Media must cast off the advertising addiction
Aside from advertising, Australia's leading media houses seem unable to find ways to monetise their vast audiences. They must get creative and, like other industries, diversify their revenue streams.
Revenue diversification has been a mandatory strategic goal for most media companies for the last decade. Senior management and board members are unanimous in repeating the mantra to investors and the market – "we are continuing to diversify our revenue streams".
Forecast sluggish advertising growth in 2013 mean that this year it's more important than ever. GroupM chairman John Steedman has begun the year stating he believes ad spend will remain flat in 2013, at best achieving an increase of 2 per cent. "Not much to write home about," he says.
Despite ad spends overall growing very modestly over the past five years, every year more and more companies launch in an attempt to claim a slice of the pie. Digital channels especially have launched hundreds of media businesses over this time, all hustling for a piece of media buyers' attention and, most importantly, their advertising spend. Flat ad growth plus relatively stable business costs have created a situation where, for most media businesses', relying on the one source of revenue is a dangerous one.
Hence the importance of revenue diversification. However, we should look closer at what revenue diversification really means.
Looking at the financials of most listed media companies there is still an overwhelming reliance on one revenue line – advertising. Companies such as Ten and Southern Cross Austereo are almost entirely reliant on ad revenue; Fairfax is making gains in transaction based revenue whilst trying to plug the hole left by declining circulation revenue; Seven West Media sees some circulation revenue from The West Australian and Pacific Magazines but on the whole is reliant on a buoyant advertising market and continued big ad investments from large brands for growth. APN is a similar position.
If the ad market turns or if big spending marketing budgets move from an "above the line" focus to a "customer relationship management" focus, the majority of media companies in Australia are completely exposed. Andy Lark, CMO of Commonwealth Bank, told B&T: "There simply isn't enough (money) anymore for us to continue to fund traditional media and programs at the expense of new opportunities.”
Most of the work in revenue diversification has been done in "advertising" revenue diversification. More to the point: adding a digital line to their revenue reports to demonstrate they are succeeding in this increasingly digital world. Truth is, an advertisement on a computer screen or a mobile screen isn't that different to an ad that runs on radio. They are effectively booked by the same people with the same purpose, from the same budget.
How is it these companies, which play a role in the lives of millions of Australians, can't seem to find ways to monetise their audiences, aside advertising? If you are reaching the majority of the country on a daily or weekly basis, isn't there the opportunity to extend your relationship with them and find new ways to monetise this audience asset?
Many have tried with mixed results.
News Limited locally invested in transaction or referral businesses such as Get Price, Moshtix and Foxtix. It has since sold Get Price back to its founders and a sale of Moshtix/Foxtix looks likely given the moves of Kim Williams to date.
Fairfax has had success with its transaction businesses – in particular RSVP and Stayz – and with Trade Me had one of the world's strongest transaction success stories.
Nine is looking more in this area – with Ticketek, iSelect and Rate City all strong, and the recent establishment of Nine Live.
Seven invested $40 million into group buying site Spreets, only to change the model late in 2012 to an affiliate aggregator after the group buying market rapidly deflated. Ten became involved with dating site Oasis Active and group buying site Our Deal. APN recently spent $35 million on Brands Exclusive.
Digital media companies on the whole haven't even tried – surviving via organic advertising revenue growth as ad spend migrated to digital. Most digital players are solely reliant on advertising and the majority are solely reliant on media agency advertising spend – selling via media agencies as opposed to fostering relationships direct with brands. As growth slows, competition remains fierce and trading desks turn media agencies into media vendors, relying on media agency revenue is not an effective survival strategy. The challenge is to turn their user relationships into something more valuable and looking at end user revenue.
The fact is creating something consumers want to pay for isn't easy. Many media companies are completely lost when it comes to establishing a deep enough relationship to facilitate a consumer transaction. End user revenue is hard.
Digital companies are perhaps the most in need of diversification of revenue streams. The major media players in TV have two big things on their side – a solid ad format and limited supply. Demand for TV advertising will for the foreseeable future exceed supply. Digital not so much – there is too much supply. There is also evidence that for large parts of the year, supply is quickly exceeding demand in the areas of print, magazines, radio and outdoor.
