Stunner: Online ad $ could pass TV by 2017
Online radio and mobile revenue will help fuel shift
August 28, 2012
There's been much talk about the fact that online ad sales surpassed newspapers over the past two years to become the No. 2 medium behind television. But soon digital may be No. 1. That's according to a report from Mintel, a market research firm, which predicts that U.S. online ad revenue will surpass TV ad revenue by 2017. Last year online accounted for $31.7 billion in sales compared to television's $68.5 billion, according to Mintel. Online's sharp growth curve, combined with slight declines for television, will continue to be sparked by new innovations, such as mobile advertising and increased use of online video streamed directly to television sets. The growth of online radio services, including Pandora and Spotify, will also bolster online ad sales, coming at the expense of terrestrial radio. And the continued shift in consumption of information on digital devices rather than in print will prompt many advertisers to move their money out of newspapers and magazines and put it online. Billy Hulkower, senior analyst for technology and media at Mintel, talks to Media Life about the future of online advertising, why it's expected to surpass TV in five years, and how mobile figures into the equation.
What does it say about our media culture if online advertising surpasses TV as the No. 1 medium by 2017?
I think that's an indication of related demographics and usage. It's also a technological switch.
Print media has lost the most to online media in terms of ad purchases, but the demographic element of people who are not DVRing their commercials and skipping them has tended for years to be lower-income and older households. If you're advertising a luxury product, it already hasn't made sense for a long time to have a large TV budget.
You should be online, and there are two reasons it is taking as long as it has.
One is fear. No one wants to be the one who killed the brand by shifting all of their ad spending from one location to online media. So people are moving it slowly.
The second reason is looking for an appropriate vehicle, with people concerned initially about "Where am I going to put that money online? I don’t want to put it in front of the cat video on YouTube." There still seems to be this two-faced issue between TV and the internet. On TV it's branding, whereas on the internet if there's no click or sale, then it didn’t work.
I think that's very inaccurate. There are two players that can reach millions of people in a short amount of time, and that's YouTube and Facebook. So the vehicles are there, and they're going to be monetized.
Some other forecasters expect that to happen further in the future. Why do you think it could be relatively soon?
It already makes sense, it's just a case of people accepting it. In terms of 2017, we're taking different sets of numbers of different forms of media and looking at the track record, and that's where we see the lines crossing.
I honestly wouldn’t be surprised if it happened in 2016. I'd be more surprised if it took until 2018. The web is only 20 years old, so five years in the lifespan of internet ad spending, in terms of this media format, is a long time.
What other media suffer with advertisers moving more dollars to digital?
Well, television has held pretty well, which is surprising to me. But if you made a theoretical situation where online media was somehow never created, some of the online money would have gone to growth in TV.
But the thing that people have been pulling out of most is print, and that's been going on for years. The New York Times is not a profitable company, they're in the red. Have you looked at a Newsweek? They used to have reporters, they don't anymore.
I don’t want to pick on individual companies, but print is being killed by the internet, and on some level I think it's unfair. Some outlets have millions of eyeballs, even in print, but I feel people felt comfortable pulling budget from print more than pulling out of TV. It was an easier whipping boy.
How much will the rise of mobile advertising contribute to online's gains?
It's an interesting question. I think even though mobile is growing rapidly, the level it's at is still relatively insignificant compared to spend on standard online advertising. It is growing very rapidly, but you're talking about a minority issue. I do think that it will grow tremendously.
When I talk to people that are actually creating materials for mobile, they're telling me there's a strong demand for either dedicated apps or in-app advertising. And that make s a ton of sense. If an ad is in an app you want to use for a practical reason, it will be hard to ignore.
The other thing about an app is it's more of a voluntary issue. There's been sort of a question of if we want to invade people's phones, so people are being careful with that, as well as with the small size of the screen.
The other issue with mobile is that you have download issues related to something heavy like a video advertisement. People will be upset to know they paid extra for data to watch a commercial So there's a few little problems in the mobile space that I believe will get worked out in the next few years.
If you're looking at mobile users who are on the younger side, geographically related couponing is almost the holy grail of mobile advertising. People are ready for that, they want it, the issue is how do we get it to them. Is it an individual retailer thing? Once this kind of stuff gets sorted out I think there will be a huge boom in local couponing, and I think younger viewers will be happy to participate.
One issue with that is privacy. But if people are logged onto a social network such as Foursquare, you could easily broadcast out and switch between whether you want retailers to see where you are.
The other thing I think is not fully monetized is mobile search.
How much is mobile advertising being driven by the desire to connect with a younger demographic?
It's not that easy to advertise to a feature phone. You're talking about a text or email and people opting in. Younger people also much more likely to have a smartphone.
The other issue is that I've heard for years people talking about how it's hard to reach younger people, and especially younger men.
But it's really the older consumers who have bought all of the stuff and are suspicious and cynical about advertising. Younger age groups are willing to look at ads, they're interested. So the desire to connect to young people, it's de facto that if you're moving to mobile, you're oriented to younger consumers. So I feel like the question is like the tail wagging the dog.
Do you see the prospects for online radio brightening? How will this impact terrestrial radio?
Online radio is doing surprisingly well, I think. For a long time people thought Pandora would cease to exist, then it became a publicly held company that hasn’t collapsed. They do have an issue with inventory.
For the industry as a whole, the transition that needs to happen is the car–that's where many people listen to the radio. When everybody has a car with an internet connection or uses their smartphone to power it in the car, then it will become more acceptable.
But people are lazy sometimes. If there's a radio installed and you're in a rush, you might just turn it on automatically and drive to work. But eventually the car is going to be lost to internet radio.
You make an illusion to "America's love affair with 'lean back' media" at the end of the report. What is that and why?
The term is just for media that plays in front of you where you don’t have to have any active participation. You can watch a TV show for a half hour or movie for two hours.
People are lazy, they like not having to switch things. So that’s a power the living room TV has and something that YouTube is starting to encroach on.
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