“Anyone in media worth their salt has at some point woken up in a cold sweat and thought Holy shit! If I don’t get my head around this, I’m history!” - Agency CEO
The migration to digital has been a long and painful road for the media and advertising industry – not that the journey is ever completed. The shift in the competitive landscape has been seismic: only 13 years after its foundation in California, Google became the UK’s largest media business by advertising revenue, superseding ITV’s 40-year hegemony. Facebook – half Google’s age – commands more UK consumer attention than the websites of all the UK’s print media combined.
It’s not just the media owners who have struggled to adapt. Ofcom data shows that the share of digital advertising taken by ‘display’ actually fell between 2005 and 2010, and hovered around the 10% mark, with search taking 60% (Google on its own taking half the total online spend). Martin Sorrell’s nostrum – that advertising share adjusts over time to reflect the share of consumer’s time spent in each medium – is taking an age to come good in digital.
While teaching at London Business School for the past academic year, I spoke with many industry leaders to understand why it has been so hard. They identified five key areas of difficulty:
* Skills and decision-making
* Language and definitions
* Metrics or exchange-rate mechanisms
1. Skills and decision-making
Those in command of mainstream media and ad agencies can give you a ready and accurate account of how a newspaper is printed, a TV show is cast and edited, or a TV commercial is written and approved. Ask them how to decrease page-download times, or build a secure return channel for online competition entrants, and you’re likely to be met with silence or bluster. Gifted technologists attracted to marquee media brands have often found themselves frustrated by bosses who did not understand their work or constraints. The digital marketing manager of a major national brand commented that 80% of her time is spent explaining her department’s work to colleagues.
For those in power, the kinds of radical re-orientation demanded by digital were not congenial. Who, having spent 20 years scrambling up the corporate pole, would willingly suggest that their own budgets or span of control be reduced in order to promote digital expansion? The failure of incumbent leadership to grasp the challenges of digital is exemplified by the decision of ITV plc to go outside television and hire Adam Crozier (Saatchi, Football Association, Post Office) to lead its reinvention. Similarly, Time Inc, the world’s largest magazine business, this year turned to digital ad executive Laura Lang as its CEO: a woman with zero experience of publishing.
I’m grateful to Cilla Snowball, Group Chairman at AMV BBDO, for the graphic below, illustrating five different structural approaches. She recalls the exasperated lobbying of younger AMV managers wanting to set up a separate ‘AMV Digital’ in Shoreditch. With hindsight – and only with hindsight – AMV’s decision to opt for ‘infusion’ has been right: it remains now, as it was pre-web, London’s largest creative agency. Other businesses have tried some, or indeed all five, structural plays over a ten-year period, and there have been memorable failures. Under City pressure to ‘do something’, Emap, the then powerful magazine and radio player, shifted abruptly in 2000 from ‘Separate Department’ to ‘Separate Company’ – Emap Digital. It lasted two years, and cost the business about £100m. It wasn’t only publicly-quoted companies that succumbed to these pressures: Telegraph Media Group’s ‘Euston Project’ lasted an even shorter time, and lost the company £40m, plus its editor-in-chief, Will Lewis.
Many top agencies bought digital start-ups, then tried the ‘Partnered Entity’ or ‘Separate Division’ approach – only to see the founders leave and the cultures fail to gel. As with all the issues raised here, there is simply not a right answer to the structural problem.
As one expert memorably put it, the dilemma for media owners is this:
“I either invest too little, and lose share; or invest too much, and lose profit. And even if I spend just the right amount – I’m still making less money”. The sums do not add up. Companies’ five-year capital expenditure timeframes sit ill with digital development that tends to be continuously reiterative, and in a market which is changing with much greater rapidity than in the past. And these investments need to be funded from offline revenues that, especially in print media, are declining.
Firms used to showing a return on investment in the form of profit, find themselves competing with start-ups playing by alien rules: audience accumulation followed by exit: the most egregious example being Facebook’s acquisition this year of Instagram – a one-year-old ‘business’ with no revenues – for $1billion.
In the agency business, costs rose, while the basis of charging – historically linked to the amount spent – was undermined by an unprecedented fall in advertising costs, causing a frantic search for new business models which – particularly in creative agencies - still continues.
