Be wary of trading analog dollars for digital pennies…

Jeff Zucker (CEO NBCU) was rightly concerned about his analog franchise when he made this comment earlier this year. After all, the five major broadcast networks raked in $9.23 B in this year’s upfront market (vs. $9.15B last year) despite their audience declining 11% (average across the five networks for the first 4 weeks of the new season). TV seems to be one of the few businesses that can demand (and get) more money while delivering less. Why is that ? Scarcity!

Brand advertisers need reach, and with media fragmentation, the broadcast networks remain amongst the few means to reach large national audiences in one fell swoop. The networks play this card to the hilt and advertisers don’t want to be left out. The analogy that comes to mind is how CIOs never got fired for buying IBM. Yet, IBM feel from its perch and the same could happen to the networks. The networks will not go away (nor did IBM), but they could soon be trading their analog dollars for digital pennies.

Why is that ? Because the scarcity of ad inventory may be short lived.

On-line video inventory (for premium content) is like to grow dramatically In the IP based video world, content is on demand, and viewer ship is likely to explode as more premium content is available on-line, concurrent media consumption increases (according to Mindshare, millennials can cram 20 hours of media consumption into 7 hours of media time), and people come to terms with the flexibility that sites like Hulu and Fancast offer. For more on this, see earlier post –http://ashugarg.spaces.live.com/blog/cns!F19091A9C9230F9C!286.entry as well as http://ashugarg.spaces.live.com/blog/cns!F19091A9C9230F9C!264.entry
YouTube! YouTube attracts 300 M monthly visitors (an order of magnitude more than the most popular TV show). Today that inventory is not being monetized because of concerns about context, brand, etc. But that will change. And when it does, advertisers will have to decide how much of a premium to pay for TV ads when they can reach the the same (or larger) audience and show interactive ads on the web.
The cost of producing content is declining exponentially and distribution (via the Internet) is getting easier. As a result there is likely to be an explosion of new age content production houses like Rev3 that will offer brand advertisers a low cost alternative to network TV, but with many of the same benefits (well defined audience, editorial control, predictability, etc.).
And so, Jeff is right to be worried about trading analog dollars for digital pennies…unfortunately, worrying about something does not mean it will not happen

About Ashu

General Partner with Foundation Capital. Areas of interest range from digital media, mobile and internet infrastructure to all things related to India. Currently on the board of TreeHouse, Aspire, Conviva, Agni and TubeMogul.
This entry was posted in On-Line Advertising, Video. Bookmark the permalink.

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