Apocalypse now?

(Richard Holway 7.00pm 29th March 09) DK Matai sent a link to a really thought provoking article in Advertising Age by Bob Garfield Apocalypse Now . It is a stompingly good opinion piece on how a combination of the recession and the move to online entertainment is causing chaos in the media sector.

In Newspapers, Garfield makes the point that far fewer people buy newspapers but more are viewing online. Great. So all the newspapers are trying to increase online viewers with the hope of boosting online (banner) ads. But “nobody clicks on ads”. So the model just ain’t working. And, as the Wall Street Journal and the FT have found, nobody is really prepared to pay for subscriptions either. Result? We will see a huge increase in newspapers filing for bankruptcy.

On TV networks, the rampant use of DVRs (where viewers miss out the adverts) coupled with a significant reduction in advertising spend, has led to major reductions in production spend. Indeed, we have seen this only too well at ITV in the UK. So TV networks eventually will not produce programmes. Which rather begs the question of what they are there for? Which eventually means they will disappear.

But it was when Garfield turns his attention to the online publishers that it gets really interesting. The problem is that most of the content here is user produced and therefore each piece has a limited audience. Although Search revenues are clearly a great model (for Google…), Advertising revenue is still miniscule. Google paid $1.65b for Youtube which managed just $90m in ad revenue in 2008. Facebook (what’s it worth? $15b? $3.7b?) had ad revenues of just $300m in 2008. And Twitter had zilch.

So, here we have all these ‘channels’, all attracting more and more subscribers but none of them having any decent model on how to monetise them. At the moment it feels great. As a subscriber, I now read all the daily newspapers for free on line. I can play all the music I want and watch all the videos I want, for free. I can keep up with all my friends and family on Facebook – for free. I can waste hours reading drivel on Twitter – for free. Indeed, closer to home, many of you read UKHotnews for free each day too!

Just like the model used by the banks (and the government) in the last decade, it cannot last. Most of the current ‘free players’ will fail. Unless new models to monetise are produced, we will all lose out as the very free services we currently rather like disappear.