Paying to avoid ads
Aug 5th 2004
From The Economist print edition
It is getting harder to reach consumers
AS THE advertising industry recovers from the deep slump that began in 2001, it is struggling to cope with a decline in the effectiveness of some of its traditional ways of getting a message across, such as 30-second ads on network television. The problem for adland is that reading and viewing habits are changing. For the first time ever, consumer spending has overtaken advertising as the main form of revenue for American media companies.
According to a study published this week by Veronis Suhler Stevenson, a New York investment bank specialising in media, America's spending on advertising in 2003 rose by 3.2% to $176 billion. This, says the report, was primarily driven by growth in advertising on cable and satellite TV, the internet and outdoor billboards. Yet in the same period consumer spending on media—everything from DVDs to pay-TV—grew even faster, by 6.5%, to $178 billion (see chart).
The chunk of their media-consuming time that Americans devoted to media that is mostly financed by advertising, such as broadcast TV, consumer magazines and daily newspapers, shrank by seven percentage points between 1998 and 2003, to 56%. On current trends, says the bank, by 2008 consumers will spend an average of 46% of their time with media that they largely pay for, such as pay-TV, DVDs, the internet and video games. As the production costs of these forms of media are largely paid for through their sales price or subscriptions, they may contain little or no advertising.
This increases the pressure on media firms to become less dependent on ad revenues. For advertisers it means new ways have to be found to reach consumers, such as buying sponsored links in internet searches carried out on sites such as Google and Yahoo! or boosting marketing-services, such as public relations, in-store promotions, direct mail and sponsorship. Spending on such services in America last year reached $141 billion.
Wherever advertisers turn they are finding consumers harder to reach. Overall, people are spending more time with media products, but they are also using technologies that are getting better at enabling them to avoid ads, such as “pop-up” blockers in web browsers and personal video recorders that let viewers easily assemble their own TV schedules and skip commercial breaks.
On top of that, more consumers are “media multi-tasking”, says Veronis Suhler Stevenson. This is especially true of younger people, who have the ability to read, surf the internet and listen to music all at the same time. Ask anyone with an 11-year-old son or daughter.
The report adds that there is conflicting evidence about some of the changes in media consumption, not least because the differences between certain media are blurring. One example is the often-stated claim that people are spending less time reading newspapers. Perhaps this is true of their print editions, but does it take account of the time people spend looking at newspaper websites, most of whose content appears in the print edition? “It becomes difficult to theorise that the time consumers spend with the internet has increased while time spent with newspapers has decreased,” concludes the report.