointed out market definitions that we’ll have to revisit — which is what we really want. It’s hard to know consumer and advertiser patterns for every single one of the 513 markets. So this type of feedback is most valuable to us. We’ll likely reconfigure about 5% of the markets based on the feedback, after we investigate spending patterns further.

In today’s ever‐changing digital world, the need for traditional sales infrastructures to evolve has never been greater. I view the creation of these DMRs as a vital and necessary transition that will serve everybody involved in digital media and especially digital sales for a long time. I suspect, however, that this is just the beginning, for even the very definition of “local” is changing. We’re simply too hyperconnected these days. Miles mean nothing in the network. The idea of local shopping — for certain things, especially perishables — isn’t ever going to go away, but companies like Amazon and E‐Bay are making it harder and harder to sustain margins in other “local” shopping worlds.

As Michael Powell said in 2004, we’re in the midst of “the greatest paradigm change in the history of communications, and it will change things forever.”