4. Language and definitions
The language firms use to frame their competitive sets and define successful behaviours, limits their ability to embrace new market definitions and new ways of working. Incumbents tried to apply the language of 20th-century business on to the new technology: thus the internet was initially described by many advertisers and agencies as a ‘direct marketing medium’, as though it were a rival to the Royal Mail. The effect of this lazy thinking was to create a market gap into which smart entrepreneurs rushed to offer advertising clients digital services and steal share from the giant networks.
Similar self-delusion was evident on the media owner side, with companies measuring their online performance against that of their offline competitors, often (wilfully) oblivious to the inroads on consumer attention made by online-only entrants with different models – such as YouTube in TV. And an executive who made a successful transition from selling offline to online classifieds, recalls how the regional newspapers used to refer to ‘our advertisers’, using phrases like ‘we own this market’. What they believed to be permanent ownership turned out in fact to be an expiring leasehold. The number of players to profitably export a legacy business model onto the web can be counted on one hand.
Advertising has for half a century been traded on the basis of sample-driven audience research controlled jointly by the media owners and the agencies coming together in Joint Industry Committees (JICs). Funding, while shared, falls more heavily on the vendor, but decision-making about modifications to the currency is always shared in these fora. And the currency for planning and buying in each is the same: demographic data based on sampled (claimed) viewing / reading / listening to an agreed methodology.
Students at LBS with no exposure to the industry are astonished to learn on what small samples buying decisions in seven or eight figures are made. (As one digital agency executive commented: “I’m in touch directly with more consumers, who bought my client’s product last Thursday, than there are individuals on the BARB panel.”) The point is that the planning data are a currency, and like any currency, the value depends on the consensus in the marketplace.
With so much financially dependent on these consensus-based models, it is not surprising that change comes only after much deliberation and politicking. The pace of change exasperated some media owners to the point where they have absconded. The FT, for instance, has created its own measure of total audience across all channels.
The industry blew its best chance to create a JIC in the late noughties: Mark Cranmer, a respected agency leader (now CEO of Isobar) was brought in to chair negotiations. But this coincided with the financial crash, snapping agency wallets shut. Critically, the largest player, Google, saw no need to underwrite a JIC audience measurement system which would only have the effect of undermining its competitive advantage. No cash, no JIC. The resultant compromise, manfully maintained by the Association of Online Publishers, has failed to gain the status of the other media currencies, leaving marketing directors unable to ‘read across’ online and offline media.
This last may sound like a secondary point, but marketing directors – many of whom enjoy the same job security as Premiership football managers – need to be able to account for their spending, usually their business’s biggest discretionary cost. Allocating budget to online without comparable metrics increases risk for them. Google’s dominant position has been built not on national blue-chip advertisers, but on hundreds of thousands of SMEs, who typically neither have the budget for traditional display, nor care about reach / frequency metrics so much as sales generated.
There are few success stories; businesses which have shown the agility to surmount these obstacles. BSkyB’s untethering of its premium programming from its home subscriptions business shows characteristic boldness in an industry leader. At the other end of the spectrum, Future Publishing has punched way above its weight on the Apple Newsstand - a position achieved by a management under the severest pressure to demonstrate new revenues. While at holding company level, News Corporation has shown itself willing to take risk, experiment and learn: for example, pursuing divergent paywall tactics in its three major newspaper markets, while launching the tablet-only paper, the Daily. WPP has diversified geographically into growth markets where offline media is still in vigorous growth, and emphatically joined the revolution in 2007 by buying digital intermediary 24/7 Real Media for $650m.
The list of losers is longer: all regional newspaper groups have failed to find a winning formula; the jury’s still out on the nationals. Perhaps most alarmingly, that list must now include Yahoo and AOL: two giants of the first decade of the web, neither looks guaranteed to survive the second. If digital native businesses like these, with multi-billion online revenues, cannot adapt and prosper, what hope is there for legacy media businesses?
And that’s before we confront the next wave of development: mobile. As the CEO of one of the UK’s top media companies commented: “The past has been easy compared with what faces us now: how do we survive in a mobile world of small screens, big processors, and new consumers?”