advertising is all kinds of weird

After our conversation for Bloggingheads the other day, I chatted with Michael Brendan Dougherty about the enormous increase in the values of baseball teams. The Los Angeles Dodgers were sold for a shocking $2 billion a couple of years ago. This value is reflected in the staggeringly high salaries teams can afford to pay to star players, like the $215 million dollars the Dodgers are giving to Clayton Kershaw. The ultimate source of that money, more than live gate or merchandising or licensing, is TV money. The Dodgers recently signed a $7 billion contract with Time Warner Cable. It’s an insane amount of money. And the contract was signed despite continued fretting over the future of the game, whether it appeals to the youth, and whether it will still matter 25 years from now. 

All of this has got to seem a bit frustrating to the people in online media who scrape for clicks and pageviews and uniques, just to make enough to keep their enterprises afloat. I’m not trying to make any false comparisons here. Obviously, major league sports enjoy broader mass appeal than online media generally. Major League Baseball benefits from the artificial scarcity of their anti-trust exemption; online media, and online advertising, suffer from a problem of nearly limitless supply. Yet there’s a sense in which anyone who is trying to get attention online has a very legitimate gripe with older media like television: online media types are always looking for more ways to quantify reader attention, and developing newer and more effective (and more lucrative) ways to demonstrate value to advertisers. In contrast, television still relies on Nielson ratings, which tell you really very little about attention, and can’t account for people who are able to skip commercials with DVR technologies. Of course, that’s not quite as bad as print advertising, where advertisers are forced to rely on circulation, which means next to nothing when it comes to actually capturing attention.

My not-really-defensible feeling has been, for a long time, that in advertising, value actually comes from ignorance about real attention, rather than from information. Online ad revenues suffer because there’s so much supply, but they also suffer because there’s so much abundant information– information that suggests that online ads don’t work very well. Meanwhile, TV and print advertising may not work well either, but there’s much less ability for advertisers to find that out.

So you have a situation like this:

Which shows something like the trend that a lot of people expected on the middle left column but not the trend people expected at all on the middle right column. I dunno if the Peak Advertising argument is accurate or not, but it’s gotta be scary for content providers, both in management and “content creators.” Now you could say that the value of TV advertising is going up even while ratings go down precisely because so many online ad metrics are so discouraging; if you need to advertise, you need some way to reach eyeballs, and television ads are a traditional way to do that. And if you can’t know that people are watching and paying attention, you can at least be sure that an advertisement on a Dodgers game is getting broadcast to a huge television market.

So much about advertising seems weird to me right now. I have often been listening to a podcast or watching a Youtube video from a popular channel and seen the people making them say some version of “watch out, here comes an ad,” even to the point of telling people to turn off the player before an ad that runs at the very end. I’m always surprised by the ballsiness of this approach; don’t the advertisers hear them? But I guess if there was some threat, they wouldn’t do it. I dug this discussion on Gawker today; it’s the kind of transparency that you can’t really fake and that is a real credit to the culture there. It’s an odd subject: is buying traffic unethical? I’m not sure. I am sure that it’s odd to have an enterprise where you are really selling traffic (or potential traffic) to advertisers and then buying traffic from others. I suppose selling something for more than you paid for it is a time-honored business strategy, but it also might violate the spirit of what the advertiser expects, which is probably organic traffic. I’m also curious about the margins: how many clicks do you need to get through your traffic buying in order for it to make economic sense? It’s all a new, weird world.

I talk about baseball just because it’s a high-profile example where there is a huge amount of money being moved around and nobody is quite sure how effective the linchpin of it all is. But you can apply it to a whole number of fields. I wonder: if we had perfect information about the real value of advertising, would the whole thing collapse? Is it worth the millions of dollars advertisers pay? Or on the flipside, is advertising worth much more than its going rate? Such huge amounts of money, perched on the back of an unknown and unknowable foundation.

9 Comments

  1. Because competition, businesses are afraid not to advertise, even if they have no evidence of advertising generating revenue. The arms-race dynamic means that an economy like ours probably wastes billions and billions of real wealth on marketing. Thus, the revolution will deliver a “marketing dividend.” Maybe?

  2. I just saw this video the other day, on the Facebook follow/like death spiral, where the more followers you have the less likely any of them are going to see your posts, and how whether you pay for fake likes or not you will get them by the thousands….fascinating stuff. What a world we live in.

  3. I remember a mailer-advertising guy over at Kevin Drum’s blog saying that the mail-advertising guys thought every other form of advertising was a scam because it was so difficult to actually try and determine whether the ads had a major effect, and then repeat that effect.

    I wonder: if we had perfect information about the real value of advertising, would the whole thing collapse? Is it worth the millions of dollars advertisers pay? Or on the flipside, is advertising worth much more than its going rate?

    It depends on what you’re looking for. Television ads aren’t necessarily trying to generate X amounts of income for Y amounts of dollars spent, as opposed to trying to shape perceptions of a product in such a way that people decide that would be a good place to go if they want that product (particularly with automobile ads done by the car companies, different from the ads done by the dealers selling those cars). They might survive if it turns out that television really does change perceptions of products for people.

