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Breaking news: broadcast spending on development up. Not so breaking news: ad model still broken.

June 3, 2010

There is a new article out about the increased dollars broadcast networks are investing in original production and development.  Basically, the tl;dr version of the article is that broadcast networks are increasingly becoming content R&D centers for media holding companies.  Razor thin margins on programming within the “broadcast” window leads to greater margins in other parts of the holding company business, including cable networks (where shows like CSI and Law and Order make their money back in syndication) and studio and production units where the rights to the content are held, and from where home entertainment revenues flow.  Furthermore, as networks begin to charge retransmission fees from the carriers, they have more money to spend on development.  Very valid points.

The most interesting takeaway for me in all of this is how much media holding companies are scrambling to diversify away from the :30 second ad model. Retransmit fees will reach $2 billion by 2014, which represents a doubling in 4 years. “Subsequent” window revenues and alternative advertiser revenues (including sponsorships, product integrations, etc.) will probably surpass revenues from :30 second inventory within the next five years.

Heck.  I think we are probably not too far away from a time when :30 second spots are almost solely being used the same way banner ads are being increasingly used online: as co-branding space, as additional messaging space for the advertiser and as value add.

More to the point, it is increasingly clear that there is a fundamental shift happening in content funding.  Where once, content was funded almost entirely by Madison Avenue, now audiences are contributing an ever increasing share. Through DVD sales, through iTunes downloads and through increased carriage fees.

What does this mean for advertisers?  After all, the total amount of money advertisers are spending is certainly not going to decrease as a result of this.

As new models are developed that allow advertisers to spend money in ways beyond :30 inventory, I think we are going to see an increase in overall programming.  Within the :30 paradigm, most cable networks are unable to support original programming on multiple day parts.  They concentrate on specific nights and programming blocks, leaving the rest of their grid to be filled with reruns and acquisitions. Their ability to chase advertiser dollars with new products will help them compete in more time slots, and in turn create more programming.

I also think the relationship between advertiser and media company will continue to change.  As new models of brand exposure are created, advertisers will partner more closely with content creators and invest more ad dollars into original production.  Messaging will be done within the content itself, or immediately around the content.  Networks will compete for advertiser funded content on the basis of their ability to drive relevant audience to the content, their ability to demonstrate efficient use of co-brands, tune in and other promotional support, and their ability to use technology and social media to create engaging programs around the content.

As an aside, the article goes on to make a less valid point.  The notion that broadcast is still the best way to reach audiences quickly is debatable at best.  Broadcast is primarily a reach vehicle.  But in the early part of the 2000’s media companies got very good at replicating network reach by aggregating smaller cable audiences, fueling the rise of tier one and tier two cable networks.  Furthermore, reach, in and of itself is one of many problems advertisers have.  And it is becoming less and less important as a problem as marketing strategies evolve.  Frequency, quality of exposure and engagement are increasing in importance, and can often be maximized through cable and online better than through broadcast.

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