Can TV and radio stay relevant as advertising platforms in the face of the intense relationship consumers have with their digital devices?
Most forecasts believe so, but we think it’s an open question after reviewing the conclusions of two different research studies that were recently released.
Pew Research last week released the first of a series of papers that celebrates the 25th year of the Internet through a series of related research projects. The data is available here. Since the term internet is synonymous with media, we were intrigued by the findings.
It’s a given that everyone is online, but when you look at the growth over the last 25 years the inexorable climb to ubiquity is compelling. 9 out of 10 adults in the US us the Internet today. Internet use is nearly as pervasive as TV use.
According to Nielsen’s latest Cross-Platform Report, released on March 5, those Internet users are online about 2 hour per day, either on their computer or their smartphone.
That volume is dwarfed by the amount of time spent with TV and radio, according to the Nielsen study. Adults spend more than eight hours watching live or time-shifted TV or listening to the radio.
Those eight hours fuel the continued investment of lion’s share of ad dollars to TV and radio. If you want to intersect with consumer’s attention, you’re pretty much guaranteed to catch them on TV and radio.
According to eMarketer, 48% of all ad spending was in TV and radio in 2013, while 25% went to digital media. And, while digital media is projected to increase to 31% by 2017, TV should hold its share at 28%.
While they are spending a lot of time with their TV, the intensity of that relationship has been surpassed by other devices, Pew’s research shows.
When asked how hard it would be to give up specific technologies, more than 50% of Internet users said that it would be very hard to give up the Internet. 49%of cell/smartphone users said it would be very hard to give up their cell/smartphone.
Only 34% of all US adults said it would be very hard to give up their television.
We believe that the intensity of this relationship with technology will have an unforeseen impact on advertising spend. Purchasing behavior is increasingly influenced by sources of information other than preference or marketing. Examples are user reviews, press mentions and social media chatter. While consumers are spending only a couple of hours online, they turn specifically to online sources when making decisions about what to buy. This virtually frictionless process is so rich and dependable, giving consumers a clear expectation about the value of goods and services, that the impact of advertising in traditional channels is significantly diluted for most brands.
The one thing that we’ve learned as the Internet has completed its first 25 years is that if something loses its effectiveness, it stops getting used.
TV and radio advertising are dangerously close to being on that path.
Every time an internet company files for their IPO, we learn a little more about the underlying economics of the transforming media landscape.
The themes of successful companies are consistent, particularly in the consumer space: Platforms matter; achieving scale and reducing friction drive profit; and consumers are willing to try new things.
Take ordering take-out.
GrubHub was founded on the premise that consumers would be as comfortable placing a take-out order online as on the phone.
Turns out they were right.
After merging with Aramark’s Seamless platform late last year, GrubHub illustrates the power of achieving a leadership position with a scale platform.
The company claimed 3.4 million diners were actively using its service at the end of 2013, placing more than 135,000 orders a day.
That translates into $137 million of revenue and an ebitda margin of better than 28%.
GrubHub is confident of its growth potential too: it currently serves 28,800 restaurants out of what it defines as a target market of 350,000.
GrubHub’s transaction model, whereby it takes a cut of the restaurant’s take, ultimately displaces a segment of the local advertising market. As take-out orders increase through GrubHub’s platform, an establishment can rethink its local marketing strategy.
With each restaurant relationship, GrubHub increases the network effect of its service. As a result, restaurants stay and consumers stay. This is the same dynamic that has contributed to OpenTable’s success.
We were intrigued.
King Digital Entertainment is a well-established game developer that created the perfect storm over the past two years with Candy Crush by harnessing mobile, multi-platform access and in-app purchases. The company exploded: $164 million in revenue in 2012, $1.9 billion in 2013 and profit of nearly $570 million.
What captures our attention is the key metrics that drive the King Digital business.
First, mobile. This delivery platform made up 9% of total revenue in 2012 and 70% in 2013. They figured it out.
Second, the economics of scale. King delivered 41 billion games plays in 2013. It averages 324 million users a month.
Ninety-six percent of users play free. But those 12 million players that convert to payers spent an average of $17.32 during their game play.
King doesn’t solicit subscriptions. It sells game aids in .99, $1.99 and $2.99 bites. The psychology is deft: as a player, you assess how close you are you to beating the level and whether it’s worth spending a dollar to extend for five turns.
This isn’t a new concept — it was built into pinball games from almost the very beginning. But King masterfully executes the balance between incentive and emotional usury. If you haven’t downloaded the game and played it, we highly recommend. You can’t understand this business model without experiencing it.
What relevance do King’s key metrics have to eMarketer’s new forecast?
King is the quintessential example of the app economy.
It does not spend a single dollar on advertising. The company relies on its network of players to promote its own games.
We are in the inflection point of dual digital economies: the advertising economy and the app economy.
At TMT, we believe that the rise of the app economy is influencing the change in the digital ad economy. Engagement is demonstrated to be highly profitable. The challenges are to engage at scale and to have a business model that promotes profitable conversion.
The days of trying to convert users without engagement are passing quickly.
This is reflected in eMarketer’s forecast. Low-engagement ad formats such as lead generation, classifieds, banner ads and even search are projected to slow markedly in growth over the next several years.
High engagement formats, including video, sponsorships and rich media, are projected to experience double-digital growth over the next five years.
The successful providers of advertising will give marketers access to a similar consumer experience that King creates in its game. Easy access to engagement — regardless of the topic — and seamless opportunity to convert to an economic relationship that improves the quality of engagement. Native advertising, video, sponsorships are all examples of this development, and the trend is only going to increase. User behavior dictates that it will.
How hard? At The Media Transformation, we’ve been involved with over 300 content brands in our careers: daily, weekly, monthly, annually, video, print, TV, film, digital. Across all of those brands, the majority of which were entertaining and effective, we can count on one hand the number of content leaders who had the management skills, creative spark, market perspective and business savvy to be called exceptional.
So, when pundits call for brands to create newsrooms, to build immersive content strategies and to engage the consumer, they are glossing over the unfortunate reality that there is a small group of people who can execute these plans with enough confidence and context to advance brand goals.
The brand leaders know that this is hard work. According to a recent Curata survey, a plurality of US marketing professionals say they are struggling at the work of content curation. The biggest challenge is with contextualizing content.
A recent Outbrain analysis gives some insight into why contextualization is hard. For a brand marketer, the imperative is to deliver relevant information that keeps prospective customers moving forward in the sales funnel. A few brands commit to entertainment as a form of engagement that reinforces the brand image, but the majority of marketers need to justify their content marketing spend through the prism of leads and conversions.
When Outbrain examined click-through rates on content recommendations, it discovered that unrelated content recommendations delivered 16% higher click-through rates than related content recommendations.
The lesson is that you can’t dictate consumer interest, and when you initiate a content-marketing program you either have to commit to trying to broadly entertain or to specifically focus on moving prospective customers into the sales process. For most brands, it is hard to deploy the resources and engage the talent to do both.