Trading Analog Dollars For Digital Pennies

Jeff Zucker, head of NBC Universal, was famously quoted earlier this year warning that the media industry had to work so "that we do not end up trading analog dollars for digital pennies."

It’s a great line and an even better observation. But I think it’s inevitable and it’s going to happen no matter how hard they try to avoid it.

Analog and digital, it turns out, are polar opposites. Analog has physical costs which lead to scarcity driven business models. Digital has zero marginal cost (or near zero) which leads to ubiquity driven business models.

In the world that Jeff grew up in, a studio created a TV show, let’s say Friends, and then a network bought the show and ran it once a week at a scheduled time where millions of people would make time, all at the same time, to watch it. That drove high CPMs and a great business model.

In the world we live in now, it’s completely different. Jeff’s network produced a hilarious SNL skit but did not air it last weekend. The skit featured Andy Samberg as Rahm Emanuel, and NBC has made it available via it’s JV with News Corp, Hulu. I watched early last week on Hulu. And since then, I’ve shown it (physically shown it) to at least a dozen people at various places and times, including last night at a friend’s house on his friend’s laptop. Hulu doesn’t show how many views this skit got, but Samberg’s Lazy Sunday clip was viewed over 5mm times before NBC had it pulled from YouTube and put it up on SNL’s website. That experience certainly was formative in the creation of Hulu.

The ability to watch a TV show or TV clip anytime anyplace is naturally going to lead to a lot more viewers than any individual show can get in the traditional TV viewing approach. The biggest weekly TV shows get around 20mm viewers. YouTube has over 300mm montly visitors according to comScore. Hulu is just getting started, but if it ever goes international (and I sure hope it does and soon), then it will eventually reach similar numbers of viewers.

The fact is there is so much internet inventory, particularly when you count the various social networks cropping up all over the world, that the $20 CPM may be a thing of the past. I know that some Internet inventory is sold at prices above $20 CPM, in fact some banners have even been sold on this blog at those kinds of prices. But I don’t think those prices are sustainable.

The Economist has an article running this week about online advertising (where I was reminded of the Jeff Zucker quote) that suggests that online advertising will be unscathed during the downturn. The article quotes a report by eMarketer that suggests online advertising will continue to grow at good clip next year:

eMarketer, a market-research firm, predicted that online-advertising
spending in America, which makes up about half the global total, will
increase by 8.9% in 2009, rather than the 14.5% it had forecast in
August. The firm thinks search advertising will grow by 14.9% and
rich-media ads by 7.5%, whereas display ads will grow by 6.6%. In
short, online advertising will continue to expand in the recession—just
not as quickly as previously expected.

I hope eMarketer is right but even if they are not, this downturn will accelerate the conversion of analog dollars to digital pennies because you can buy online inventory for a fraction of the cost of analog inventory, you can target it, you can measure it, and you can even create your own media if you want. And you can do this at a scale that traditional media can never create with its scarcity driven orientation.

That’s it for now. I am going hunting for a few digital pennies now.

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Comments (Archived):

  1. ErikSchwartz

    This reminds me of Josh’s classic post http://redeye.firstround.co… on shrinking a market.Broadcast is dead except for live events like sports and election night. Narrowcast is the way people want to consume media. I’m on a panel in front of the heads of all the radio networks in NY on Tuesday, that’s what I’m going to tell them.They don’t get it quite yet, but they’re getting better. Maybe they’ll figure it out before it’s too late.

    1. fredwilson

      great comment Erik – i added a link to Josh’s post in the related links at the bottom of the post. thanks

  2. aarondelcohen

    Fred:Zemanta is so impressive. Links to Josh’s article right at the bottom of your post. I suppose because of Erik’s post, but nevertheless really cool.BTW, integrated Disqus on both my blogs today and was convinced I had done it incorrectly because it was so easy. Then checked the blogs and there it was. How more blogs haven’t integrated disqus is beyond me. Amazing.Aaron

    1. fredwilson

      I had to search for josh’s post and put I in manuallyZemanta is good, but not that good!