    The rest of it would probably die back severely, except for mail-stuff where you can super-accurately measure responses for a particular advertisement (that’s where Karl Rove cut his teeth on political campaigning).

  4. When I’m commenting on your website, I’m typically avoiding my day job as a marketing researcher/analyst (I don’t do marketing, I study it). If you want to learn more about this (particularly how digital ads are valued against traditional ones), feel free to reach me at the email address in this comment.

      1. You’re not terribly far off on channel opacity leading to inflated prices. But it’s not just the greater visibility into effectiveness that brings digital ad rates down – there’s significant fraud (I’ve seen measures of 20-50%), advertisers’ target demos are more likely to block ads, etc.

        Conversely traditional ads aren’t overvalued simply because of cluelessness about their effectiveness. It’s an ego boost for a CEO to see their ad on TV or in the Wall Street Journal. With sponsorships (sports in particular) there’s a significant pay-for-play dynamic – sponsoring the Knicks gets you floor seats and a chance to meet Melo.

        As print dies and “addressable TV” becomes a thing (this was 100% the biggest CES news, and no one covered for some reason), you’ll start to see some of that waste go away. But for now, it’s a complete mess.

        All that to say that I thought Denton’s weird purity ideal in the conversation you linked to was bizarre; is the New York Times “buying traffic” when they buy TV ads for the “Weekender” subscription in the DC market, with a giant “www.nytimes.com” at the bottom of the ad? Denton attracts eyeballs with smug online liberalism and sells them to the highest bidder; many of those eyeballs come for free. But if he pays a penny to Facebook for the incoming eyeballs and sells them to some other company for two pennies, it’s essentially the same transaction but with less profit.

  5. When I was in Washington Reagan airport last month an entire concourse was basically being sponsored by IBM (colorful visual ads that told some kind of story — not unlike the Bayeux Tapestry). That’s the sweet spot of advertising, where your firm is powerful enough not to worry about competition every second and you can “advertise” through big PR projects. Google and Amazon are there already as well. I think advertising appears so weird because the ultimate goal is to make advertisers / marketers redundant–or else turn them into political lobbyists.

  6. Fred,

    your numbers are off:

    http://www.iab.net/about_the_iab/recent_press_releases/press_release_archive/press_release/pr-100913

    (some background, I studied rhetoric pretty much exclusively while debating nationally internationally from 8th grade thru college, got hired into political consulting and after 94 elections, jumped in junk mail.

    It was categorically the most brutal humiliating experience of my life. I whipped the top teams from yale and princeton, debated hard policy with famous pols, and suddenly I couldn’t talk people with a 8th grade education into buying something for $20.

    The ability to take pieces of paper with only words and pictures and mail it (total cost say $.65 apiece) to “cold list” – people who never have never heard of your company and cause 4%+ to send back $20, has such a small club its amazing. Tens of thousands of copywriters lived comfortably on being able to mail to the house list – the names you own, who already have purchased, but the guys who could write a profitable cold list hunter? They were mercenaries who made millions a year.

    GQ and Rolling Stone were both trade mags that one guy re-imagined and wrote conversion packages for – he literally sold half million subs of each BEFORE they were converted into lifestyle mags.

    I learned more in my first year about rhetoric, real influence / persuasion, from those seedy world class copywriters / infomercial producers than almost ten years of formal debate.

    It’s fun to see the bloggers fret over the turn that online media has taken with Upworthy / Buzzfeed / BI headline writing – stuff that a core group of mercenary headline writers do better than everyone else.

    The technique is all straight from space and mail copywriters in 60-80’s. So that’s where we are, today’s bloggers are learning to survive by becoming the guys who made millions creating classified ads 50 years ago.)

    The numbers are still light, I’d say brand spending in online, using a more expansive def) is more like $30B, and TV is $70B.

    I can’t see radio surviving.

    Here’s the thing about TV, it kinda like the thing about operating systems and Net Neutrality…

    Nobody really understands how much tech has already been invented, new “market realities” have all been figured out, BUT the player haven’t been pushed to use it BY THE ONLINE guys.

    It’s totally possible to ID fred at home, and make sure that every commercial pod, no matter what channel he watches, is the three best ads just for him. The tech has literally been deployed for 5 years, and never turned on.

    If you love the poor, ending net neutrality is optimal, bc it will force google et all to deploy blimps to drive down cable profits It’ll force microsoft to turn its free OS into an adserver, and I promise you the tech all exists to make smartphones civil right, so you can use government services, since there are no government buildings anymore. And since the poor can get the device cheap, sponsored bandwidth means free wirelss access as well.

    Anyway, the point is online advertising vs TV is interesting, but it’s really just bits being sent

    WHICH IS WHY fred you ought to get serious as a “socialist” about becoming a libertarian and adopt a more technology faster mindset – bc it is the FASTEST WAY TO GET SOCIALISM:

    http://www.morganwarstler.com/post/35224055375/digital-socialism-atomic-capitalism

    Tech geeks aren’t kidding when we say everything physical is going to cost a dollar a pound and everything digital is going to be free.

    You’ll never win the status war, but the poor don’t care about status, they want stuff.

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