If you look at the core asset of a media company, it surely must be their audience relationship. A media company needs to be able to find creative, viable and diverse ways to increase yield per audience member. Moving forward this will require more than finding new ad formats or different screens for the same content. It will require the creation of products users will pay for.
Truth is, as ridiculous as this may sound, the media industry is now too dependent on advertising revenue. It is highly likely that – outside of TV and online video, digital classifieds and search engine marketing – ad yield improvements and growth will be extremely minor at best over the next five years. Media companies will need to evolve and the "digital first" talk needs to transition into revenue generating action.
An example of an industry facing a similar issue – a dangerous reliance on a single revenue stream – is the concert industry. The leading global player in concerts and events is Los Angeles-based Live Nation.
Live Nation generates quarterly revenue of around $US1.5 to $US2 billion depending on the tour schedules of its biggest acts. Of this, about 75 per cent comes from ticket sales, with the remaining 25 per cent coming from artist management, merchandise, sponsorship, ticketing and ancillary revenue (which is everything from food and beverage sales to parking, accommodation commissions). However, on the concert business it makes around 2 to 3 per cent in operating income. The reason is the stand-alone business of putting on concerts is a lousy one – costs more often than not exceed revenue and top grossing artists can demand performance deals that are incredibly onerous on the promoter.
Live Nation realises this and its end game is to make the majority of its revenue from revenue diversification – finding new ways to generate revenue from the millions of people who attend events each year. The reality is the operating margins on ticketing; sponsorship and ancillary are solid – anywhere from 20 per cent on artist management to 70 per cent on sponsorship. Live Nation believes it can create a strong enough relationship with the consumer to find other ways to create revenue from them. When faced with a low margin business (concert promoting) it decided the answer wasn't doing more concert promoting in different environments, it has focused on higher yielding opportunities its current audience will value.
As media evolves analysts and the market will continue to demand media companies innovate not just with technology but also with revenue models. The paywall debate is getting tedious – people will most likely not suddenly pay for what they have gotten for free for the past 20 years via a browser. The challenge is to monetise audiences in new ways and this will most likely require new products and new approaches. Media companies are full of creative, innovative people and have a special relationship with their audiences – this is a challenge they should relish.
Given this, let's hope we see some interesting M&A and internal innovation in 2013-14.
Ben Shepherd is a media and technology consultant. He blogs at Talking Digital.
Forecast sluggish advertising growth in 2013 mean that this year it's more important than ever. GroupM chairman John Steedman has begun the year stating he believes ad spend will remain flat in 2013, at best achieving an increase of 2 per cent. "Not much to write home about," he says.
Despite ad spends overall growing very modestly over the past five years, every year more and more companies launch in an attempt to claim a slice of the pie. Digital channels especially have launched hundreds of media businesses over this time, all hustling for a piece of media buyers' attention and, most importantly, their advertising spend. Flat ad growth plus relatively stable business costs have created a situation where, for most media businesses', relying on the one source of revenue is a dangerous one.
Hence the importance of revenue diversification. However, we should look closer at what revenue diversification really means.
Looking at the financials of most listed media companies there is still an overwhelming reliance on one revenue line – advertising. Companies such as Ten and Southern Cross Austereo are almost entirely reliant on ad revenue; Fairfax is making gains in transaction based revenue whilst trying to plug the hole left by declining circulation revenue; Seven West Media sees some circulation revenue from The West Australian and Pacific Magazines but on the whole is reliant on a buoyant advertising market and continued big ad investments from large brands for growth. APN is a similar position.
If the ad market turns or if big spending marketing budgets move from an "above the line" focus to a "customer relationship management" focus, the majority of media companies in Australia are completely exposed. Andy Lark, CMO of Commonwealth Bank, told B&T: "There simply isn't enough (money) anymore for us to continue to fund traditional media and programs at the expense of new opportunities.”
Most of the work in revenue diversification has been done in "advertising" revenue diversification. More to the point: adding a digital line to their revenue reports to demonstrate they are succeeding in this increasingly digital world. Truth is, an advertisement on a computer screen or a mobile screen isn't that different to an ad that runs on radio. They are effectively booked by the same people with the same purpose, from the same budget.
