From David James in BRW Magazine 3-9 September 2009

Managers rely heavily on advertising to make sales – but what if advertising fails to keep up with audiences.

A research note written in July by Matthew Robson, 15, for the investment bank Morgan Stanley in London has caused a stir among fund managers trying to assess the future of the media.

The note, described by the back as “one of the clearest and most thought-provoking insights we have seen”, alluded to a deep problem in the media business that has yet to be solved.

Advertising, the main revenue source of most forms of commercial media, is losing its credibility and means of access.

Robson opined that even in an online environment, teenagers find advertising “extremely annoying and pointless”.

Viewed as a product, advertising has demonstrated almost no innovation for decades. An advertisement in a newspaper or on television is little different to an ad of 50 years ago and online equivalents are mainly old-media techniques migrated into the digital environment. Ads on websites, for example, are typically electronic versions of those of either print of television. The technology may be more sophisticated but the basic structure and tactics have altered little.

The one exception is the introduction of am online search capability, probably the only seminal change since the Second World War. This favours new media and has changed the economics of advertising.

Unlike advertising in old media, where advertisers pay in advance and hope for a positive response, advertisers using online search usually pay only when potential buyers click on the ad. The result is a more focussed offering for the advertiser as customer.

However, the benefits of online search apply only to classified advertisements. The problem facing other forms, such as display and electronic advertising threaten old and new media alike.

As the number of potential platforms increases, advertising – rarely welcome – is reaching a state of extreme oversupply. Worse, there is a steady loss of credibility of advertisements themselves, especially among young consumers.

The signs of of discontent with advertising are unmistakable. Seventy four per cent of people think there is too much advertising across all types of advertising media, research by polling firm Colmar Brunton shows.

The research is not especially favourable for new media either. Sixty-five per cent of respondents find pop-up ads on websites to be “irritating” (compared with only 10 per cent who are irritated by ads in newspapers or magazines). A third of respondents consider ads on websites to be “irritating” and only a tenth find them “relevant”.

The conclusion appears to be that conventional approaches to advertising media than they are in the old.

For example, 37 per cent of people consider advertising in newspapers or magazines to be “informative” compared with only 18 per cent on websites, the Colmar Brunton research finds.

A similar conclusion about the demise of conventional forms of advertising is drawn by research firm Ipsos Mackay, which finds that consumers “felt inundated with advertising” and are making increasing efforts to avoid or block it. There is a growing interest in ads that are tailored better to the interests of intended receivers rather than “interruption advertising”.

It may be that ads have always been irritating and that the irritation has been exploited routinely by advertisers as one way to gain attention. But if “interruption advertising” is under threat, so are the business models of conventional media businesses which have treated editorial content as a loss leader in the belief that customers will inevitably notice the advertisements.

For 180years, the retail price of newspapers has never reflected the total cost of assembling and producing them, NewsFuturist founder Jeff Sonderman says. “Any paper that tried to charge [the price of production] would lose circulation and be undercut by correctly priced competing papers,” he writes.
Free-to-air television relies exclusively on advertising revenue.

The conclusion? to fix the business models of media companies, it is necessary to find new approaches to advertising. News Corporation chairman Rupert Murdoch has criticised journalism for “elitism” in failing to interact with its audiences. Yet if the growing antipathy to advertising is any guide, the problems of preaching to an increasingly resistant audience are more severe.

For media companies, which depend on advertising for survival, this represents a threat more deadly than any changes in the way content is delivered. Murdoch acknowledges as much in his decision in August to begin charging soon for access to some of the content on News Corp’s websites.
What is likely to emerge is an advertising parallel of “citizen advertising”. Some preliminary efforts are being made by advertisers to use social networks but this has yet to be applied to any extent in mainstream media.

“There is enormous resistance to change in advertising,” online music entrepreneur David Franj says. “It is one of the most hidebound and traditional industries of all.

“We know that advertising does not work with young people but how many serious attempts have there been to change the approach to communications? Ads on television or in print are exactly the same as 50 years ago. The only thing that has changed is the special effects are more advanced. Who buys a product because of the special effects in an ad?”

What matters to companies is third-party corroboration – what people say to each other about a product – Franj says. Advertisements, he says, should stop blaring messages and instead try to exert positive influences on third-party networks. “One way to do that is to share advertising revenue with online content providers who are influence leaders. It would lead to a revolution in both advertising and media”.

A second problem is that the rigidities of the advertising industry are being exposed by the changing patterns of media consumption.

Media buyers, who function as intermediaries between the businesses that want to advertise and media organisations, operate on thin margins.

This makes it difficult for them to move away from choosing conventional channels to place ads. They are unlikely to take risks on innovations in the way ads are delivered. The danger is that younger consumers will increasingly find ways to put themselves out of reach.

“Someone like Matthew Robson doesn’t read the paper and avoids electronic media,” a publisher and communications analyst, David Llewellyn-Smith, says. “He does consume media but he is goig to be reading blogs and downloading movies. This guy is going to cherry pick. He is completely utterly savvy.”