Blogs on New Media Practices

ABC and NBC aren't competing to make the best medical drama anymore. Okay, yes they are-but there's a twist. It includes advertising (doesn't it always?). We recently saw one figure that puts television advertising at $46 billion for 2005(some have it at more). Advertising supports much of the content that we take for granted-we couldn't have been inspired by a television president on NBC for seven seasons without consumer packaged goods, automobiles and countless other iconic American companies buying 30-second-spots to try to inspire us with their ease of use, safety features, or "low-low" financing. But all of this is changing. We are not saying the sky is falling...just upfront buying.

In an economy driven by consumption (where consumption's number one driver isn't necessity but rather forces higher up on Maslow's triangle), advertising very much provides an engine, if not the engine, that drives a choice ridden society to consume. However, too many consumers of content simply see traditional "push" advertising as a negative externality. That is, they see commercials as a necessary evil. Simple market dynamics suggest that if there's a consensus in the market regarding a negative externality, and the technology is available to remove it, then you won't have that externality much longer. TiVo stepped up and is providing consumers with the technology to make the traditional 30-second-spot obsolete. But this is only the tip of the iceberg; the end game is a full digital living room where the broadcast model goes out the window. No more push advertising.

What does this mean? Where is advertising headed? We need to support the development of content (We mean, how is ER supposed to pay for all that fake blood without us?) but traditional push advertising is becoming more avoidable each day. Could people pay for each piece of content? Well, we don't know about everyone else, but we have been trained like it's our god given right to channel surf. We won't even go into the macroeconomic implications of erasing television advertising from our consumption economy-it's not going to happen. Nobody making content wants it, nobody distributing content wants it, and we, as consumers of content, really don't want to buy every piece of content that we want to check out. The answer for the content producers, advertisers and distributors is to understand the New Media Value Chain.

Understanding the New Media Value Chain will allow media companies to decrease the negative associations with advertising. In addition (media companies are going to love this), innovation and creativity (rather than a limited time available to sell) will set the limit for the amount of revenue that can be generated from a piece of content. As such, there will be competitive advantages to be had. Yep, let's just put it out there and say that innovation in advertising will be the new competitive platform for content.

Let's look at the media value chain in the simplest form:

Traditional push advertising takes place almost exclusively at the distribution stage. (From this point on ignore all numbers; we are only making a point, call Nielsen if you want ratings and ABC if you want rates). Let's say 20 million people watch Lost and ABC brings in $40 million in advertising revenue for every one hour episode. That's $2 per person watching for that hour. Anyway, two dollars makes sense because you can purchase the commercial-free episode on iTunes for a $1.99 and you can go buy the DVD set of the hit show 24, also commercial-free, for about $50. Let's see, that's 24 episodes for $50 dollars, or about $2 per episode. The market has set the price that it's willing to pay right now, and it's reasonably close to what ABC makes off each person if they added them as a viewer of the full ad supported version. Viewers have said that $2 per one-hour episode is approximately the price consumers equate to the negative externality of having to watch ads and have broadcast time being dictated to them. 

TiVo technology relieves both of these negative externalities for far less than $2 per one hour show and has so many other value-added features that we have begun to lose count. Why aren't TiVo-like technologies plugged into every home that watches more than 1.5 hours of television per week? Because content producers, distributors and advertisers need to understand how to play in the New Media Value Chain before TiVo technologies can be pushed out to consumers.

As we mentioned earlier, TiVo is only the tip of the iceberg. The nightmare scenario is a Napster-like trading of content and a decline in revenue similar to the record industries. But there is no need for any of this to happen. The New Media Value Chain presents opportunities to reduce the negative externalities of advertising, while increasing overall content monetization, and will likely be the new battle ground for competitive advantages in media. It all comes down to a couple of simple key factors behind which are any number of infinitely complex scenarios. Let's start (and end) with the simple factors:

Relevancy of Advertising

Increasing the relevancy of advertising to each individual content viewer can increase the amount an advertiser is willing to pay per ad viewed. This, in turn, will allow the content owner to show less "push" ads and still monetize his/her content at similar rates. There is no reason why we should see the same ads as a college kid watching the same show. Once you are requesting the content, rather then simply another viewer of a broadcast, than they should be able to serve you more relevant ads. More relevant ads not only means that less total ads are needed, but that each ad carries a reduced negative externality because it is specifically applicable to me and my interests. The aggregate effect of serving relevant ads to viewers is a substantial decrease in negative externality.

Integration Up the Value Chain

The second concept, and perhaps far more important, is increasing the integration of advertising further up the media value chain into the production and creative stages. This includes product placement, but goes far beyond. It implies that brands and their agencies will play an active role in the creation and production of content. This presents great monetization opportunities, but just as many challenges and risks. Brand integration at creative and production stages runs a very real risk of compromising the integrity of the content. This would create the same negative externality that was attempting to be avoided by removing the "push" type advertising. This is solvable, but brands have to work with, and within, the content. At the Madison + Vine Conference in Beverly Hills the point was made: Is Aston Martin a cooler car because James Bond drives it or is James Bond cooler because he drives an Aston Martin? What this demonstrates is that the right brands can enhance the content and the right content can, in turn, enhance the brand, but the right situations need to be found.

The issue then, regarding advertising integration, is that there isn't an easily accessible market for pricing this type of advertising. With the increasing fragmentation of audiences comes the need for more scalable distribution methods. The online titans (Google, Yahoo!, Microsoft) are looking for answers. For example, MSN Originals is looking to understand the value chain from creative to display and where all of the advertising opportunities are. Microsoft isn't looking to replace NBC or ABC, but it would certainly like to figure out where technology is going to play a role in the new advertising market that is required to support the new media value chain. And we'd bet they really want to understand it before Google does.

Another classic example of stakeholders figuring out their place in the New Media Value Chain was Mountain Dew funding the production of a snowboard documentary which supported its brand-a natural fit. But how much content production can Mountain Dew fund before it's spending too much time focusing on what was once the studio's view? How small or big should they be willing to fund? What if more than one brand is involved in funding? What if the content explodes all over the internet; how would the content creators extract value beyond the initial funding? Should they be able to? More issues the online titans all want to solve first.

What is certain is that innovative and appropriate integration into the creative and production stages of content can greatly increase the monetization of content and further decrease the negative externalities of advertising. Done in a marketing utopia, negative externalities could approach zero. The end game of effectively leveraging the new media value chain for content producers is that it could allow them to truly free their content, to be shared, altered and viewed whenever consumers may want. Let's make another prediction then: The first major content producers to effectively free their content will have a substantial competitive advantage over those needing to control distribution to achieve monetization.

Implications

So like we said, NBC and ABC aren't competing to make the best medical drama anymore; they are competing to make and set free the best medical drama. This is going to increase the importance of agencies as more relevant ads mean more forms of creative for the segments targeted and building brands that can enhance content can not be done in the content alone. It is also going to increase the role of technology in creating efficient markets for buying. Finally it is going to fundamentally change the relationship between advertisers/agencies, studios/content producers and the online community.

There is so much more detail to go into. Sentences in this post can be discussed for pages but it's a good place to get the conversation started.