  3. Brian

    Fred, I can’t see why $20 CPM is a thing of the past. It’s just a price. If you really can target the right people, they should be worth $20 CPM. There may be a lot of inventory to choose from, but the best inventory could be able to command a premium. A glut of potential inventory shouldn’t really drive prices down, because if no one goes to the site, no one pays to serve the ad. There is also a difference in the type of ad served. I think you shouldn’t be comparing internet banner ads with television ads. Banners are probably more like newspaper ads or billboards. Hulu ads are more like television ads, just with fewer people watching them.I think there’s a different argument embedded in that, which is: audience sizes are smaller/more fragmented and therefore there is less inventory for an individual entity to collect. But, shouldn’t the value of a potential new customer seeing an advertisement stay the same? Shouldn’t there hypothetically be even more value per eyeball with the targeted approach because there should be a higher conversion rate?Advertisers can afford $20 CPM, it’s just that they will have to find the M in more places to get to the same total reach/ad spend.

    1. fredwilson

      What if the $20 CPM was always a ripoff, we just didn’t know it?And you can target the same people who are worth $20 (in theory) on the NewYork Times for 5 or 10% of that cost on a much less expensive website usingdata (see Darren’s comment)

      1. Brian

        That it has been a ripoff is a distinct possibility. I agree that you can target to achieve a higher ROI, but there are two ways to improve ROI. You could cut costs or you could improve revenue.My point is just that someone who provides the valuable inventory shouldn’t just cut prices to 5-10% for the sake of it. Yes, that is an option. In the short term it could help adoption (which is potentially very important for new media companies). But, in the long run wouldn’t you expect the prices to go back up for the premium properties? (It would be very difficult to raise prices back up though)Potentially that $20 CPM was too low (!) because you had to pay for people you didn’t really want. If the reach/targeting is better it should be worth more per person.Though I definitely agree that you can cut costs throughout the whole advertising supply chain and make more profit on less revenue, so that could put downward pressure on prices too.

  4. Sarah Austin

    Thanks for the article, Fred. I disagree with your opinion on how people prefer to consume media. People like watching broadcasts at a scheduled time.Erik Schwartz, broadcast is not dead. Sports and live events are not the only exceptions out there either. What about live shows, breaking news and interactive game broadcasts? These are just as compelling as live sports are so if you didn’t catch it live then you can watch the rerun on-demand. I predict that 2009 will the year we see the live broadcast channels come to fruition. Live broadcasts in 2009 will be the 2006 of clip videos.

    1. Darren Herman

      Sarah, I really like your comment: I predict that 2009 will the year we see the live broadcast channels come to fruition. Live broadcasts in 2009 will be the 2006 of clip videos.I like where this is going and would love to believe it. ESPN is changing most of it’s content in the future (2009 & beyond) to “live” format, as they realize that the taped (and delayed) shows are commoditized.What really interests me around consumption of content is the experience that goes with it. I go to concerts for a reason – I can listen to an album any day of the week, but if I want an experience, I go. A post I had written in 2006 about this: http://tinyurl.com/powermusic

    2. ErikSchwartz

      Breaking news is inherently a live event, so I included that. Live, non-sporting, entertainment shows have mostly been dead since the 1950s. I’m not sure what you mean by “interactive game broadcasts”.It’s going to get MUCH worse for broadcast too, look at the next generation. My kids (ages 6 and 4 (and 1, but she does not count)) don’t even understand the concept of a television show being on at a particular time. To them TV is something that “Tivoman” gets for them and they watch when they want, or we find it on YouTube. If they’re watching sports with me they get upset that we can’t skip commercials.Broadcast has been dying for a long time. It started with the VCR, but there was too much friction in the system (the ubiquitous blinking 12:00). Technology has caught up and removed that friction.Broadcast only makes sense when there is appreciable value to the consumer in viewing the event live.

      1. fredwilson

        I agree with Sarah that live is still importantAbout the only time we congregate around our TV is for something liveWhen that gets delivered over the net, things will really get interesting

        1. eric susch

          Live and on demand will both find their place and do what they do best. Good content should be trying to leverage both technologies. Our knitting show, for example, has both an on demand and live aspect. We do a video podcast twice a month with how-to demos and field trips to knitting events. And we also do a live worldwide knitting “stitch-n-bitch” once a month. It’s a live virtual knitting bee where people knit together and show off their work. We’re using Stickam which has the ability to go beyond traditional broadcast by involving video from the audience as well. This will be a major advantage for internet based live content. It is not only a simultaneous experience but it is also two way.We’re actually having a live show tonight at 6PM eastern. Go to http://LetsKnit2gether.com/… for instructions if anyone’s interested. Bring your knitting 🙂

          1. Ted Murphy

            stickam.com is really, really cool.

