Web Pulls Ad Buyers From TV
More than 1 million people saw a Buick commercial before watching the antics of “Desperate Housewives.” So why should broadcast television executives be nervous?
Because the Buick ad was on the Internet.
After years of siphoning ad dollars from newspapers and magazines, the Internet is starting to chip away at the biggest and most powerful medium of all: television.
Commercials for Land Rover, the Army and Staples Inc. run before music videos and TV clips on Yahoo. General Motors Corp. cut commercial orders on some broadcast networks but agreed to pay $4 million to sponsor an America Online music service, expanding a campaign that placed Buick spots before AOL’s recaps of the hit show “Desperate Housewives.” Microsoft Corp.'s MSN.com recently landed blue-chip advertisers such as American Express Co., Volvo and Sprite.
“Our business is probably coming more from television, especially broadcast television, than from any other medium,” said Wenda Harris Millard, chief sales officer for Yahoo Inc., which sold $3 billion in online ads last year. “Brand marketers have finally recognized they cannot ignore the shift in media consumption patterns.”
As the six broadcast networks hold the annual “upfront” spring advertising drive in New York this week, they have plenty of concerns, including the economy and the financial health of big advertisers such as GM.
The Internet has become another dark cloud on the horizon, threatening to shrink the $60-billion-a-year market for broadcast network, cable and local TV ads. Online ad revenue surged 33% to $9.6 billion in the United States last year and is expected to grow as much this year.
A recent study by Forrester Research found that people spend 34% of their mediaconsumption time, including both home and work, on the Internet. That’s slightly more than the amount of time they spend watching TV. Still, only 6% of advertising dollars go to the Web.
“What we’re now seeing is a disproportionate shift [of advertising] to the Internet, because marketers are playing catch-up,” said Rex Briggs, managing partner with Marketing Evolution, a New York-based consulting firm.
Some broadcast executives discount the threat. Broadcast networks reach more than 98% of the estimated 110 million homes with TV sets in the United States, and marketers say most online ads can’t stir up consumers’ emotions like the traditional 30-second spot.
“The future is coming quickly, but it’s not here yet,” said Jon Nesvig, ad sales president for Fox Broadcasting Co. “You need mass communication to let people know what’s out there.”
But the broadcast networks -- ABC, CBS, NBC, Fox, the WB and UPN -- already are under pressure from cable television, video-on-demand and ad-skipping technologies.
They also face advertiser resistance to their tradition of hiking ad rates year after year even as they lose viewers. The broadcast networks’ share of TV-watching time fell to 43% this season from 53% in 1999, according to Nielsen Media Research. But during that period, prime-time ad revenue jumped 33% to $9.5 billion, according to Goldman Sachs.
“I can’t replace the reach that network television can give me so quickly,” said Monica Karo, managing director of West Coast operations for OMD, a big ad-buying firm whose clients include Universal Pictures and Pepsi. But, she added, “no other business works where quality keeps going down and pricing keeps going up and up.”
High-speed connections have made the Internet more of a broadcast medium, offering an alternative to TV. Many analysts say they expect the Internet to grow to about 15% of all ad spending within a decade. That could be enough to dramatically change the economics of TV.
Take American Express. The financial services giant has already scaled back significantly on its TV ad spending, from nearly 80% of its advertising budget in 1994 to 35% in early 2004.
“Certainly the upfronts are less meaningful today because network TV isn’t watched by as many consumers as it used to be,” said John Hayes, the company’s chief marketing officer. “The couch potato has been replaced by the Web surfer.”
Hayes wouldn’t disclose how much of the marketing budget goes to the Web, but said it had grown for several years. Like many advertisers, he is using the Internet not only to sell products but also to promote his company’s brand in ways previously reserved for television. American Express has bought banner ads, sponsored a new music service from Microsoft and created Web-only commercials starring Jerry Seinfeld and Ellen DeGeneres.
“The Internet and traditional TV, from a consumer’s standpoint, will continue to get closer and closer together,” Hayes said.
Adding to the allure of the Internet for advertisers is its ability to track the effectiveness of many advertising campaigns.
For TV, marketers have long relied on Nielsen Media Research to estimate the number of viewers who watch a particular program. But those Nielsen ratings don’t reveal how many people might have trotted off to the fridge or the bathroom during the commercials.
In contrast, the Internet often provides a precise measurement of people’s engagement. For example, Hayes could tell that people spent an average of eight minutes watching American Express’ Seinfeld-meets-Superman “webisodes.” He can tell how many people see his promotions, how many click on them, how often they come back and whether they buy any services.
Recent surveys conducted by Internet companies and advertisers have also found that online ads can boost offline purchases. For example, Ford Motor Co. saw sales of its F-150 trucks jump 6% after it advertised on the major Internet portals and car-related websites.
After a nearly uninterrupted run of more than four decades, the TV ad market’s best days might be behind it. Television’s share of the global advertising pie has been rising since ZenithOptimedia, a major media buying firm, began tracking it in 1980. But the company predicted that TV ads would peak at 37.9% of worldwide ad spending in 2006 and fall slightly in 2007 as advertisers shift more money online.
The shift is already happening in the U.S. The top 50 domestic marketers, which collectively spend 33 cents of every ad dollar, have cut their TV spending to 54.9% of their budgets in 2004 from 55.5% in 2001, according to TNS Media Intelligence. Meanwhile, their online ad budgets -- excluding search-engine ads, which make up 40% of the market -- have jumped to 3.5% from 2.4% during the same period.
“The Internet is clearly becoming a more traditional medium to advertise in,” said TNS President Steven Fredericks.
The Internet industry has grown up since the tech meltdown and Nasdaq crash of 2000. Through such trade groups as the Interactive Advertising Bureau, the industry has taken such basic but necessary steps as establishing standard ad sizes and formats, so advertisers don’t need to create new campaigns for each website.
Garth Ancier, chairman of the WB network, downplayed the threat. He said a Web campaign could complement TV ads, especially for reaching targeted niches, but it “is still no match for 30-second television spots.”
But to advertisers like Jeffrey Godsick, executive vice president of marketing for movie studio 20th Century Fox, the Internet has become a tool for reaching the mass market.
When Godsick launches a campaign for a new movie, he slaps moving banner ads on Yahoo, MSN and Time Warner Inc.'s AOL. He can go narrow, putting ads for sci-fi or comics-based films on specialty websites. He also signed a deal with Maven Networks Inc., a Cambridge, Mass.-based tech company, to promote “Kingdom of Heaven” and four other films through a service that downloads DVD-quality trailers and special features to computer hard drives.
“Years ago, we looked at [the Internet] as more of a niche audience,” Godsick said. “Now it’s part of everybody’s life.”
Douglas W. McCormick, a former cable executive who now runs Internet company IVillage Inc., says the shift of advertising dollars to the Web reminds him of the days when broadcasters dismissed the threat cable posed, only to see cable make strong gains. He predicted that the upfront ritual would become a Madison Avenue relic.
“This type of inefficiency and glitz are going to go the way of a three-martini lunch,” he said.
Most advertising executives think it will be several years before that happens.
“The Internet can take a jab punch at TV, but there’s no knock-out blow there,” said Briggs, the marketing consultant.
“I think at the end of the day the marketers will open up their pocketbooks and write big fat checks, but they do so with decreasing glee and with follow-up memos to their staff saying, ‘Find us a better way next year.’ ”