Wednesday, December 19, 2012

Digital Pennies Growing Nicely With Online Ads

Compared to television, online ad spending is still small, but one thing is clear, online ad spending is growing rapidly.  "According to the to Interactive Advertising Bureau, total online ad revenue reached $9.26 billion in the third quarter of 2012, which is up six percent from the previous quarter and 18 percent from Q3 figure of $7.8 billion a year ago."  And with the rise of tablets and smartphones, online advertising should continue at this healthy pace for quite some time.

Of course, online businesses are still trying to figure out better mousetraps to monetized their content.  Smaller screens, targeted advertising, paid search, and other means to attract an audience and advertising dollars.  The virtually infinite number of online sites and choices has created a very long tail from which to choose.  Online, unlike other media platforms has become so vast and fragmented that the top of the pile grows through acquisition and integrated marketing efforts while smaller sites hope to find traction to grow its audience and reach.  And unless these sites can find a business model to sustain themselves financially, they must eventually fade from site.

The online marketplace is a very young place, unlike the cable and print platforms.  But the  similarities are clear.  Eventually, the big fish will either absorb the little ones or the little ones will thrash around until they can grow themselves into bigger fish or simply fade away.

Time Warner Cable - Penny Wise, Pound Foolish

At first blush, Time Warner Cable (TWC) appears to be acting as a protector of the consumer, dropping cable networks to keep the costs of service down and thus the cost of monthly cable service for consumers. By dropping networks they believe lack enough interest, the back end of the long tail of programming content, only the most popular is viewed and so should be paid for.  And so, in TWC's mind those unfortunate networks include Ovation, and others,"including Current TV, Hallmark Movie Channel, IFC and WE tv—whose carriage agreements are 'due to expire soon' and which could be dropped 'in the near future.'"

But for the most part, these "low rated" channels are also the lowest cost channels.  Their fee structure is less than a number of the bigger channels including USA, ESPN, and Fox News.  Of course, each of these channels are part of a media empire also owned by broadcasters, NBC, ABC, and FOX, respectively.  Their fees, and their sister networks, are not only higher, but most likely their annual license fee increases are growing faster than our current annual inflation rate.  So any drop of penny services by Time Warner won't protect consumers from the price increases of other services.  Time Warner Cable consumer bills, like other cable operators, will still continue to climb.

At the same time, TWC has invested in a regional sports network, demanding huge license fees by cable operators for carriage of their new network.  It is more than a question about sports verse the arts, it is a question about how to best manage a cable operator business that is getting more and more expensive to operate.  Dropping smaller, less viewed channels like Ovation may appear to be a solution, but it is like plugging a whole in the dam with your finger; it will not fix the bigger problem.