  5. Darren Herman

    Media placement is no longer a proxy for an audience. Advertisers can now target specific audiences (thank you to many upstart companies like BlueKai, Exelate, Peer39, Datran, etc) and will pay good money for it. A media plan now has media costs & data costs (audience).

    1. fredwilson

      That’s right DarrenI was going to talk about that. That was the lesson I learned from ourinvestment in TACODA

  6. vruz

    it’s great networks 1.0 are exploring how to translate their business into new media.Hulu doesn’t play outside of the U.S.programmes like The Daily Show are now available outside of the US but the technical quality of their service is lacking.For example, T.D.Show player sucks big time, it only comes in one (minuscule) size, and the way they segment their clips, the way you search for them on their website also sucks. Findability is important, Youtube may not have perfect quality but Google (obviously) excels at findability..In a sea of millions of video clips, what do you prefer ? bad video quality you can find, or great video quality that’s nowhere to be found ?You have to be a really dedicated fan, and Stewart has to be a really good artist to compensate for it.Most TV programmes aren’t as good as Stewart’s.The current way of exploring the new media is not sustainable, it’s not possible to have every single content producer going through the same process.The internet is different, those who attempt to translate their business literally as a broadcast model will utterly fail.Those who try to do everything from content production, to content delivery, to metrics, to ads sales, those will be spread too thin and butchered by those who understand the internet well.(or absorbed and consolidated to compensate for their lack of internet skills)

  7. Drake Pruitt

    Fred,Great post. A few things that I would add. First, the transition from A to D means that we will need new forms of measurement beyond clicks and impressions. Indeed advertising itself must change to suit the fickleness and community interaction of online audiences. Also, with low cost to produce and distribute, search will become an even bigger problem than it is today in a text-based world. Great opportunity in that problem. Lastly, lower barriers to entry mean paychecks in Hollywood are going down. After all, though you should never work with kids or animals, free streaming puppy cams are hard to beat.

  8. martinowen

    There will always be a place for some synchronous or near synchronous viewing – event video. This is not restricted to sport or news. The way people watch spaps around the world fules thier daily conversation. Season blockbusters (like BBC’s current Little Dorrit) are cultural events that have more value when they are temporarily shared – they are part of THE conversation. Cinema did not vanish with the advernt of television.However you might like to note the demise of Woolworth in the UK this week. Their business was very dependent on music sales.

  9. Melanie Notkin

    Great post, Fred. And I completely agree that finding audience is easier than ever because there is so much decent content out there.Whether your targeted audience is Wal-Mart Moms, Savvy Aunties, or the type of affluent men who like SNL skits, I believe marketers are still willing to pay a premium to make an impression – when a publisher is able to offer multiple impressions through various forms of media – to the same audience.For instance, in just four months, my brand has been published in multiple forms of online media (my site, my blog, FB, Twitter, Digg, Stumble Upon, etc), plus streaming video, and -TV, radio, print… And as often as possible, I take my advertisers with me wherever I “go.”The key for the publisher -whether it’s Jeff Zucker or little ol’ me – is to provide marketers as much of it’s audience as possible, in as many digital (and analog) forms as possible. If I can identify a marketer’s targeted audience, and offer marketers multiple impressions to this audience for their brand/product through various streams of media (digital and analog), then I am not only helping them reach the right audience, I am helping them make a real impression.They say it takes seven impressions for a consumer to begin to notice you. I want to offer all seven to my advertisers. That’s worth more than pennies. Well that’s the plan anyway.

