Monday, June 21, 2010

Television Advertising: The Internet's Next Victim

"[Companies] must be prepared for major change in the future, and you must start now.  If someone else's revolutionary innovation catches you unawares, you must abandon what made you successful and take an entirely different course immediately." - Peter Drucker (1973)

I'm continually amazed at the way the internet has changed - and continues to change - the world of business.  Many of the changes appear to happen fairly slowly and are not readily apparent until well after the shift has occurred and left companies that didn't see it coming in serious trouble.

Lately, I've noticed a change in advertising that is affecting ad agencies, producers of consumer products, and television networks.  The internet is providing virtually free access to existing and potential customers - a situation that with the exception of a few isolated instances, had never before existed.

Seeking Out Commercials

Companies are starting to take their ads to sites like YouTube and, if successful, can reach millions of people for free.  As an example, a recent Coca-Cola Happiness Machine ad has had almost 2.4 million hits since being uploaded.  And since people are actually seeking out this video (and others like it), it's really falls into the category of indirect advertising, because it entertains as much as it sells.

This situation has many implications for those involved in making and airing commercials.  Television networks now face a serious threat that will most likely put downward pressure on rates for air time.  Advertisers now have somewhere else to go to air their commercials and, although the ads have to be creative and produced well enough that people will want to watch them, the money saved in airtime charges can more than pay for extra production costs.

For the television networks, it can mean a serious hit on revenues in the future, which is one of the reasons that has led to the battles between the networks and television subscription providers.  The networks can not count on ad revenues into the future to cover their costs and meet earnings targets.  To make up for lost future revenues, they are asking for more money from the subscription providers that want to carry their channels.  To read a blog post on the increasing tensions between the networks and subscription providers, click here.

Length No Longer An Issue

Another result of the birth of indirect internet advertising is that it no longer limits commercials to 30 or 60 seconds (the Coca-Cola video runs 2:03).  Fashion house Donna Karan has produced a "mini-film" entitled, Four-Play with Christina Ricci that is really nothing more than a 2:09 commercial.  The ad, which has not (and was never intended to) run on television, has had several hundred-thousand hits on a variety of fashion websites since its "release."  This type of advertising is becoming very popular in the fashion industry.

A final thought that comes to mind about this situation is the fact that it's much easier for advertisers to track the number of views its commercials are getting.  Television ratings services and subscription providers can report the number of television sets that were tuned to a particular station at a particular time a commercial aired, but there is no certainty that people didn't walk off or even paid attention during the commercial.  The growing use of DVRs has also made it very easy to skip ads to get back to the show.  When someone hits a video on the internet, on the other hand, it is pretty well certain that they are watching it.

Staying Ahead Of The Curve

Although it has been reported recently that television ad rates have returned to pre-recession levels, there's no telling what lies ahead for the networks.  One thing for sure, though, is that the television advertising industry is changing.  Just like other changes that are occurring - or will occur - because of the internet, it's vital for companies to pay attention to the world around them and be extremely sensitive to the subtle shifts that without warning can turn into whole-scale changes to the business environment.  And as fast as things are changing in today's world, falling behind is not something that a business wants to do.

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