The Future of Ad Supported Media

I’ve just finished reading Thomas Piketty’s book “Capital in the Twenty-First Century,” which I highly recommend everyone read, and Piketty stops me cold on page 357 with this graph (see below). I’ve highlighted in yellow two things for you to take note of. In a moment I’ll explain why this hit me so hard.

This same week, I was reading Seth Godin’s blog post “Mass production and mass media” where he explains that mass media exists because it permits mass marketers to do their job and how mass media is going away. If you’re in radio or TV, that kind of proclamation will get your attention; BIGTIME.

Godin is predicting that the “mass” part is what’s going away and that it is being replaced by “micro.” In essence that it’s better to be important to a few than be irrelevant to the many.

Then this article appears in AllAccess “Radio’s Dying…But The Cause Isn’t What You Think.” Seth Resler writes that radio isn’t going to die because it has been abandoned by listeners, but it’s going to die because it’s been abandoned by advertisers. Resler goes on to make the case that advertising is moving away from the Mad Men era art form that it was, towards a keyword and search scientific algorithm metric of today.

“…there has been little doubt for more than a decade that the advertising model that traditionally supported an industrial-age news and information system is evaporating,” writes Anderson, Bell and Shirky on pages 11-15 in “Post-Industrial Journalism: Adapting to the Present (2012)”

Mark Perry, blogging at the American Enterprise Institute writes: “The dramatic decline in newspaper ad revenues since 2000 has to be one of the most significant and profound Schumpeterian gales of creative destruction in the last decade, maybe in a generation.”

Well, I’m here to have you consider a 3rd possibility, one that stopped me in my tracks as I was reading Piketty’s book. Now, I may be putting words in Professor Piketty’s mouth when I tell you what I’m about to say. Piketty did not write about radio or TV, or mass media in general in his book. He writes about wealth inequality in our world from antiquity to the present day and then makes some predictions about where things are headed based on current trend lines.

But this graph on page 357 haunts me.

Picketty Chart on page 357

That graph, from the period of 1913 to 2012 includes the period in which radio and television were born. It’s the era when advertising supported media took off. I worked the last forty years of that graph in the radio business and experienced the change in business that this graph shows.

Commercial radio was born in 1920. Commercial TV took-off in the 1950s. And I quite agree with Seth Godin when he writes “Mass production, the ability to make things cheaply, in volume, demanded that we invent mass marketing – it was the only way to sell what was being made in the quantity it was produced. Mass media exists because it permits mass marketers to do their job.” To which I would add to Seth’s thoughts that mass media and mass marketing both existed because there was a strong American middle class of consumers.

If Piketty is correct, the concept of a middle class consumer economy that existed between 1913 and 2012, was an anomaly. It didn’t really exist anywhere in the world before 1913 and it’s very likely not going to exist anywhere in the world as we journey away from the year 2012. The middle class consumer economy will evaporate and along with it, advertiser support for mass media.

1913-2012 was a unique period in world economic history. It gave birth to consumers who had money to spend, mass production that could produce lots of goods and mass media that could advertise those goods. All three were simultaneously occurring at the very same moment.

The new buzz words are “shared economy” and “collaborative economy.” What roles will large corporations, universities and mass media play when people are getting what they need from one another?

In 2014, Nielsen Music reported a staggering drop in music sales where as much as a fifth of music buyers didn’t buy anything.   2014 also saw box office ticket sales plunge to their lowest level in three years. The home ownership rate reached its lowest point in 25 years at the end of 2014. More people were now living in shared living arrangements or going back home to live with mom and dad. And NYC Mayor Bill de Blasio appearing on “The Nightly Show with Larry Wilmore” told viewers that:

“The wealth gap in New York City today is worse than during the Great Depression or The Roaring 20s – and the gap is growing bigger. Today over half the people in NYC pay over a third of their income for housing. The reality is, (according to the mayor) if we don’t change course middle class families won’t exist in New York City.”

Are these reports canaries in the consumer coal shaft?

Medialife Magazine, a magazine devoted to media buyers and planners, reported that 2014 wasn’t good for advertising. Total spending was up 3.0 percent, but if you take out political spending and the Winter Olympics, the number shrinks to 1.6 percent. “That’s the worst yearly growth pace since the recession began in 2008,” said writer Bill Cromwell. Traditional media is struggling and according to Magna Global, “this appears to be a lasting trend.”

Only recently have broadcast operators said things like “flat is the new up” when comparing year-over-year revenues. I realize there are exceptions to what I’m saying. Your broadcast property might be one of them. But what are the trends that are taking place and how will they impact you in the years to come?

It took two world wars to re-set the wealth inequality gap and put into place FDR’s New Deal. Changes that have in more recent times been stripped away returning things to the way they were in the 19th Century; a period of time when the concept of a middle class of consumers didn’t exist.

Roy H. Williams, aka The Wizard of Ads wrote recently (Monday Morning Memo, March 2, 2015) about “the shrinking of mass media” and “the growing reality of gender equality.” America went from being 16% single to 46% single in just one generation, Williams writes. “A once-proud nation of families is evolving into a proud nation of individuals.” And Williams sees “The trend toward singleness is sociological (while) the erosion of mass media is technological (as) each trend accelerates the other.”

