Are Peak Advertising Predictions Now Coming True?


Are Peak Advertising Predictions Now Coming True?Massive Structural Changes on the Horizon for Online Media With Long-Term Implications for Brands and Consumers

NEW YORK, NY — Most of our news and entertainment including television, radio, and online is subsidized by advertising, and declining ad revenue across the media ecosystem is threatening to undermine much of the free content that we’ve all grown accustomed to accessing.

Back in 2013, Tim Hwang and Adi Kamdar, researchers at the Nesson Center for Internet Geophysics, published a comprehensive study on the declining value of display, search, and mobile advertising and its potential impact on the structure of the web. The study, The Theory of Peak Advertising and The Future of the Web, examined the impact of declining ad revenue and predicted that most online business models were unsustainable. Their failure will ultimately force a contraction of many popular Web-based services and media outlets, and have dramatic long-term implications for consumers.

Fast-forward and many of their predictions are beginning to come true today as several high-profile publishers are now buckling under financial strain. A recent article in the New York Times spotlighted problems at Mashable, which just laid off 30 people. BuzzFeed, Salon, Huffington Post, International Business Times, Gawker Media, and Upworthy also announced budget cuts and layoffs over the last few months.

Declining revenue is not limited to online. Other media channels, including radio, newspapers, magazines, and television have seen falling revenue. iHeartMedia, which manages more than 850 radio stations and owns Clear Channel Outdoor is on the verge of collapse. It’s no longer a question of whether it declares bankruptcy, but when, according to Media Life magazine.

The Online Ecosystem Is Essentially Broken

The issues driving online media’s decline are multifaceted. According to Hwang and Kamdar, most methods of advertising decline in effectiveness over time, and part of this decline is due to changing generational attitudes toward advertising. Younger generations are less receptive to advertising and there’s increased consumer fatigue to brand messaging. Online advertising is also now measurable in ways that were once impossible compared with the earlier days of print and television. But measurement is a double-edged sword. On one hand, it makes evaluating success more clear; on the other, it makes failures more obvious. As the effectiveness of online advertising continues to decline, the obviousness of that decline may make the market for those ads disappear more quickly than they might have in the past.

To increase the value of online inventory, publishers, with the help of adtech companies, have deployed surveillance technology to capture personal data of consumers visiting their sites, and consumers have responded in kind through increased use of ad-blocking and anti-tracking software. The battle lines between publishers and consumers have reached new heights. Publishers are now blocking access to visitors using ad-blocking software in order to protect revenue, creating a conundrum for both media owners and consumers. Clearly, a new approach is needed.

KPMG’s Media Tracker research confirms that consumers don’t want intrusive ads, and they’re not willing to pay to gain access to content, either. “Turning off content for those that have ad blockers is self-defeating for media owners and can, at best, only be a short- term strategy. Too many people still seem to think that they can consume content for free, but there’s no such thing as a free lunch in content,” said David Elms, UK Head of Media for KPMG. “People are refusing to watch ads, but they show no inclination to pay for many forms of content—and that’s clearly unsustainable. It demands a fundamental re-examination of marketing strategy for major advertisers and business strategy for media owners.”

While the online publishing and advertising industry sees ad-blocking as a problem, consumers see it as a solution. New data from eMarketer and PageFair shows that consumers use of ad-blocking software is accelerating. Nearly 70 million Americans will use ad-blocking software in 2016, representing about 26% of all U.S. Internet users, according to eMarketer. In 2017, eMarketer is forecasting that more than 86 million Americans, or 32% of all U.S. Internet users, will block online ads. Approximately 22% of the world’s 1.9bn smartphone users, roughly 419 million people worldwide, currently block advertising on their mobile devices, according to PageFair’s 2016 Moble Adblocking Report. Both mobile web and in-app ads can now be blocked, which calls in question mobile advertising’s long-term effectiveness.

The Audience-Revenue Paradox

Reports of declining publisher revenue are in stark contrast to a recent IAB report that found that U.S. Internet ad revenues hit a new record high in 2015 of more than $59 billion, a 20% increase versus 2014. How is it possible that established media outlets with large online audiences lose so much revenue?

The basic underlying issue comes down to a shift by online audiences favoring social media platforms such as Facebook and Snapchat for news and entertainment consumption. Social media platforms have slowly siphoned off online audiences, which in turn, has greatly devalued traditional online publishers’ ad inventory. Facebook, for example, just reported sizable gains in revenue. Revenue for the fourth quarter 2015 rose 42% to $3.54 billion, from $2.5 billion in the same quarter a year earlier.