  10. Mike Su

    Fred, a couple points…first, Youtube may reach 300mm monthly vs. 20mm on a hit show, but that’s 20mm in a one hour period compared to a site over the period of a month. I don’t know what the numbers are, but I suspect the monthly viewership for a network such as NBC would be far greater than 20mm.Second, to compare Hulu after international numbers to a hit show’s domestic numbers isn’t an apples to apples comparison. The whole reason Hulu is domestic is because networks sell their shows to international markets often months or even a season after they’ve aired domestically. And obviously those are significant enough viewership numbers and sales dollars that they’d want to protect it. If you account for international sales and viewerships, for now, it will still dwarf anything Hulu would reach in the near future.Which brings me to my next point, which is that I think it’s important to draw a clearer distinction between shifting advertiser behavior and shifting audience behavior. I think your point is valid that advertisers, with a fixed budget, will need to figure out where they can get their biggest bang for their buck. If the web is cheaper and reaches that same audience, then in the long run they’d be hard pressed to ignore that. This is a case of choosing one over the other. However, when it comes to audience behavior, I’m not convinced people will wholesale give up on TV and choose internet. When TV came, everyone thought movies and radio would be dead. They haven’t died, they’ve co-existed, but not without some change. My view is that Internet video will fall into two buckets – browser based video, and Internet delivered TV content. Networks don’t need to worry about the former, but need to figure out how to be a part of the latter. They will need to figure out how to take advantage of the social and interactive aspects of the web and make that a part of their content strategy. But I don’t think people will stop passively consuming programmed content.That said, I definitely hope online ads and online video continue to take off cause that’s what butters my bread!

    1. fredwilson

      Great points!

  11. PKafka

    Fred, not sure Internet is necessarily going to lead to bigger audiences. Right now, and for the forseeable future, a mediocre broadcast TV show – heck, a poorly performing TV show – has much more reach than YouTube’s biggest hits. And since the dollars-to-pennies shift is indeed happening *and* CPMs are coming down, this will require content creators to reach even more people than they had in the past to sustain themselves (if their primary revenue stream is ad-based). It’s a very knotty problem for most media companies.

    1. fredwilson

      All good points peterBut do we really know if 20mm tuned into the top show last week on network TV?

      1. PKafka

        No, we absolutely don’t know if 20M really tuned into CSI or whatever the top show was last week. And yes, we have a much better idea of how many people really did watch a YouTube or Hulu video. So if you want, you can knock down the 20M #, (though the networks would argue that it’s an undercount, since it doesn’t factor dorm rooms, or bars, or whatever, etc). But economic problem remains the same: Same content worth much less in a digital world than an analog one. But production costs (not distribution costs) remain the same.

  12. Mike Su

    the other interesting thing to watch here is what happens to the professionally produced content from networks. today, high ad spend and broad viewership supports the development of expensive shows. if ad $$ shifts to the more fragmented web, the $$ will be distributed to more players, but each player will have a harder time scraping up several million per episode to develop the quality of shows we see on TV today. reality TV 24×7 here we come!!! 😉

  13. andyswan

    The content will also adjust. Some will become really good at making “watch it anytime via download” content, while others will come out of nowhere to make some really great “must see live” content beyond the traditional sports events, news, etc. This CAN be created….and it will be.If anything, I think twitter is starting to prove the value of “live” is still compelling, in an increasingly “archived and on demand” world!For the bulk…..this post is right on. Long TubeMogul 🙂

    1. Darren Herman

      This conversation is a great one with lots of extremely quality people contributing. I’d like to add the following:1. We’re still in diapers. The digital video conversation (as Mike Su rightly points out: browser based video, and Internet delivered TV content) is in early stages. We’re not going to know how this plays out for quite some time, but the people reading this (and like people) are the ones who will probably figure out where the future takes us.2. The big dollars in advertising today are locked in Television. Go to any major media agency such as Zenith Optimedia, Mediavest, Universal McCann, and others and try to digitally get a portion of their pure television budgets. It’s probably driven many a sales person crazy. The TV buying units (both national and local) have the majority of dollars for both brands, have been doing so since the 1940s, and know/understand and have built tools all around buying television in all of it’s dayparts and intricacies. While some agencies are testing an integrated buying unit of both traditional TV and digital, it’s in infancy and the majority of dollars are not there yet.I think there is another way to look at this conversation. Now that you, me, my grandmother, and my child has access to a digital camera and camcorder (the nikon d90 has video capabilities) as does my Apple iMac, we expect that if we produce a piece of video content, and get it hyperdistributed on iTunes, MySpaceTV, Revver, Blip.tv, and any other platform, it should have advertising dollars find it. Every single Mac sold from a few years ago, going into the future, literally means that there is a content creator who can now fight for digital video advertising dollars. Should this be the case?The early days of the video game (today) are going to have the real big winners focus on Internet Delivered TV Content, a la Hulu. Why? It’s purely a business model question. The dollars moving online from TV budgets are going to find the TV shows that media buyers are already buying on traditional TV. Whoever can lock up agreements with the TV-networks and distribute their shows, both current and back catalog, is going to win the early days.Once media planners and buyers understand digital video (we’re still in diapers, remember), the dollars may cross the lines into other areas of digital video, as Mike Su says, browser based video. You are going to have a very hard time however of convincing a big brand who is cognizant of their placement to surround a YouTube video of people jumping off the roof of a house and getting injured or surrounding a UGC clip on Justin.tv of the recent tragedy.Sorry for the rant.