How is it these companies, which play a role in the lives of millions of Australians, can't seem to find ways to monetise their audiences, aside advertising? If you are reaching the majority of the country on a daily or weekly basis, isn't there the opportunity to extend your relationship with them and find new ways to monetise this audience asset?
Many have tried with mixed results.
News Limited locally invested in transaction or referral businesses such as Get Price, Moshtix and Foxtix. It has since sold Get Price back to its founders and a sale of Moshtix/Foxtix looks likely given the moves of Kim Williams to date.
Fairfax has had success with its transaction businesses – in particular RSVP and Stayz – and with Trade Me had one of the world's strongest transaction success stories.
Nine is looking more in this area – with Ticketek, iSelect and Rate City all strong, and the recent establishment of Nine Live.
Seven invested $40 million into group buying site Spreets, only to change the model late in 2012 to an affiliate aggregator after the group buying market rapidly deflated. Ten became involved with dating site Oasis Active and group buying site Our Deal. APN recently spent $35 million on Brands Exclusive.
Digital media companies on the whole haven't even tried – surviving via organic advertising revenue growth as ad spend migrated to digital. Most digital players are solely reliant on advertising and the majority are solely reliant on media agency advertising spend – selling via media agencies as opposed to fostering relationships direct with brands. As growth slows, competition remains fierce and trading desks turn media agencies into media vendors, relying on media agency revenue is not an effective survival strategy. The challenge is to turn their user relationships into something more valuable and looking at end user revenue.
The fact is creating something consumers want to pay for isn't easy. Many media companies are completely lost when it comes to establishing a deep enough relationship to facilitate a consumer transaction. End user revenue is hard.
Digital companies are perhaps the most in need of diversification of revenue streams. The major media players in TV have two big things on their side – a solid ad format and limited supply. Demand for TV advertising will for the foreseeable future exceed supply. Digital not so much – there is too much supply. There is also evidence that for large parts of the year, supply is quickly exceeding demand in the areas of print, magazines, radio and outdoor.
If you look at the core asset of a media company, it surely must be their audience relationship. A media company needs to be able to find creative, viable and diverse ways to increase yield per audience member. Moving forward this will require more than finding new ad formats or different screens for the same content. It will require the creation of products users will pay for.
Truth is, as ridiculous as this may sound, the media industry is now too dependent on advertising revenue. It is highly likely that – outside of TV and online video, digital classifieds and search engine marketing – ad yield improvements and growth will be extremely minor at best over the next five years. Media companies will need to evolve and the "digital first" talk needs to transition into revenue generating action.
An example of an industry facing a similar issue – a dangerous reliance on a single revenue stream – is the concert industry. The leading global player in concerts and events is Los Angeles-based Live Nation.
Live Nation generates quarterly revenue of around $US1.5 to $US2 billion depending on the tour schedules of its biggest acts. Of this, about 75 per cent comes from ticket sales, with the remaining 25 per cent coming from artist management, merchandise, sponsorship, ticketing and ancillary revenue (which is everything from food and beverage sales to parking, accommodation commissions). However, on the concert business it makes around 2 to 3 per cent in operating income. The reason is the stand-alone business of putting on concerts is a lousy one – costs more often than not exceed revenue and top grossing artists can demand performance deals that are incredibly onerous on the promoter.
Live Nation realises this and its end game is to make the majority of its revenue from revenue diversification – finding new ways to generate revenue from the millions of people who attend events each year. The reality is the operating margins on ticketing; sponsorship and ancillary are solid – anywhere from 20 per cent on artist management to 70 per cent on sponsorship. Live Nation believes it can create a strong enough relationship with the consumer to find other ways to create revenue from them. When faced with a low margin business (concert promoting) it decided the answer wasn't doing more concert promoting in different environments, it has focused on higher yielding opportunities its current audience will value.
As media evolves analysts and the market will continue to demand media companies innovate not just with technology but also with revenue models. The paywall debate is getting tedious – people will most likely not suddenly pay for what they have gotten for free for the past 20 years via a browser. The challenge is to monetise audiences in new ways and this will most likely require new products and new approaches. Media companies are full of creative, innovative people and have a special relationship with their audiences – this is a challenge they should relish.
Given this, let's hope we see some interesting M&A and internal innovation in 2013-14.
Ben Shepherd is a media and technology consultant. He blogs at Talking Digital.
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