Williams comes to this conclusion:

“We’re approaching the end of a golden time when courageous advertisers can invest money in mass media and see their businesses grow as a result. My suspicion is that we’ve got perhaps 5 to 7 more years before retail businesses and service businesses will be forced to begin playing by a whole new set of rules. Buy mass media while the masses can still be reached.”

The future of ad supported media is tied to consumerism. Consumerism is tied to having a strong middle class.

Does the Piketty graph on page 357 of his book “Capital” send a chill down your spine like it does to mine?

P.S. Thomas Piketty published an amplification on his r>g theory. You can read that here.

32 Comments

Filed under Education, Mentor, Radio, Sales

32 responses to “The Future of Ad Supported Media

  1. Seth Godin has been talking about the long tail for a long time. Like most breathless 90’s business futurism, if it’s come true it was in a different form than those who sell their speculative thoughts said it would.

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  2. I believe Godin is also the originator of the idea that people’s click-trails would be so valuable to businesses that things like clicking, commenting, and blogging would be income sources for the average person. That may be a bit of an exaggeration, but

    http://sethgodin.typepad.com/seths_blog/2012/07/monetizing-digital-attention.html

    it looks like he is still advising people to write blogs for a living.

    Liked by 1 person

    • I’m not exactly following you as to how this equates to the evaporation of the consumer middle class.

      Like

      • Just responding to your citation of Godin.

        Maybe one of the reasons he appeals to Americans is because of a weakening middle class (fewer jobs, and news covers the internet sector) – but I wasn’t commenting on that part.

        Liked by 1 person

      • Decline of the middle class is a huge issue. But given slack labour markets at say the $50k level, I would not conclude that niche advertising over mass advertising is the answer. Especially not because a guru like Godin says that’s the answer. As far as internet ads I’ve seen (and I keep ads on so I can see who’s buying ads), Youtube is dominated by mass-target high-production-value ads; banners are generally remarketing; and keyword advertising is niche. But Godinesque “throw up AdSense on your topical blog” didn’t work. (And product-review blogs are still quite slim.) Two interesting alternatives to AdSense are Wonderful Rainbow (an independent ad network by the DinosaurComics guy) and The Deck (an independent ad network by Dave Eggers).

        Again none of this relates to Piketty, just about what current economic/demographic trends mean for advertising.

        Liked by 1 person

      • spotmagicsolis

        yah especially when Seth seems to be a elitist! =D

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  3. The overall money that advertisers commit during this year’s upfront could sink 7% from last year, to about $20 billion, according to an estimate from Magna Global. Total ad dollar commitments are expected to fall 10% for broadcast networks and 5% for cable networks, Magna said. WSJ.com

    Liked by 2 people

  4. More than five years after the end of the Great Recession, and three years since the Occupy movement took on Wall Street, high and growing levels of income inequality continue to animate debates on politics and public policy. Inequality provided the economic backdrop for President Obama’s 2015 State of the Union address, the recent report of a transatlantic Commission on Inclusive Prosperity, and one of the most talked-about books of 2014, French economist Thomas Piketty’s Capital in the Twenty-First Century.

    The fact estimated inequality ratios rose in 42 (American) cities, and fell in only eight, suggests that the predominant trend in these big cities is toward rising inequality.

    Read more here: http://www.brookings.edu/research/reports2/2015/03/city-inequality-berube-holmes

    Liked by 2 people

  5. spotmagicsolis

    Thanks for all the info and farther reading. Dick, I’m no business major so can you simply explain what that graph means. I know what ROI is but just r?
    Thanks!

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    • In the most simplistic terms, think of “r” as the haves and “g” as the have-nots. (I’m taking big liberties here!) and for that century when “g” was greater than “r” it was a time that we saw the ability of have-nots to get a good education, a better job and raise their standard of living to be better than that of their parents. It was the period of the rise of the middle class in America and what became known as “The American Dream.” It was also the period of the birth of radio & TV and the MADMEN of Madison Avenue. If things return to the way they were in the 19th century and earlier, then advertising which thrives on selling goods to a strong middle class might just find that it’s talking to folks who don’t have the discretionary dollars to spend. And if the consumer class is broke, then what will ad supported media do when there’s no need for ads? This is what the trend line appear to be showing us on a global scale. That’s what the graph I show is telling us. And the Saga analyst conference call was alluding to the possibility that something akin to what I wrote about after reading Piketty’s book was beginning to take shape.

      Liked by 2 people

      • spotmagicsolis

        thank you, Dick.

        Like

      • spotmagicsolis

        maybe we’ll go back to before advertising. After all, isn’t that what the Net and social look to be enabling? Trading goods and services locally. Aha! I’ve survived on barter before.

        Like

      • spotmagicsolis

        oops, you sort of touched on the goods and services from one another. my bad.