      1. CoryS

        Good points and I’ll add to this rant that digital ad delivery methods need to drop this concept that ads can only be delivered to X number of views per session. I can watch one channel on TV for an hour and see 23 minutes of commercials (that each pay per spot), but cannot host an hour long show [on the long tail of published sites] and get more than 2-3 views that count which pays <$10 CPM. Once this inequity ends, the move to the digital arena will accelerate.

  14. Steven Kane

    i agree with these overall points and concepts and comments but i differ on the methodology/data and time modelbasically, conventional television is still overwhelmingly more popular than any online video model, period, and will be for a while.and the process of change is much more evolution than revolution — the result will not be the death or end of anything, but a new equilibrium. (can someone please tell me one single medium which has actually died? morse code is still in active use, as is stone carving.)any case, i’m not sure what comscore is counting, but most other measurements services give youtube roughly 65 million *unique* visitors per monthhttp://siteanalytics.compet…by contrast, the CBS network alone amalgamates nearly 200 million viewers — in just one week, and just in the three evening hours of prime time!http://tv.zap2it.com/tvedit…|||weekly,00.htmli’ve never seen nielsen de-duplicate viewers numbers within a network, but let’s say 50% of those 200MM are duplicated. heck, lets say 75%regardless, just one network, CBS, equals or betters youtube’s entire monthly audience in just 21 hours (one week of three hour slots)as for targeting online, having sold the stuff for many years i can attest to the power and efficiency of segmentationbut i can also attest to the frequent uselessness — nay, silliness — of targetinga simple example. for literally decades, gillette targeted shaving cream ads at men. thats who shaved, was their rationale. and everybody agreed. and everybody was happy and sales were fine. then in the 1970’s someone said, hey — its not who shaves that matters, its who buys the shaving cream. and that was/is women, at the supermarket and drugstore. that’s why shaving cream ads in the 1970s suddenly started emphasizing the close smooth shave — that’s whats important not to the shaver, but to the person hugging and kissing him.the point is, taretging is most useful as a second tier technique… after the marketer has cast a wide net and done testing and really studied and understood what segments matter and why. broadcast models may dwindle in frequency — the clan gathers around the tube less often than it once did — but there is some base level of interest in broadcasted content, either because of dramatic excitement (live sports) or simple scheduling (survivor is on Thursday at nine and I like that and rely on it and am sufficient engaged by the show to want to see it as soon as it is available, etc.) and for the essential portion of any marketers budget that is allocated to casting the wide net, conventional television will always be a great model and a great business to be in…

    1. eric susch

      Ok that’s YouTube v. CBS but lets face it, most of television has numbers A LOT lower than CBS (aka CSI.) Advertisers will go where the people go and I agree that it’s not going to happen as fast as some think, but there are some web shows like Rocketboom and Ask A Ninja that already beat well known channels like MSNBC.OK, I just compared individual shows to a channel but that’s part of the problem. The entire economics of the Television industry is focused on channels, but people don’t watch channels. People watch shows. And the good content is where the people will go. Gone are the days when there is some crappy show between Sienfeld and Friends that a lot of people watch. Very soon the day will come when most everyone will realize that they don’t watch 490 of the 500 channel they’re paying for on cable. (That day may come soon with the economic crisis.) Where’s all that ad business going to go? Online to find where the people went. When that starts to happen the quality of online shows will go up. We’ll be seeing a lot more shows like Dr. Horrible in 2009.That said I also agree that television won’t go away. I see something similar to what happened to radio in the 50’s and 60’s. TV will change and production budgets will decrease. Instead of old time radio drama with stars and a full orchestra, they’ll hire one guy to spin records all day. (Or in today’s radio they’ll hire one guy to shout and be pissed off at people who aren’t there!) I think we see a little bit of this already with the proliferation of reality TV.

