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Communities Drive TV Versus Web Ads

Jonathan Guthrie, CEO of MGt, discusses how the television industry is fighting back against the Internet advertising bogeyman - through communities, web aquisitions and multiplatform CRM...

Jonathan Guthrie, CEO of MGt, discusses how the television industry is fighting back against the Internet advertising bogeyman - through communities and web aquisitions and joined-up, multiplatform CRM...

By Jonathan Guthrie

[Register and post your own comments on this article below...]

Television executives are losing sleep over the threat of Internet advertising.

The anthropomorphic manifestation of their nightmares is a Google-coloured bogeyman, stealing in through the window during the dead of night to rob yet more advertising revenues from the stash beneath their mattress.

And when Google overtook Time Warner in June 2005 as the world’s leading media company by stock market value, it seemed commercial television’s worst dreams were coming true.

As a business, Google relies on Internet Advertising for 99% of its revenues. Its market dominance is predicated on the fact it does search better than anyone else (at the moment). And despite this meaning that Google’s business is built on a technological house of cards, investors value it at over $100bn.

Tip of the web advertising iceberg?

Why? The simple reason is that, despite the risk, investors believe there are untold riches to be made from Internet Advertising and that we’ve only seen the tip of the iceberg thus far.

Internet advertising has a 5% share of global advertising spend, yet 20% of media is consumed online. Google-ites readily point to this discrepancy as evidence that the traditional media ice caps are on verge of melt-down, which will result in a flood of revenues for Internet advertising businesses at the expense of print and television.

UK market breaks £1bn barrier

This prognosis is seemingly verified by advertising expenditure figures from the UK’s Advertising Association (AA) which show Internet ad spend grew just shy of 50% during 2005. Additionally, a recent study by the Interactive Advertising Bureau and PricewaterhouseCoopers revealed that the UK online advertising market broke through the £1bn barrier for the first time at the end of 2005.

So has Internet advertising driven a stake through the heart of commercial television?

Not just yet, according to AA figures. The latest Quarterly Survey of Advertising Expenditure found that television ad spend was flat (once the numbers have been adjusted for inflation). However, spend across other mediums were significantly down, suggesting that growth in Internet advertising is starting to bite deep and that it will only be a matter of time before it eats into television ad spend.

So how does the commercial television industry fight back?

Arguably the biggest advantage online advertising has over traditional media, aside from low entry-level costs, is personal relevancy - and hence effectiveness. An individual’s online experience of advertising is contextual and real-time, driving a high response rate that translates into revenues and a high ROI. Broadcasting, conversely, by its very nature is an impersonal mass medium that has limited or no direct relationship with viewers. To address this, broadcasters have looked online and learnt the lessons from the dot-com winners – that community is king.

Communities top the TV aquisition trail

Created by the merger of Carlton and Granada, ITV controls more than half of UK’s £4bn television advertising market and is therefore somewhat of a bell-weather for the industry. In June 2005 it acquired Friends Reunited, pointing the way for commercial TV. According to Jeff Henry, director of ITV Consumer, the £120m acquisition was a “key step in the delivery of ITV’s strategy to drive new revenue streams for the company”. Aside from purchasing online real estate to bolster ITV’s Web presence (which already included services such as online dating, recruitment and classifieds), ITV effectively bought a ready-built online community of 15 million people.

On a bigger scale, Rupert Murdoch’s News Corporation (which owns 36% of BSkyB) paid $580m for MySpace last year. MySpace is the world’s biggest social networking site, claiming 57 million registered users, and is currently ranked the fifth most popular English language site on the net by the Alexa ratings service.

Channel 4 is also a strong advocate of communities and hosts a vibrant site at www.channel4.com/community.

Evolving the advertising model

The list of examples could go on, but the point is clear: Creating a strong community offering will enable broadcasters to evolve their advertising models and create a much more compelling value proposition.

Being able to provide a joined-up media environment that extends reach from the TV screen to PC desktop and mobile handset, combined with the powerful cross-channel pull through effect of ‘community’, will enable the delivery of high-impact, integrated multi-channel campaigns. The rich data collected via community offerings will also enable much more sophisticated segmentation and accurate targeting of key consumer groups.

New agility required from TV players as Google explores video

Critical to making this all of this work though, will be the ability of commercial television companies to manage multi-channel CRM – not something which many count as a core expertise. And since speed will be of the essence, with go-to-market timeframes of days or weeks not months or years, it’s likely that many will choose to strategically outsource to specialist CRM service providers.

We can also expect to see a flurry of announcements around the introduction of new pricing models. For example, Sky announced in November that it was slashing the cost of response advertising through its interactive television platform by 80%. According to Robert Leach, head of interactive services at Sky Media, the strategy behind the aggressive pricing is to make integrated campaigns much more attractive and affordable, even for low-end FMCG goods “such as washing powder”.

But just as much as commercial television companies are encroaching on the Internet domain to create a joined-up proposition that is both highly personal and relevant, so Google has made its first foray into TV content with Google Video. The race is therefore truly on to deliver the advertisers’ panacea of a rich multimedia, multi-channel environment with community at its heart.

And given the significant investments being made by the likes of ITV, News Corporation, et al, you never know, it may just be the turn of Google executives to start losing sleep.

Jonathan Guthrie is CEO of MGt.

About MGt:
MGt is a leading provider of outsourced support services specialising in the digital broadcast and new media markets. The company was founded in 1998 and is headquartered in Kirkcaldy, Scotland. MGt’s knowledge and experience in delivering technologically advanced and operationally complex projects has resulted in continuous expansion and growth with now over 1200 employees located in six sites within the UK. The company offers a full range of pay and transactional services as well as customer management and professional services to some of the biggest names in the UK TV industry. At the heart of MGt’s success is its service delivery technology platform with a leading edge CRM system, Profile™, providing fully integrated and automated multi-channel front and back office functionality. Broadcasters such as BSkyB, Discovery Networks, Freeview, Playboy TV UK, Sony Entertainment and Top Up TV rely on MGt’s expertise to look after their revenue management and viewer relationships. www.mgtplc.com