The Advertising Industrial Complex

Image for post
Image for post

In early winter of 2010, NBC Universal made national headlines when CEO Jeff Zucker, along with chairman Jeff Gaspin and executive Rick Ludwin, enacted a remedy to declining viewership in their 11:35pm time slot, by attempting to reinstate Jay Leno back into his role as host of The Tonight Show. Due to an earlier contract negotiation, Conan O’Brien, the host of Late Night with Conan O’Brien which followed The Tonight Show, had been promised the role as host beginning in summer of 2009. In an attempt to subsequently keep Leno from switching to a competing network after the changeover, was given an hour-long talk show in the 10pm time slot; a contentious move as the 10pm slot was typically reserved for hour long dramas. NBC executives began to feel pressure to make a change when ratings for NBC affiliates’ local news broadcasts, which typically aired before The Tonight Show, began slipping around mid-October.

NBC affiliates began to threaten NBC corporate by saying that if something were not done by January, they would begin airing syndicated programming or move up their news broadcasts to preempt Leno. The solution NBC settled on was to cut The Jay Leno Show to a half-hour, move it to 11:35, move back The Tonight Show with Conan O’Brien to midnight, and return the 10pm time slot to hour-long dramas. The resulting backlash from fans and viewers on social media and in news outlets was nothing short of a PR fiasco for NBC. Television consumers chose sides: blaming NBC executives, especially CEO Jeff Zucker; criticizing Jay Leno; painting Conan O’Brien as the victim; and re-instigating the headline of Late Night Wars, a phrase that had previously referred to the initial time Jay Leno took over as host of The Tonight Show which many people understood to be owed to David Letterman after Johnny Carson retired.

Because of the way the media painted the whole fiasco, news consumers were led to believe that this was a complete failure on the part of media executives; a classic case of poor prediction and irresponsible decision-making. What they failed to notice however, was the fact that television as a consumer medium had actually begun to decline. According to Nielsen, the popular television ratings company, 2010 marked the second year in a row that television viewership had actually declined in over 20 years. Reportedly, the number of households with at least one television and a cable, satellite, or antenna connection decreased from 115.9 million to 114.7 million despite an overall increase in the number of households in the country. At the same time, the total number of Americans who watched traditional TV had shrunk from 289.3 million down 1.7 percent to 284.4 million. Similarly, the average viewer time had declined as well, down 0.5 percent, or 46 minutes less compared to a year earlier.

This may not seem like much, and could easily be attributed to young people being lured away by the likes of video games, the internet, and social media; however, this was just the beginning of a larger trend. Year over year viewership among television consumers in the 16–24 year old age group decreased 22 percent from 2010 to 2013 and 15 percent for the 16–34 year old age group. According to Pew Research, cable primetime viewership was down 8% from 2014 to 2015, even while being bolstered by election coverage. Cable and satellite subscription services saw numbers to suggest that 1 in 7 subscribers had relinquished their accounts. Pew’s data showed that people under 30 were increasingly citing social media as their main source of news. In fact, young people aside, in 2015 it was estimated that a full 62% of US adults claimed social media as their main source of news and entertainment.

2007 appears to have been a watershed moment for technology and internet entertainment. This is the year that some experts consider social media to have experienced its “tipping point.” Facebook opened its doors to everyone in late 2006, with Microsoft purchasing a 1.6% share in 2007. YouTube launched in 2005 with Twitter launching close behind in 2006, both gaining traction and widespread popularity in 2007. Amazon launched its streaming service in late 2006, with Netflix announcing its own streaming service in early 2007. Another website called Hulu unveiled a streaming service that made popular television shows accessible to cord-cutters shortly thereafter in early 2008. Then the first iPhone, announced in January 2007, hit markets in June of that year.

The average cost of a cable television subscription in 1998 was $27.88; adjusted for inflation the cost would have increased to $39.85 by 2013. In reality, the cost of cable increased to $64.41 on average. When an industry increases prices faster than inflation without filling the gap with innovation, that is a tell-tale sign an industry is ripe for disruption. Consumer technology, as an industry, prides itself on comprehensively increasing the innovativeness and productivity of its consumer electronics while decreasing the price. Most industries prefer to do the opposite; raise prices as quickly as possible without adding any additional intrinsic value to its products or services. Moreover, according to Nielsen, in Q3 of 2015, the number of those planning to cut the cord was steadily increasing across all generations including Baby Boomers. Unsurprisingly, the main proponents of cord-cutting were the young, those aged 16–34. From 2014–2015, channels formerly popular among the young like MTV, Comedy Central, and FX experienced decreased viewership, dropping between 18% and 25%, which means the consumers that brands most hope to reach through advertising, were (and continue to be) the ones exiting the ecosystem.

At the same time, online content providers were experiencing almost shocking growth. Netflix streaming subscriptions increased 38% from 2014–2015 and increased 50% from 2015–2016. Amazon Prime membership, which includes Amazon video, increased 53% and 51% respectively. Hulu experienced a 50% approximate growth year-over-year as well during the same time frame. Similarly, HBO Now, HBO’s online streaming service, accumulated around 2.4 million subscribers by the end of 2016, which accounts for a tripling of subscriptions from the end of 2015. Furthermore, GoogleTV, AppleTV, and Roku also saw increases in people who were willing to pay for content formerly relegated to the sphere of network television. Pay-per-program services like iTunes also experienced a 9% growth in 2015. It would appear that people are willing to pay for unique, quality, and more importantly, uninterrupted content. The value-add of services like Netflix and Amazon Video lay in not only the ability to search and choose content the user wants to watch, but also the ability to watch without commercial interruptions. Essentially, online subscription services have been growing while all ad-supported media is in decline.

As the old means of advertising dwindles, more and more brands are throwing their advertising money into social content. Social networks recognize this and have been moving fast to develop new video products. Services like Snapchat and Facebook Live have been working hard to promote their video capabilities not just to users but to brands as well. And it appears to be working. Since Facebook went public their revenues have increased from $7b in 2013 to $18b in 2015 and is currently projected to reach $80b by the end of 2018. Google, whose search business still constitutes 98% of their revenues, has increased from $66b in 2014 to $90b in 2016. Advertising would appear to be lucrative in the search (Google) and discovery (Facebook) business, but is flailing everywhere else.

As more and more content providers begin to recognize this trend, there will be a big shift toward online subscription models. Former broadcast companies like NBC Universal, Viacom, and Time Warner will begin to realize they are losing money by relying on ad-supported models and begin offering online subscription models; even partnering with digital platforms like Netflix, iTunes and possibly even Facebook or Snapchat in order to reach a more technologically savvy youth market. The age of the brand will come to an end as more people discover products through word of mouth, Amazon reviews, and generic product searches. In the world of digital, consumers simply want the best product at the best price. For a small fee, they can opt out of advertising, relegating the only effective means of product discovery to Instagram influencers. Television, radio, and other similar media, including news outlets, will fall away leaving only those with strong subscription models who are able to differentiate themselves and communicate their value proposition effectively to survive. In a world where Variety lists YouTube personalities like PewDiePie and JennaMarbles as bigger stars than Johnny Depp or Jennifer Lawrence, the new generation of media consumers will be left saying, “Conan who?”

Written by

Freelance writer and professional gig-worker. I mostly write about the impact of technology on business & culture. Find me on twitter @chasebanderson.

Get the Medium app

A button that says 'Download on the App Store', and if clicked it will lead you to the iOS App store
A button that says 'Get it on, Google Play', and if clicked it will lead you to the Google Play store