    2. fredwilson

      Steve, the comscore data for youtube is worldwide. Your 60mm number is its US audience (which comscore confirms)

  15. Ted Murphy

    I think you guys are delusional. The only way to make money on the internet is through ecommerce. Keyword search and classified page views receive a $40+ cpm, but that’s because they are both closely tied to an ecommerce transaction. The rest of internet inventory receives less than $1 cpm. I’m paying $0.055 cpm on my run-of-site advertising over on google adwords.I see zero hope of this ever changing.

    1. howardlindzon

      Go ted. pretty much with you, but niches are still doable.

  16. Guest

    You guys (Fred, and this whole industry sector) are light years ahead of most of the rest of the economy. You just “get it”. A few years ago I invented digital barcodes for single-molecules and started a company to commercialize them. I may have developed permanent brain damage from banging my head on the wall after trying to explain to venture capitalists the difference between “digital” and “analog” and what that does for cost.The most infuriating response was that they were taught in business school “to never compete on price”, and that was that. The whole point is, digital pennies will beat analog dollars in any industry, and no thick-headed “executives” or “venture capitalists” can stop this.You can check my company’s website here. Notice the slogan “Join the digital revolution!” Better late than never…http://www.nanostring.com/

    1. fredwilson

      i am sorry for your headache Krassen

  17. Robert Seidman

    Fred, I can’t really make a good case that TV advertising is superior to other forms of advertising, but “perception is reality” seems to be at play there. Can that change? Absolutely. It’s not going to be as speedy of a transormation as the New York Jets experienced year over year though.We’re many years away from the Internet being the mechanism for broadcasting live events seen by 10 million and more (potentially many, many more factoring worldwide viewing).If you take the 113 or so million television households in the US, there is zero incremental cost to NBC to add a million, five million or 100 million more viewers. That’s true whether it’s from the installed base of broadcast, satellite or cable viewers. When 100+ million wind up seeing all or part of the Super Bowl there’s no incremental cost for NBC. But because of the way bandwidth and distribution works on the Internet, the differences between “broadcasting” a live event to 100,000, a million, ten million and a hundred million are massive.TV’s business model is certainly going to have to change. But in order for the Internet to become the primary distribution outlet for live or long form video content, its business model must change as well.

  18. Ahmed

    The inevitability argument may be right.But I fail to see where the big bucks will come eventually? When youtube starts advertising in an intrusive way, when hulu and similar sites bring on the advertising, I believe the viewing figures will drop down dramatically. Also, I rather like the composition of the audience on mainstream TV; but a disproportionate ratio of the people watching vids on youtube are kids and geeks. Witness the comments you get on youtube.I am not sure I like my generation’s 2-minutes-of-attention-span either. A lot of youtube clips don’t balloon in viewership because they don’t hit the mark quickly. This probably because there are a zillion other things you can do on the net, so whatever your watching better hit the mark quickly. That’s okay. But I also like TV audiences’ more leisurely approach.

  19. Eliot

    In our own experience we’ve seen that even though online ad spend hasn’t taken too much of dip. Advertisers appear to be more risk averse to non-tradition new media advertising which to an industry still trying to figure out the right way seems counter intuitive.There is an article in Adage (http://adage.com/webvideore… about how 88% of Hulu users would rather opt into a 2-minute ad rather have the content interrupted. Its a matter of hashing out how consumption of the content will be delivered.Delivery of CPM isn’t the only aspect to consider. Its not just that there is a requirement from the content owners to monetize the video, but there is an aspect to the story that gets lost with commercial breaks. And the creative integrity sometimes gets lost in the need to pause for a station break.

  20. shareme

    A question, as CPM decreases per the unit price level would that not drive those Mobile Ad Networks to higher revenue that come up with more innovative ways to serve ads than just the native app and mole web app combinations?For example, could an interactive Android Mobile Web App that happens to be integrated with OS and user events become an advertising vehicle in its own right? No, not something as trivial as a sponsored app but something way more interactive and fun.Will we see Mobile Ad Network sponsored and rewarded mobile app development on iPhone and Android? Isee some baby steps towards this but would be interesting if bigger steps are seen.

