Online Content: Trading Analog Dollars for Digital Pennies

by: Fred Wilson November 30, 2008 | about stocks: CBS / GE / GOOG / TWX    
Fred Wilson

Fred Wilson

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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 its 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 monthly 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 my 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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This article has 1 comment:

  •  
    Nov 30 09:48 AM
    Fred, what you have called the "scarcity driven business models" would be better described as the "systematic restraint of trade models." Consider the facts: the government gives your corporation public radio spectrum for free. You use it to broadcast only the content that you decide will reach the public. As the gatekeeper, you ignore the FCC requirement for content to be "in the public interest" and instead sell access to your captive TV audience to the highest bidder. You give preference to producers with high-quality production values -- this essentially ensures that little to no independently produced art content reaches the public. For decades, low-budget creators of unique films and thought-provoking documentaries are left standing outside your gates, which enables you to extract the utmost profit -- while demonstrating that you can successfully block any attempts to mess with the safe status-quo that you've been able to fabricate for yourself and your shareholders. Then, the Internet emerges as a lost-cost unrestricted distribution network that levels the playing field, and the "restraint of trade model" loses value as independent content creators (including Prosumers) gain an audience and fragment the marketplace. The public now has a multitude of news and entertainment sources to choose from, and the once-unthinkable happens -- nearly 20% of Americans surveyed say that when analog TV broadcasts end, they will retire their traditional television forever. My point: Zucker's digital pennies are assured as long as he resists the "new rules" of the free-market distribution meritocracy. Meanwhile, he will milk the uninformed advertisers who continue to pay for "impressions"... when the only meaningful metrics will be engagement and interaction.
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