Advertising is Not A Sufficient Revenue Model to Sustain Content Companies. Jack Myers Think Tank.

Originally published June 2008The digital media industry will underperform adrevenue expectations if it continues to embrace outdated values metrics and marketing initiatives that are undifferentiated from those of traditional transactionbased mass media There are two future paths for advertisingdependent content companies which I describe later in this commentaryBeyond search engine marketing digital media companies are looking and acting strikingly like traditional media Executives are embracing mass media quotnetworkquot advertising models that may appear viable in the short term but will ultimately fail to deliver on the promise of a bold new interactive communications universe Venture capital investors are the first to note this dangerous reality Ask almost any VC who has made a bet on contentbased and advertisingdependent companies how these investments are performing Twotofour years in most are generating returns for investors of twotofive time multiples These are far below the minimum tentime multiples they expect At the other extreme equity investors who have pumped billions into highprofile media content and distribution companies are struggling to realize their expected returnoninvestment Many digital media acquisitions that are dependent on advertising revenues are not generating anticipated growth and the stock market performance of most addependent media companies39 is consistently disappointingAdvertising is simply not a sufficient revenue model to sustain content companies into the longterm future For the foreseeable future the pool of available advertising dollars will be stagnant There are new media alternatives virtually every day and ad budgets are splintering into microfragments Advertisers are being pulled in multiple directions Dollars are seeping from traditional budgets into search engine marketing event marketing causerelated marketing merchandising experiential marketing locationbased marketing public relations conversational and wordofmouth marketing social and mobile media and consumer and trade sales promotion This year39s national television Upfront market could be a bellweather for determining advertisers39 continued appetite for paying significant cost increases for eroding audiencesUnfortunately the quottriedandtruequot no longer can be relied on to deliver steady growth Compounding that reality quotsteady growthquot is insufficient when investors require double digit and even triple digit increasesI have preached evangelically for nearly three decades about the bifurcation of the media and advertising marketplace into 1 a transactional commodity business model and 2 a relationshipbased brandfocused premium marketplace Most media companies and agencies are investing appropriately in the technology resources required for their transactional businesses Brand building relationshipbased business models and premiumpriced enterprises require completely new and innovative models and can take years before they generate returns that justify the investments Industry realities place enormous pressure on executives to adhere to traditional business models and companies that foster and advance innovation are often drained of resources before they can deliver the returnoninvestment demanded by the stock market equity rights holders and VC investors Typically implementation of new business models must be forcefully imposed by the CEO need the blessing of investors and they cannot be managed by executives trained exclusively in the ways of traditional media and advertisingIn the past few decades only a handful of media companies recognized the imperative of brandcreation and even fewer made the commensurate investments in organizational resources to support them Most investors in digital media companies remain dependent upon the transactional advertising business model expecting to build wealth by capturing a growing piece of a shrinking advertising pie Many are being confronted by the reality of underperformance and unachievable growth requirementsTraditional mass media had the advantage of delivering riflelike silver bullets to millions of consumers simultaneously a Gatling gun affect Today media sellers marketers and their agenciesamp8211 both traditional and emerging still seek to replicate those massmedia models but the affect is more comparable to weakened shortrange shotgun pellets Advanced targeting tools such as behavioral contextual and conceptual targeting are not advancing the stateoftheadvertisingart but rather are being used to justify the further spreading of ad messages across a digital landscape of thousands even hundreds of thousands of websites and blogs The digital media industry will underperform adrevenue expectations if it continues to define itself with outdated values metrics and marketing initiatives that are undifferentiated from those of traditional transactionbased mass mediaThere are two paths for advertisingdependent content companies1 Drive mass audience reach and build powerful advertising engines for delivering targeted audiences at cheap costs based on traditional mass media metrics with added measurable interactive capabilities2 Invest in building relevant and differentiated media brands that generate multiple revenue streams and invest in organizational resources that enable marketers to connect in meaningful ways with their consumers through your brands and brand extensions understanding this requires risk and a longterm commitment to innovationThe ideal media companies of the future will offer both Content companies that fail to deliver either will continue to struggle in a purgatory of underperformanceTo learn more about the Jack Myers Innovation Network and Jack Myers Relationship Services contact Jack at jmjackmyerscom

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