  21. Aruni S. Gunasegaram

    Funny clip and interesting insertion of the JC Penny ad. Would JC Penny want their ad next to that skit should be the next thing JC Penny should ask. Are the people who view that clip more inclined to shop at JC Penny? Can a JC Penny ad placed in places like that help overcome the ‘commercial image’ that many of us have of JC Penny? Now say if someone inserted a PowerAde ad there…would the viewer then more likely buy a PowerAde the next time they were in a drive-thru, checking out at a grocery store/Target based on that say 1 minute side of the eye impression? These are the questions I think online advertisers should be asking or maybe even take a ‘wait and see’ approach. Those with money can experiement…those with no money will have to hope they survive the ‘wait and see’ time period.Even though online ads are more measurable in some sense, the fact that they are mean they come under more scrutiny and are expected to perform better. In my opinion, when something can be measured so well it means there will be a lot of variation as the market figures out how to really (and I mean really) interpret those results…so the swings will most likely be big and volatile.

  22. Brian

    Fred – I don’t agree with your assertion that “Analog has physical costs which lead to scarcity driven business models. Digital has zero marginal cost (or near zero) which leads to ubiquity driven business models.” If I make a TV show once and distribute it once, my broadcast fees are the same whether I have 10,000 people tune into the broadcast, or 10 million. Distributing that same clip over the internet will have me paying $X per GB transfered. Each incremental viewer, and each uptick in streaming quality, and each additional minute of footage watched has me (as the content provider) paying more. It’s not at all clear that YouTube and Hulu’s revenues are covering their distribution costs, let alone content creation.

  23. Garrett Smith

    I think everyone needs to realize that simply looking for the “digital” equivalent is not the answer. Quite simply, what works in an analog world, might not work in a digital world and therefore publishers and advertisers need to look towards different types of advertising and sponsorship opportunities.For instance, maybe advertorials, placed in line with a blog’s normal posts, with relevant content to the user base, would be worth $40 CPM, as a opposed to some ad no one will look at. Theory being that folks will read great content, because reading is what most do online and good content is good content. Maybe video becomes monetized through product placement or studios collaborate with big brands to create online video shows that communicate a brands message through its episodes. I think the GEICO caveman show would have a better go around if it was done online, through YouTube.Publishers should also be looking to enable direct communications between customers and brands. Why not allow brands to have their own blogs and forums on the publishers site. The publisher can then “teach” the brand how to properly author a blog, participate in conversations, moderate the forum, etc. You’d be surprised how many brands are not doing these important conversational marketing and thought leadership practices or if they are, how poorly they do it.In summation, it’s time for publishers and advertisers to get together and get creative about how the advertiser leverages the web for brand awareness, customer acquisition and bolstering customer loyalty.

  24. Walt Ribeiro

    Interesting article. Analog dollars for digital pennies, wow! nice post, enjoyed it

    1. Alex Salkever

      The scalability of Internet content transmission will go away quickly as CDN costs and other transmission costs drop with Moore’s Law. Ultimately, the cost will go quite a bit lower than today. At the same time, production costs are going way lower, as well. Look at Current TV and its user-produced ads or Genius Rocket, where teams are building out ads that are essentially on par with those created by big budget agencies pros. Yes, the best content will draw more dollars but the lower barriers to entry for content production will certainly enhance diversity and make it harder for big budget productions to keep justifying their costs. Their response will likely be figuring out ways to lower costs yet maintain quality. On the advertising front, I don’t necessarily see it as a function of CPMs crashing. Like any other classic popularity distribution, it will follow an 80-20 Power Law configuration. So top quality will draw top dollar and continue to do so, regardless of the capability to target specific audiences. Why? Because top content will give advertisers confidence that the audience is actively engaged in the published offerings. You can slice and dice and chop and slop as much as you’d like to build the perfect demo for your campaign but on the Internet, no one knows if you audience really gives a damn about the content itself. Sequoia said it a few weeks ago. The new equation for advertising will heavily involved concepts of engagement. And those are only now being developed. Ads can’t be one way any more than the Internet itself can no longer be a one-way medium.

