There is no doubt the new year will be another year of disruption, innovation and change in the media and advertising world. And there are seven areas that will be the most interesting to watch.
Print advertising decline will continue without a radical change in strategy
The erosion in print advertising revenue has accelerated dramatically over the past three years, despite the consumer internet emerging two decades ago. The print powerhouses in Australia – News Corp, Bauer, APN, Fairfax and Pacific Magazines (part of Seven Media Group) - cannot continue to have their main source of sustenance, advertising, continue to erode at four or five times the speed that circulation is dropping. A dramatic shift in approach is needed. These companies need to go upstream, direct to large-scale marketers as opposed to their agencies, to demonstrate their value and unique position in a competitive advertising ecosystem before it is simply too late. Ad revenue is not the only element required for survival - these companies need to find new ways to monetise their audience networks - but if it’s not reversed then in two to three years, the print category will be a blood bath.
The business of disruption will continue
The business of disrupting established industries is generally a pretty good one right now, regardless of whether you can turn a profit doing it. Salesforce.com is trying to disrupt the likes of Oracle and SAP and is highly valued by the market. Uber is attempting to disrupt the taxi industry and has been given a value north of $3 billion. Spotify is trying to do the same to the recorded music industry - physical as well as digital - and is attracting funds at a valuation north of $5 billion. These businesses generally have the same approach - invest tonnes of money in product, acquire as much custom as possible (either organically or via M&A), demonstrate hockey stick revenue growth, but most importantly make things really difficult for the incumbent. There are still loads of industries with a comfortable monopoly or duopoly - expect to see technology start-ups seek to disrupt large-scale areas and expect to see investors and VC firms lining up to fund them.
Tech/media IPO space will be dominated by B2B companies
The past two years have seen three prominent consumer facing digital/media IPOs find success: LinkedIn, Facebook and Twitter. In 2014, there is no natural consumer facing digital/media candidate for IPO. It’s too early for Spotify, a company like Buzzfeed is in all likelihood seeking an acquisition not a listing - as would Snapchat. Hulu appears to be in a holding pattern, and Pinterest needs to demonstrate a revenue plan. It is likely 2014’s media IPOs will come from the business-focused advertising technology area. Companies such as Rubicon Project and AppNexus are the obvious choices - both have global operations, an established client base and growing revenues. Ad-tech is a speculative play - especially considering the data strength and resources of Facebook and Google - but in the absence of any big-time consumer play investors will look closely at it.
Domestic TV market will become even more competitive
Nine Entertainment Co’s ASX listing means its performance is now a public matter, and all three of the free-to-air TV businesses are now listed entities. Seven West Media is up 42 per cent for the year to date, Ten down 3.45 per cent and Nine is down 0.76 per cent from its IPO price. All three have a lot to gain (or lose) in 2014. Nine needs to continue its share gains and turn this increased ad revenue into increased profits - while managing its debt levels and demonstrating it can use this strong FTA TV position to benefit its digital, ticketing and events businesses. Ten must begin to give investors some signs of hope after almost four years of miserable results, with strong programming and a steady ratings improvement. Seven has been on top for the better part of a decade and is not going to want to give up those benefits. Seven in particular over the past decade has shown that success and momentum fuels further success and momentum - it needs to hold its leadership position and fend off a very hungry Nine and Ten.
Facebook revenues will eclipse $9 billion in 2014
Facebook delivered a $2 billion plus quarter for the three months ending September 30 and its revenues continue to grow. There is no reason to believe their calendar Q4 won’t be another monster, and this will give it serious momentum heading into 2014. Expect Facebook to keep delivering 40 per cent year-on-year growth each quarter in 2014 driven by continued new data and advertising products, which will take it past $9 billion in revenue for the year. This will make Facebook twice the size of former number two Yahoo!, yet still less than 20 per cent the scale of the mammoth Google.
Software and consultancy companies will continue to chase marketing spend
Advertising agencies have talked a lot about Big Data for the past two years - so much so that for many the term has lost all meaning. Agencies like big data as it represents big growth in digital revenues and can fuel overall agency (and holding company) growth. However, for all the bluster, ad agencies don’t have much pedigree in big data systems and thinking, and those that do – large-scale software companies such as Oracle, SAP, Salesforce and Adobe, as well as consulting companies such as Accenture, Deloitte and Boston Consulting Group - are now gunning for digital marketing spend. The evidence? The likes of Accenture and Deloitte have been acquiring digital shops, and Oracle, Adobe and Salesforce have spent tens of billions between them purchasing software and services around social media, marketing automation, data analysis and customer experience. Where will marketers (and importantly, IT departments) turn to when they want a safe hand around big data and its relation to advertising spend and strategy? It might just be the software vendors.
Customer experience systems will become vital
In many businesses, marketing and advertising are not particularly considered ‘strategic’. Most consider them to be downstream activities and feel that most value is being generated either via innovation/R&D or via manufacturing, production or distribution. This excellent HBR piece - challenged this assertion on the emerging importance of a strong customer experience process and supporting systems. The reality with most businesses is that their marketing/advertising/digital/social initiatives are processes largely viewed in isolation as opposed to being truly integrated via a central platform. However, customers want a single voice across multiple platforms and brands are going to need to not only provide this, but find a way to tie it all together to the rest of the business. The result will likely be IT and marketing departments as well as providers working more closely together to make this a reality.