Spending analog dollars to get digital pennies

Watching Internet video is not my cup of tea. Even so, I did find myself one night recently watching an interview conducted by CNBC’s David Faber with NBC Universal’s CEO Jeff Zucker. Faber noted a previous comment by Zucker that a digital strategy is difficult, in part, because you are exchanging analog dollars for digital pennies. Zucker said that statement could be updated to "analog dollars for digital dimes," but that still is mere cents on the dollar. Given that his NBC network realized more than $1 billion in revenue from the Olympic broadcasts this year, one can appreciate his concern about exchanging dollars for dimes.

During this interview, Zucker described the industry’s digital dilemma. The gist of what he said was that a digital strategy is difficult, in part, because you are exchanging analog dollars for digital dimes. Digital is a growth area, but it’s not experienced the fast growth many people expected. So, digital will grow, but he said it's not going to be the opportunity people thought it was, certainly in the short term.

Is Zucker right? Were broadcasters foolish to have spent $20 billion building huge digital delivery and production infrastructures? Will they only receive pennies and dimes in return? Is there any ROI on this digital investment? Let’s peek into one researcher’s crystal ball.

The August Lehman Brothers Internet Data Book by Doug Anmuth provided some predictions for online ad spending. In the report’s Figure 43, data is shown predicting that online video ad spending will reach $1.1 billion this year. Granted things have changed a bit since August, so the numbers might need some adjustment, but let’s continue.

Anmuth further predicts that total advertising will increase from $25.1 billion for 2008 to $45.5 billion in 2012. Equally important for the digital penny counters, he claims that the overall proportion of online ad spending to total ad spending will increase from 8.8 percent today to 13.7 percent in 2012. This represents more than $45 billion dollars in Internet video ads. Now do you want a piece of this action?

A final comparison of online to broadcast to cable advertising growth is shown in Figure 49. Using a 10-year span, he compares growth rates for each of the above industries. By year 10, television advertising growth had slowed to 10 percent, cable growth slowed to 15 percent and Internet advertising had reached 30 percent. Interestingly, the growth rate of Internet advertising is now three times that of television and twice that of cable. Now, do you want a piece of this action?

As broadcasters enter the last days of analog, it may be wise to consider carefully what the next (digital) step may be. Is it more channels, an expanded Internet presence or should TV stations simply focus on low-budget programming and low-cost operations?

While Zucker and other media outlets are locked in a life-or-death struggle to maintain their hold on advertising dollars, old analog solutions won’t play into today’s digital world. He said as much in the above interview, "A diversified portfolio is really what will help you get thorough times like this, which are clearly tough." He said that successful media companies need a balance of content, a delivery pipe and new media outlets. (My emphasis added.)

Broadcasters are well positioned to take advantage of online advertising. However, success may still require a dollars to pennies investment in order to bridge the gap between yesterday’s analog world and tomorrow’s digital viewers.

What is your station doing to be successful in an all-digital environment?