We have met the enemy, and he is “pureplays”

Walt Kelly's famous quote from Pogo2010 is starting out to look like a fairly good year for some media companies, especially those with television station groups. In addition to a booming political year, there are signs pointing to a rebound in radio and TV advertising. According to a report in Media Daily News last week, we’re looking at three years of growth.

Media forecaster BIA/Kelsey says local advertising revenues for television and radio will reach $34.3 billion in 2014, up from $29.9 billion in 2009. That’s a 2.8% compound annual growth rate. Digital revenues for local TV and radio are expected to soar nearly 18% over the same period.

The same report shows that, by 2014, local TV digital ad revenue (mobile and Web) will reach $1.2 billion and represent 6.5 percent of the segment’s total $18.3 billion in revenue, up from 3.1 percent in 2009. Wow, sounds great, huh?

The problem with reports like these is always the assumptions behind the numbers. Here BIA/Kelsey has defined the market for local TV digital ad revenue as that which is produced and maintained by local TV stations. In this world, the competition for that $1.2 billion is the other TV stations in town. This is a myth, folks, because the real market is actually much bigger, and unless we wise up, our failure to act is going to hurt more than just local media. Local economies will suffer, as real local dollars quietly slide away to people who realize that — at least online — “local” is nothing more than a cash register for them. They don’t have to worry about employees, their families, and the many services that cater to them.

In the real Web world, for example, the pureplay Web companies are our enemy (competition), not the other media companies in town. Our barometer for success is measured against them, not the poor guy down the street with his own antenna, although those pureplays are very happy to have us think otherwise. Champagne corks pop when Google executives read a report like this the one from BIA/Kelsey, because it’s the distraction they need to not only pick our pockets but the local communities in which we live and work.

I’m increasingly coming to believe that this is a problem for the same local business communities that are using the tools of these pureplays to enable commerce. How?

Below is the latest graph from Borrell Associates depicting the market change between 2008 and 2009 in money that originated in the local marketplace and was spent on local online advertising. Note that the pureplays share of the market — a $13.2 BILLION dollar market — is now 51.7%.

Share of local money spent online

The market is growing. Borrell projects it’ll be very close to $15 billion in 2010.

What is the impact to your community’s advertising economy as a growing chunk of cash disappears? What impact does that have on the whole economy of your region? Local media companies employ real people and provide real dollars to the community, but that’s not the case with the pureplays. They are parasites, draining sustenance from markets in the name of enabling commerce. To whom will local merchants sell, if their money ultimately goes to Mountain View, California or hundreds of other places where these companies employ real people?

It’s not their fault; they’re just trying to do business. It is the fault of the local advertising economy — including all of the local media companies — who think they’re playing soccer when the game is really basketball.

Here’s the first line of a chilling article from Forbes:

National advertisers spend more than $120 billion on advertising in local markets and Yahoo wants it.

Of course they do. Local is THE target for the big boys now, because local is where online advertising is growing.

Can any local media company beat the pureplays like Yahoo and Google on its own? I don’t think so. And let’s be clear about one thing: companies like Reach Local and Yodle are Google in disguise, but Google just the same. They’ve found creative ways to use the tools of Google to make it easy for local merchants, and they’re very good at it. But every dollar that goes to them leaves the market. Let’s not forget that.

Here’s another Borrell chart that shows how the pureplays are making their money. The bar on the right hand side has Google written all over it.

pureplays use search listings

So perhaps we can’t beat Google on our own, but we can beat them by working together. That concept is becoming more rational with each passing day. I’m not suggesting it will be easy, but we all have a much bigger enemy that each other. Who will step forward and lead the way? If you want to know how I would do it, just drop me a line.

Originally published in AR&D’s Media 2.0 Intel newsletter.

Comments

  1. Terry, you’ve said here that BIA/Kelsey, “defines the market for local TV digital ad revenue as that which is produced and maintained by local TV stations.”

    I think you’re misunderstanding our point. The statement I made in this article which you did not quote in this post speaks to this point:

    Broadcasters must evolve to participate in more areas of the media ecosystem,” stated Rick Ducey, BIA/Kelsey’s chief strategy officer and program director, digital strategies for broadcasting. “This means developing the right multiplatform and multiple revenue stream strategies.”

    A key tenet of our “Digital Strategies for Broadcasting” advisory service is exactly what you seem to be advocating, that broadcasters must go after more slices of the local ad pie to achieve revenue growth. We cover these topics in our advisory service and also in our upcoming conference — http://www.kelseygroup.com/dsb2010.

    In any case, we appreciate your attention to our forecasts. I always look forward to your insightful and thoughtful posts.

    Thanks,

    Rick

    • I understand your point, Rick, and appreciate the response. The issue, I think, is language. “Media” believes it is in the content business, but it is in the advertising business. When you say “right multiplatform” or “media ecosystem,” the inference is content. The ecosystem is the Web. Period. Locally, it’s the Local Web. This understanding allows monetization of users, not content. Thanks again.

  2. Terry, thanks for your comments. I think we’re probably actually agreeing with each other but let me test that.

    To me, the media ecosystem certainly includes content. It also includes the web, users, advertising and local. It’s probably not helpful to focus just on advertising to the exclusion of content as content, brands, consumers, users and media platforms all interact to create the media business we love. To get a sense of a more multidimensional view of the media ecosystem, I’d suggest a quick look at an old post of mine at http://www.bia.com/5x5_Digital_Strategy.asp.

    For advertising-based revenue models, media provide content to attract users. As you say, the actual monetization mechanism is either performance-based (e.g., CPC — cost per click) or reach-based (e.g,. CPM — cost per thousand). Without the right content, brand and promotion it is hard to draw the users to the content so they can be monetized. I think that’s what you mean, if so, we’re in agreement.

    One other thing, you say “the ecosystem is the Web. Period.” That is not the media ecosystem I’m talking about. Mine includes online and offline media; traditional and dgital media. The reason is simple — that’s the media ecosystem both advertisers and audiences live in, so it’s what’s relevant. Certainly, the web and related Internet technologies based on TCP/IP platforms and related protocols are dramatically changing the media environment. But this still is only a constituent component of the large media environment, whether the focus is local or national.

    Thanks again for this discussion, Terry.

    Rick

    • Rick, we don’t disagree about anything except language. I’m only talking about online, so offline isn’t a part of the ecosystem to which I refer. I’m saying that when you put the tag “media” on anything, it raises the assumption that it’s essentially ad-supported content, because that’s the way “the media” does it. I’m saying that if you can separate making money from making content, the Local Web as a whole becomes your playground, and you’re not limited to “the TV online market” or “the newspaper online market,” etc. Surely advertising IS content in the new world, but content marketing and Borrell’s “Promotions” category would exist absent any sort of “media” as we know it today. So, yes, we agree. I’m simply trying to make a point that when you say “local TV digital ad revenue” and talk about projections, etc., you are implying that this revenue is associated somehow with the TV business or its brand, which is ad-supported content. This makes it hard for the industries to see beyond that in investigating the future. So I don’t think we disagree about anything fundamental. In fact, I truly appreciate there are people like you “out there” who understand this stuff so completely. Cheers.

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