Why digital advertising isn't going to eat into TV

22 Oct 2014  |  Raymond Snoddy 
Why digital advertising isn't going to eat into TV

Based on compelling new evidence, the idea that digital advertising is going to suck the life out of traditional television is looking increasingly unlikely, finds Raymond Snoddy.

In the media bad ideas never really go away. Facts are deployed in the face of fancy and you think you have finally done it then they arise again like a Hydra-headed monster in slightly different form.

The underlying theme behind bad media ideas is always the same. What exists now is always in serious, or even terminal trouble. The brand new will always vanquish the old.

And so it is that newspapers are already all but dead, totally ignoring the range and depth of experimentation and innovation that is - admittedly belatedly - turning them into something else, something that can endure.

An even worse idea that refuses to go away is the canard that network television is on its way out, that channels and channel brands are on their last legs as we head towards an on-demand, online world.

This one has had its head lopped off so many times that it's wearisome to have to lift the sword again.

In this world, digital advertising will take the prizes and advertising will leech away from traditional television.

Behold the inevitable rise and triumph of OTT operators such as Netflix and Hulu.

In the absence of Hercules we are going to have to make do with what Jonathan Aitken called, in very different circumstances, the trusty sword of truth - or to be more precise, of facts and common sense.

Enders Analysis has gained a reputation, on the whole, for asking tough questions and dealing in facts rather than the latest passing fancy. Deloitte, the consultants, is another organisation with the courage to say you may not like my facts but before you can denounce us, first you have to prove us wrong.

Enders this week has published a report based on conversations with key media players in the UK, the rest of Europe and the US.

The task was to try to identify the extent to which television consumption and advertising are shifting - and will shift - to digital.

The conclusions - not strictly facts in the scientific sense - are based on knowledge and judgement and should be inscribed in tablets of stone.

TV, Enders argues, is and will remain, the core brand advertising medium "in all market territories for the foreseeable future."

As a result, weak "up-fronts" will not translate into a collapse in advertiser commitment in the short, medium or longer term.

Moreover, digital advertising growth is largely at the expense of direct response and print media, far less at the expense of TV.

And finally despite the "recent media hysteria" surrounding the launch of Netflix and Hulu, neither will actually materially affect the fortunes of the traditional TV business model.

Four little sentences. Four big statements. Four conclusions that should be inwardly digested and memorised as a useful antidote when the snake oil salesman come round again, as they inevitably will.

Enders claims to have identified four core barriers to digital expansion and all are worthy of serious consideration. Television has not declined in scale despite the rise of the internet and on any given day its ability to deliver mass-market audiences is unmatched. Television advertising, though far from perfect in its "viewability" - ads actively watched - still performs better than digital advertising.

Then there is the danger of advertising fraud online - fraud clicks by non-human traffic and even the entry of false credit card numbers recording "sales" that have never actually taken place.

Because of such frauds, and the weaknesses in last-click analysis, major brands have difficulties attributing effects and effectiveness to digital advertising. Decades of experience with television advertising make it much easier to assess its effects.

Deloitte, in international research for the IBC Leader's Summit in Amsterdam last month, came to similar conclusions pointing to the endurance of television with the OTT operators carving out for themselves a complementary, additional space.

And for good measure this week research and consultancy group IDATE predicted that global television revenues would grow by 3.6 per cent a year between now and 2018 - from €368.9 billion to €422.7 billion, from £291.4 billion to £335.5 billion.

As for Netflix, the company has successfully carved out a new niche, increasing the value of second run material previously languishing, near worthless in the programme libraries of their creators.

Assembling 53 million streaming subscriptions worldwide is a great achievement - but a few clouds have appeared on the horizon in recent days.

Netflix missed its stated growth targets, apparently because of the effect of a $1 a month price rise, and the shares fell by a quarter.

The fact that $1 could make a difference points to the possibility of a self-limiting mechanism that could hit Netflix in future. The more successful it is the more it will have to pay for rights and if it wants to move into extensive original programming, as opposed to headline grabbing one-offs, it will be into an entirely different cost structure.

Success could also cause another problem in the attitude of rights owners. It is far from difficult to replicate online programme streaming services and in addition to Hulu the content owning worms are starting to turn.

This week it emerged Time Warner was planning to launch sometime next year an OTT version online of its premium service HBO.

At around the same time CBS was introducing its multi-platform digital service and also noted that ESPN and the National Basketball Association were working on the framework for an OTT service.

For Netflix there is a clear danger that unless it underlines its status as a permanent part of the media firmament, as a middleman it could be progressively squeezed over time.

While OTT in some form will be with us as an add-on service, or as a low cost service for those who cannot afford, or do not want to pay for, expensive cable or satellite subscribers, there is no sign at the moment that it can ever become a replacement for network television.

There will be some who will continue to say it is so.

The head will still have to be chopped off by the facts - time and time again.

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