A Game of Online Advertising Catch-Up
Is traditional media finally winning? Or is it a day late and a dollar short?
Where are most of the online ad dollars going?
A) Pure-play giants like Google, Yahoo, AOL,
MSN, and their ilk.
B) Traditional media companies like Time Warner,
Hearst and Meredith.
Answer: Itâ€™s split pretty close to 60-40 for the pure-plays right now but the growth rate for traditional media companiesâ€™ Web and mobile ad dollars is much more rapid than the pure-plays, meaning 50-50 is coming fast. [If you factor in end-user sales such as paid content and subscriptions online, the split is already close to 50-50.]
Either way, this leads to a debate: Are traditional media companies reasserting their rightful position as the advertising channels of choiceâ€”in print, in broadcast and online? Or are they playing a game of catch-up that painfully underscores the fact that pure-play online companies have stolen half of the aggregated ad spend in the country over the last 10 years?
Breaking It Down
Letâ€™s look at the numbers. In 2001, Internet ad spending on traditional-media Web sites was $2.3 billion, according the Veronis Suhler Stevenson Communications Industry Forecast. That year, ad spending on pure-play Internet companies totaled $6.1 billion. The pure-plays had a 72 percent share of market. In 2007, six years later, traditional media companies (including newspapers, magazines, television, radio and more) produced $11.4 billion in Internet advertising spending, while pure-play Internet companies produced $19.1 billion, for a market share of 62.8 percent.
But the traditional media companies are growing much faster in Internet spending, with a 2001-2006 compound annual growth rate of 30 percent, compared to 20 percent for pure-play media companies during the same period.
All in all not a bad performance. So why is it that the perception prevails that the pure-play giants are basically dominant? Part of it could be that Google invented search advertising and contextual programs like AdSense. Part of it could be that traditional media spent 10 years noisily defending print. â€śAll of the large media companies are dealing with macro secular trends,â€ť says John Suhler, founding partner of Veronis Suhler Stevenson. â€śEverything you read regarding the impact of the Internet is from the big, public companies, so it is a surprise to most when we report that the traditional media spend is within a couple of points of the pure-play companies,â€ť as measured in total spending, including subscriptions and access.
The Re-Emergence of Branding
Another factor in the negative perception about traditional media companies, says Jeff Reinhardt, managing director at Berkery, Noyes, is that the online percentage of revenue for traditional media companies is still small, even while growing. â€śYou take a large brand and 70 or 80 percent of their revenue is still non-digital,â€ť Reinhardt says. â€śThe pure-plays who have gone from zero to 60 so quickly get all the attention.â€ť
But the traditional media companies are suddenly competitive. A key, Suhler says, is the evolution of online branding. â€śIn the bubble period, all of the proponents said that branding didnâ€™t mean anything and all you needed to do is buy connectivity,â€ť Suhler says. â€śBut at the end of the day, branding is extremely important to sustain online activity. The non-branded sites have a lot more trouble obtaining eyeballs.â€ť
Of course, thereâ€™s also another way to look at this. â€śBefore Google and Yahoo came along, traditional media companies had 100 percent of the spend,â€ť says Scott Peters, a managing director at the Jordan, Edmiston Group. â€śNow they have half. Iâ€™m not sure this is a windfall for traditional media,. They were late to the game and the pure-plays were able to take half of the market share online. And traditional media companies over the last 10 years have been trying to claw back.â€ť