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March 30, 2006

How the Internet is Impacting Traditional Media

Several interesting tidbits regarding traditional media and the internet were included in the collection of stories in the latest MediaWorks email I received from AdAge.com:

• I've recounted how the shift of auto advertising to the internet has really hurt newspapers. AdAge.com reminds us that magazines are taking a serious hit as well. In 2005, auto advertising in magazines fell by $100 million. Magazine advertising totaled over $11 billion last year, so loss of almost 1% of the total really hurts at the margin. The trend is continuing so far in 2006, although February did see a 4% increase in auto advertising, breaking a string of six straight down months that included a drop of over 20% in January 2006. At Ford, the share of total advertising dedicated to magazines fell from 23.5% to 21% last year. Smaller but significant declines were evident at GM and Chrysler. Among the major media stocks, Time Warner (TWX) is the only company with a significant exposure to magazines. Last year the company received 13% of its revenue and 12% of its EBITDA from its publishing division which is primarily magazines including titles such as Time, Sports Illustrated, and People.

• An editorial in MediaWorks took the New York Times to task for eliminating stock tables from the daily paper. The writer was not mad that the company dropped the tables but rather wondered why it took ten years of the internet age for management to see the waste of paper. The Chicago Tribune just announced it would stop carrying stock tables as well. The writer didn’t mention how the launch of Google Finance and the end of stock tables at NYT occurred so close together on the calendar.

• CBS (CBS) made a big splash with its online streaming of the first four rounds of the NCAA basketball tourney. The experiment was a big success with over 1.4 million people signing up for a VIP pass to avoid standing in line. Unfortunately, for the potential viewers, demand overwhelmed CBS' decision to offer 260,000 simultaneous streams. Advertisers and media buyers were thrilled, however. CBS is already selling advertising for next year's online streaming coverage. This year, most of the advertising was in the form sponsorship. It is not clear if there will be more CPM based pricing next year but the idea that a big event can be streamed with sufficient demand to underwrite much of the costs received another big boost on the heels of AOL's success last summer with the streaming of the Live8 concert. One issue that is raised by the success of the hoops streaming is the availability of bandwidth.

A few observations. First, in its fight to hold market share against internet advertising, each form of traditional media needs to remember what it does best. For example, newspapers are local and magazines are niche targeted. Traditional media must capture these advantages and remember that if challenging your own business is necessary it is a risk worth taking. Second, regarding streaming of TV content, as the article notes, hypothetically, bandwidth supply is limitless but there are bottlenecks related to server capacity. Those bottlenecks only go up as more HD TVs are in living rooms and viewers get used to the quality of the picture. Downloading full length TV shows or movies takes a long-time already and without solving the bottlenecks, the download times will stretch to hours in HD format. This is one reason why the internet won’t replace your cable or satellite subscription anytime soon. As Rob Martorana recently pointed out TV downloads will create new stars. With the NCAA tournament, CBS showed us that some of those new stars will be traditional media companies willing to take some risks.

Posted by Steve Birenberg at March 30, 2006 08:45 AM in Media