Revenue from social media advertising brought in more than $10 billion in 2015, up 55% over 2014, according to the IAB. In contrast, display-related advertising revenues (excluding mobile) totaled nearly $14 billion, an increase of just 3% from 2014. Mobile and online video have taken a substantial part of ad spend away from publishers, and viewability and bot fraud have compounded the issues as well.

The ability of the online media space to transition to a new, more sustainable business model is at the heart of the issue. Hwang and Kamdar’s 2013 study concludes: “We may very well reach and pass the point of Peak Advertising without any significant innovation emerging to maintain and grow the flow of revenue supporting the Internet. What we will be left with is a stagnant and ever eroding flow of revenue from the primary sources of advertising, and the inadequate substitution of new forms of advertising in its place. Of the few players that remain, they will produce a web experience that engineers the erosion of user privacy and the blurring of the line between real content and advertising.”

And that’s exactly what has happened. Surveillance capitalism and click-bait have replaced journalism, and the lines between real content and sponsored content have blurred. In many ways, online publishing’s problems are largely self-inflicted, and it is not that surprising that audiences and ad spend has moved elsewhere.

“The solution has to be for media owners, their ad agencies and their technology providers to deliver ads in a consumer-friendly way that is less intrusive. When ads become more sophisticated, less intrusive and even more targeted, ad blocking will become far less significant. Until then, the picture will only worsen for media owners, advertisers and consumers themselves,” concluded Elms of KPMG.

Implications for Out-of-Home Media

There’s an arms race currently underway in the out-of-home media space to ramp up measurement and analytics in an effort to align outdoor’s capabilities more closely with that of online media. Clear Channel, Outfront Media, Exterion Media, oOh! Media, and JCDecaux have all announced new tools and partnerships to measure out-of-home audiences. These changes are needed to bring more ad dollars to the medium, however, as noted earlier—measurement is a double-edged sword.

Are there additional lessons to be learned from online’s surveillance fiascos?

The digital out-of-home (DOOH) space has already ruffled a few feathers in regard to privacy issues. In 2013, Renew, a network of street-level recycling receptacles equipped with digital screens across London’s financial district, announced the results of a beta test it conducted to capture and track smartphone data. The company was tracking MAC addresses in an effort to understand how people moved around the company’s network to provide advertisers with a concise breakdown of movement, device type, direction, and speed at which people traversed through Renew’s test sites in an effort to identify peak foot-traffic times. Renew’s plan was to use the smartphone tracking data to attract additional ad revenue to their network.

Renew's Digital Signage Advertising Network Provides Real-Time Transit Information and Financial News

At first glance this sounds like a great idea. After all, advertisers are always looking for more precise metrics on which to base a media buy, and digital out-of-home operators are also looking for ways to prove out their network’s effectiveness. So what could be wrong with simply testing an idea? Word spread that the Renew Network was snooping on people movements without informing the public ahead of time about the study, angering local officials. Long story short, Renew is no longer in business.

More recently, Clear Channel has come under scrutiny by Senator Al Franken (D-MN), after it announced Radar, a new out-of-home measurement tool in partnership with AT&T, which tracks consumers’ movements and behaviors through their smartphones.  The Senator sent a letter to Scott Wells, CEO of Clear Channel Outdoor, demanding answers and the letter was published in full on the AdAge website for all to see.

In conclusion, outdoor media owners need to take extra steps to avoid the misuse of personal information; otherwise, the medium could experience additional blowback from consumers and lawmakers that could undermine the entire media space. Digital out-of-home will thrive as long as advertisers and media operators focus on its unique engagement capabilities and respect consumers’ privacy.

Editor’s Update—May 2, 2016–Senator Charles Schumer (D-NY) has asked the Federal Trade Commission to investigate the use of “spying billboards,” according to The New York Post. In a letter to Edith Ramirez, Chairwoman of the FTC,  Schumer called on the agency to investigate if privacy violations are occurring and to require billboard companies such as Clear Channel Outdoor to offer an opt-out for consumers. The senator says that “creepy” billboards likely constitute a deceptive trade policy, as their operation violates the privacy of unsuspecting Americans who don’t realize they’re being watched. Stay tuned.


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