Thad McIlroy - The Future of Publishing

Not a Good Week for Publishers

It's not as if the last few months have been exactly perky and upbeat around publishing offices across the U.S. But the last week seems to have been completely inundated with a dismal torrent of bad news. Both Hearst (3^rd largest magazine publishing in the U.S.) and Hachette (dropped out of the #10 spot in 2006, but presumably still in the top 15) lost their chief executives  -  whatever language the companies used in making the announcements, these guys got the boot.

Meanwhile the big newspaper companies were reporting horrible financial results: Gannett Co., which publishes more than eighty U.S. newspapers, acknowledged that publishing ad revenue fell 14.3% in May. Its smaller rival McClatchy Co. reported a 15% drop in newspaper ad revenue for the first five months of the year and announced a 10% cut of its work force. New York Times Co. said last Wednesday that ad revenue dropped 12%. And on June 17, Bloomberg reported that "Los Angeles Times and Chicago Tribune controlling investor Sam Zell may be unable to stop the loss of advertising revenue leading him and other U.S. newspaper publishers closer to default on billions of dollars in debt."

My take on all of this is the opposite of Robert Schiller's well-known phrase (and book title) "Irrational Exuberance." I call it Irrational Pessimism.

As I pointed out in my blog entry "Is the Internet Really Destroying Newspapers?", quoting from a PEW report, "Even with so many new sources, more people now consume what old media newsrooms produce, particularly from print, than before. Online, for instance, the top 10 news Web sites, drawing mostly from old brands, are more of an oligarchy, commanding a larger share of audience than in the legacy media."

Yesterday I received the executive summary of PWC's "Global Entertainment and Media Outlook: 2008-2012" (at 112 pages, it's a little more than the average executive might expect in a summary!). The full report would take me offline for weeks, but the executive summary represents a marvelous chunk of research. Notable is PWC's prognosis for the newspaper industry: continuing declines through 2009, followed by a return to modest growth.

As this chart from PEW illustrates, Hearst is not suffering in terms of revenue growth. The two firings, as suggested in several media reports, may have much more to do with internal company politics than with failed strategies. (A fascinating article in Fortune, "Intrigue at Hearst's Castle," examines the intricacies of Hearst's corporate structure.)

These days it's very easy to get on the newspapers-are-dying bandwagon. I think that the conclusion to this story is still to be written.

-30-

Online Advertising Burnout

There are days when I don't post a blog entry or otherwise update my site because I'm too immersed in housekeeping chores.

Those chores fall into two categories: scouring the Web for more articles, data and commentary that are the lifeblood of what goes into this site, and then sorting through and filing all of those articles, data and commentary to make sure they're accessible when I get back to writing.

I just did a check of my resource data: I've got over 3,400 files in 180 folders comprising over a gigabyte of data. Please forgive me if I sometimes fall behind.

One article that I uncovered this evening was from a very interesting (and free) annual report issued by the Deloitte consultancy, called "Media Predictions: TMT Trends 2008" ("TMT" stands for Technology, Media and Telecommunications). I've got versions of this report going back to 2006; I'm not certain if that was the year when the report was first issued.

The 2008 version covers a range of topics, from music to offshoring to piracy issues. What caught my attention tonight was the section covering online advertising. It starts off with a brief history of the growth of online advertising, but halfway through the article comes the showstopper: a key barrier to the continued ascendancy of online advertising "may be growing antipathy to the online advertisement itself. One 2007 survey of US consumers found that over three-quarters of respondents considered Internet advertisements more intrusive than those in print. Nearly two-thirds claimed that they paid more attention to print advertising than to that on the Web. Over a quarter stated that they would pay for advertisement-free online content."

That data, we learn from the footnotes, derives from a "Survey of 2200 US consumers undertaken in 2007, commissioned by Deloitte Development LLC."

Over the last month we've seen that the voracious ongoing interest focused by all sectors of the Internet marketplace is based on the assumption that online advertising is the key factor (if not the only factor) that will determine the level of success of the most successful websites in the years to come (c.f. Microsoft vs. Yahoo).

Over the last few months I've been asking friends and colleagues whether or not they pay attention to ads on the Web, and/or click through to them. Without exception their response is that they've trained themselves not to even see the ads, be they banner ads or Google-style ads. They skim the content; the ads are just noise.

Obviously Google's recent financial results indicate that my friends and colleagues may currently not be representative of the public at large. But I wonder how long it will take the general public to see Web ads as adding noise rather than value.

The End of Advertising as We Know It

An extraordinary monograph has just been published by, of all the unlikely sources, the IBM Institute for Business Value. The End of Advertising as We Know It is a publication that is everything you would not expect from a large corporation's public information efforts: it's informative, well-researched and well-written, and often provocative, all the while portraying no bias towards IBM, nor making even the slightest attempt to sell IBM services.

The four well-qualified authors base many of their observations and conclusions on a series of surveys and interviews with both consumers and a range of advertising executives (both from the agencies, and from within large corporations). The result is must-reading for anyone interested in the impact of changing technologies and media on the future of advertising.

The core text is 21-pages long, so I won't attempt an extensive recap here: just read the original. Here are several reasons why you must; mostly just direct quotations from the report:

● "…our analysis shows that the actual growth of Internet advertising has outpaced forecasts by 25 to 40 percent over the past two years."

● "…This is the first study I've read that intelligently challenges what the future role of advertising agencies will be, and, even more directly, asks "Will advertisers still need a traditional agency?"

● "…amateurs and semi-professionals are now creating lower-cost advertising content that is arguably as appealing to consumers as versions created by agencies."

● "…advertising inventory is increasingly bought and sold through efficient open exchanges, bypassing traditional intermediaries."

● "…relevancy outweighs creativity in TV commercials. The ads least likely to be skipped were well-tailored to their audience."

● "Will consumers reject outright the concept of interruption marketing in the future?"

This is the first advertising report I've read that dares to ask the really tough questions about the future of advertising. As they say, you may agree or disagree, but you're guaranteed to be challenged and provoked.

Advertising Rules the Web

Well, I've been blog-tied (that's like "hog-tied") because I just have not known what to write about on this blog for the last few weeks. Just when one story seemed more important than Darwinism, along came another, and before I knew it I was struck speechless (much to the pleasure of the creationists).

But one theme seems to keep creeping up on me, relentlessly I'd say, and that theme is what's happening with advertising on the Web. In a phrase, it's about the only important development in play right now.

I, perhaps more than some, prefer to perceive the Web as a multi-headed beast, and relegate advertising to but one of its heads. But at this point in Web history, advertising appears to be the thing that matters (if we ignore the ad-laden Web 2.0 social networking sites).

More and more traditional advertisers are either turning the bulk of their budgets to the Web, or all of their budgets to the Web, or making a last brave statement as to why they are not doing so. Each is quotable.

I'm in the midst of a major revision of my Industry section on Advertising. Thus far I've added (to me) some fascinating details on who are the major spenders on Web ads (according to NeilsenNetratings). They aren't your usual suspects.

Let the story unfold.