        Like

    • r is ROI. What Dick said works because wealth is concentrated, so interest rates / stock appreciation / etc benefits the capitalists more than the average person.

      g only benefits normal people if their wages rise, which doesn’t necessarily happen either. For example that g ↑ might be showing up in top incomes but not median incomes. http://wp.newrepublic.com/wp-content/uploads/2015/01/B8Sdv_1IgAA97sL-1-624×515.png ←There are a lot of >100k earners in the US today. Which is a great thing, however it doesn’t necessarily help the households making $20k–$30k, of which there are many. (http://visualizingeconomics.com/blog/2006/11/05/2005-us-income-distribution)

      Liked by 1 person

    • spotmagicsolis

      all discourse is helpful. Teaching tolerance is a noble goal.

      Like

  6. Once an economic bedrock, ‘middle class’ feels unattainable to many.

    “One of the enduring successes I have observed in my lifetime of 64 years is the ability of the 1 percent or the power elite to continually convince so many Americans that they are, in fact, middle class,” said Tampa resident Lew Sibert, a retired “minor” pharmaceutical executive. “The statistics are abundantly clear that, certainly in the last decade or more, wages have not kept pace with the everyday cost of living. We are fewer owners and more renters.

    Read more in this link to the Tampa Bay Times: http://www.tampabay.com/news/business/personalfinance/once-an-economic-bedrock-middle-class-feels-attainable-to-many/2229848

    Like

  7. “The shift we’re seeing from the traditional employment relationship to more non-standard forms of employment is in many cases associated with the rise in inequality and poverty rates in many countries….”

    http://www.theguardian.com/business/2015/may/19/most-of-the-worlds-workers-have-insecure-jobs-ilo-report-reveals

    Like

  8. Only one quarter of workers worldwide is estimated to have a stable employment relationship, meaning that three quarters of workers are employed on temporary or short-term contracts, in informal jobs often without any contract, under own-account arrangements or in unpaid family jobs.

    http://www.rttnews.com/2500882/75-of-workers-are-employed-in-part-time-temporary-jobs.aspx

    Like

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  10. America’s economic system has failed by not raising living standards for most.

    Nobel laureate Stiglitz, author of The Price of Inequality and The Great Divide, studies the forces driving inequality and what is at stake if it continues. In his view, bad economic thinking deserves part of the blame — fanciful ideas like trickle-down and the notion that economists should try to increase the size of the economic pie and let the politicians worry about distribution. On the contrary, Stiglitz sees distribution as a problem economists must confront. He warns that an economic system that doesn’t raise standards of living for most Americans is a failure.

    Stiglitz departs from Thomas Piketty on the causes of inequality and sees capital gains on land and rents associated with monopoly power, discrimination, and exploitation as the big story. He also faults deregulation in the banking industry.

    Stiglitz warns that inequality and unfairness are undermining our identity as Americans, destroying our society, and harming the economy. It’s time, he says, to get radical. We have to understand that mild tweaking won’t work and that we must take on the underlying and power structures if we hope to tackle this enormous challenge. Watch the video to learn more about how to do this.

    Watch Joseph Stiglitz here:

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    to find high-quality writing like yours nowadays. I really appreciate individuals like you!

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    Liked by 1 person

  12. Sprewell

    Nice blog post by Seth that you linked to and good to see that you’re reading widely, but you’re really reaching with these assertions. First off, Piketty’s graph is pretty much worthless, because the downslide you’re worried about is a prediction, one that has basically no justification. Instead, the opposite trend is what seems to be happening so far, ie g is growing apace while r is collapsing, but he crazily asserts that the opposite will eventually start happening.

    Leaving aside your misplaced hand-wringing about “wealth inequality”- who are the richest in the current system? Precisely the titans of the mass market system you extol- what is really changing is that we’re moving from mass consumerism to a more personalized market, as Seth notes. Also, mass advertising was geared towards a unique epoch in media technology, when we were capable enough to build printing presses and radio stations that broadcast information to the masses, ie no monks writing on scrolls anymore, but not capable of cheaply building customized information streams for each and every person, ie the internet.

    Well, now that we have the latter, the media technology that advertising thrived in is dying and ads will die with it. That doesn’t mean media will die, only that mass media will die, while niche media will be paid for by its readers. You see this increasingly with most media outlets going paid, or at least trying to, going paid doesn’t work so well if your content is too broad-based and easily replaceable.

    Now, as a radio guy, I realize that’s your real concern, but think about it, do you really care about ad-supported media or media? As long as the media exists, I don’t see why you should care what the business model is, unless of course your skills are primarily in advertising sales, in which case those skills will soon be extinct as a dodo bird. 😉 Also, antiquated mass-media technology like print, AM/FM radio, and broadcast/cable TV will be killed off, replaced by online blogs and audio or video podcasting. But as long as people are paying to listen to your podcast or Songza/Slacker music channel, what matters is that you can produce media, not what tech it’s done with or whether it’s syndicated nationally.

    As for the larger concern about the death of mass consumerism, what’s replacing it is much more niche and personalized products, ie Walmart gets replaced by Trader Joe’s and Whole Foods. Eventually that’ll go to an even more personalized level, where you can buy cereal personalized for you and your local burger joint will make your burger exactly the way you like it, because your smartphone will tell them ahead of time. 🙂 That is a much better world than the mass-produced world whose passing you lament, so don’t worry, things are looking up.

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