January 1, 2010
Back to the Future: Advertising as Destination

Next generation models for content-supported advertising.

Everyone talks about ad-supported content. But ad-supported content is a misnomer and a myth. It simply doesn’t exist because the ads aren’t there to support the content. In commercial media, the content is there to support the ads.

In recent years, however, we’ve witnessed the sharp decline of advertising performance across virtually all media channels, especially online, where click-thru rates for display advertising now hover at statistical zero (less than .1%). But it’s not because the content is somehow less attractive or appealing (in fact, commercial media consumption has increased dramatically over the past generation). Rather, it’s because of a basic truism of advertising: we consistently and overwhelmingly choose not to consume ads whenever and wherever possible. The one thing we know for certain in an on-demand media universe is that no one demands more advertising.

Historically, advertising as an intermediary between consumers and brands only worked when the inconvenience of avoiding the ads outweighed the inconvenience of watching them. The moment we no longer had to get up off the couch to change the channel was the moment ad performance started to erode. It’s been on the downward slide ever since.

Indeed, contrary to conventional industry wisdom, the introduction and ubiquity of increasingly sophisticated ad targeting technologies comes less in response to the super-fragmentation of audiences within a media universe of functionally limitless bandwidth, and more in direct response to the near-total technological empowerment of consumers to avoid ads. If anything, however, there seems to be a direct inverse relationship between our ability to target audiences and ad performance across the board: performance declines as targeting technologies proliferate and improve. If falling ad performance rates are any indication, better targeting – no matter how sophisticated – is clearly not a viable long-term solution.

So what is? If the content is there to support the ads, what kinds of content models will do a better job? Here’s one instance where we might take our cue from the golden years of radio and TV (especially as the dominance of video via high-speed bandwidth converts the Web over time from an information-based medium to an entertainment-based medium). Advertisers knew back then that no one tuned in to watch their ads, so they fused their brands with high-quality entertainment, programs like the Texaco Star Theater, the Hallmark Hall of Fame, and Mutual of Omaha’s Wild Kingdom. In essence, the brands became synonymous with the content, and the ads became part of an otherwise uncluttered and exclusive destination, fully owned and fully controlled by the advertiser. Thus will the future mirror the past as more and more advertisers import or produce more and more content (especially video) for viewing on their own branded microsites and landing pages. In other words, advertising will shift away from its current function as intermediary – where it now fails to perform more than 99.9% of the time – and assume a more primary role as destination. Content will begin to replace advertising as the bait to attract prospects to designated destination environments equipped with specific calls to action. In short, advertisers will rent less and own more.

We’ll also see a marked increase in information-based content as part of exclusive (or category-exclusive) sponsorship opportunities wherein brands – in essence – trade on their own category-specific expertise. For instance, who better to teach us about the needs of our newborn infants than Pampers? Who better to offer sound nutritional advice for our pets than Iams?

Of course, additional content and content syndication brings additional costs, and big advertisers require big scale, which is why – in the not too distant future – we’ll see major advertisers begin to invest in or otherwise acquire entire content (and content syndication) networks online. Content network ownership positions will offset both the increased cost of content and the cost of the media to deliver prospects to designated destination pages. Not too long ago, big advertisers owned the programs that aired on the networks (P&G’s Guiding Light performed for 80 years on CBS). Soon they’ll own the content again. But this time they’ll own the network that delivers the content also – as an evolutionary component of digital scale.

In the end, the nature of the content – entertainment, information, or a hybrid of both – will matter less than where the content is actually consumed. Over the next several years, the failure of the advertising-as-intermediary model to perform will compel brands once again to reconsider the value of advertising as destination. In the process, we will shift – slowly but inexorably – away from our current status as hunters (those who would stalk and target our prey) to a more appropriate and functional on-demand status as anglers and fishers of men. We are on a journey back to the future – big time.