  25. oryx_orange

    Interesting discussion about how those with big advertising budgets will evolve to allocate their mix to both existing and new channels, but what about the evolution of their strategy that works across all these channels? I see nothing in here about content-resident advertising like product placement. For instance, how many Macs are moved every time someone watches Entourage live or in re-runs as Johnny Drama uses his MacBook to iChat in full screen with his honey over in Europe? Technology is already being used to enable far greater integration of such “advertorial” content on the Internet, but I think you’ll see it very soon even through traditionally analog, mass-market media delivery channels.For example, for those who love your transaction-based models, how far are we from enabled impulse buying of such items through your television? I can already buy content on demand from my cable company. Notice how some tv advertisers (ie. Ford) in the US are now flashing the name of the song playing behind the ad? How long before you can point your remote at your set-top box, agree to a transaction, and have the song put in your iTunes and charged to your cable bill? For that matter, put a sponsor, a content provider, and a transaction service together and then the viewer points at Drama’s Macbook Pro for the same result, or at least for a split-screen ad that highlights the product’s features.My point? Television eats Internet revenue models just as fast as Internet eats tv models. Until my whole family sits in front of our computer for the latest Amazing Race installment or a group of my buddies gathers to watch football on my Macbook Pro, tv will remain a big chunk of big advertisers’ budgets. To that end, evolution of advertising strategy is every bit as important as evolution of advertising channels, and as long as there’s money behind that strategy, the only thing analog dollars are changing into is digital dollars.

  26. Jeff

    Fred, thanks for the thoughts. Are you supporting the notion that online video will pull dollars (or lots of pennies) away from television thus creating a larger online video market? Meaning that this ‘trade’ will be a good one. Or, are you suggesting that online will be more of an additive number thereby increasing the overall video (television + online) market? Thanks.Jeff

    1. fredwilson

      I think online video will actually shrink the market some, but not hugely asvolume will partially make up price decreasesI think this is true for all advertising as it moves from analog to digital

  27. gordonmattey

    You are right, it actually doesn’t make any sense for studios to put their content on the internet, it becomes very difficult (impossible even) to drive demand and equivalent revenues.All forms of video storytelling and marketing around video were created to serve the economic drivers and technological constraints of TV, essentially a set of rules created over 50 years ago.All we’ve done is take the existing norms (spot advertising, sponsorship and product placement), and map them to the internet.I believe the real shift here is that the internet affords a completely new architecture for video storytelling and viewer engagement. The internet is not inert. There is a two way interaction between the creator and the viewer.How do the economics change when you have 10,000 people deeply interacting with your show over one month vs 10,000,000 just watching at 8pm?How does a non-inert platform like the internet blow up the number of options for brand marketing?The old model spends money on distribution and promotion.The new model should spend money on creating something people actually want and engaging with the audience, deeply.

    1. DaveGoulden

      “The new model should spend money on creating something people actually want and engaging with the audience, deeply.”Good article yesterday about just that. http://adage.com/digitalnex

  28. AndyFinkle

    I think that trading Analog Dollars for Digital Pennies is exactly the wrong mentality – and what is getting content providers nowhere but spinning their wheels in the Digital economy. Even if this strategy were to prove successful in “moving” money (people buying Mp3’s instead of CD’s as example) it does nothing to create NEW revenue streams, it only moves existing revenue streams over to digital.I am a huge proponent that in order to really thrive in the digital economy, content producers need to think more “outside the box”. As example of this, I wrote a comprehensive business plan for the music industry – 9thtrack.com. 9thTrack would allow an artists (band or label) fans to “mashup” the music on a track by track basis. So for example, I might enjoy a grateful dead tune, but always felt that a harmonica or Saxophone was sorely needed – or I didn’t like the existing bass riff that had been layed down on the song. 9thTrack would allow me to manipulate and create BRAND NEW content that could then be vetted,voted up/down by a community (fans of that song), and ultimately offered up for sale. Now instead of simply offering the same song digitally, there has been created brand new content = MORE & NEW revenue streams, not just moving a revenue stream online…MashingUp of ALL digital content is the real future, not just the pennies from existing content.www.twitter.com/A_F