Tilting at a Digital Future
By RICHARD SIKLOS
http://www.nytimes.com/2007/05/13/business/yourmoney/13murdoch.html?_r=1&adxnnl=1&oref=slogin&ref=media&adxnnlx=1179063530-uHy2sFBfx8U+keUkWB6YgQ
IN Rupert Murdoch’s world, two things are certain: the sun never sets on the kingdom, and a TV is always on in the background.
On the evening of April 26, several large television monitors adorned the terrace of Mr. Murdoch’s Beverly Hills mansion for a dinner celebrating a special edition of “American Idol” that raised more than $70 million to fight poverty. An Asian noodle station was set out by the pool; nearby, sushi chefs busily sliced tuna for “Idol” co-hosts Simon Cowell and Ryan Seacrest, and seven, hyperactive “Idol” finalists who, when they weren’t clamoring around megastar Tom Cruise, dreamily watched themselves on the big screens. Wendi Deng, Mr. Murdoch’s wife, wore a billowy, green dress and introduced their 5-year-old daughter, Grace, to guests before sending her to bed.
Mr. Murdoch casually sipped wine and chatted with his daughter, Elisabeth, and other guests. He had planned for the event to be an early dinner party, but he finally headed to bed at 1 a.m., leaving music impresario Quincy Jones and others chatting on a sofa. After all, he had work to do.
What partygoers didn’t know was that during the previous week, on April 17, Mr. Murdoch had offered to buy Dow Jones & Company, the venerable publisher of The Wall Street Journal, for $5 billion. So far, he had not heard back directly from the Bancrofts, the family that controls Dow Jones. Signals sent by the Bancrofts’ intermediaries were not encouraging, but he was prepared to fly cross-country and meet with the family on a moment’s notice.
As is so often the case with Mr. Murdoch, the Dow Jones bid is counterintuitive and seemingly quixotic. While investors and media giants have cooled on the newspaper industry, the News Corporation’s czar has patiently waited for the right moment to bid on a prize he has long coveted but felt was beyond his reach. Mr. Murdoch’s bid has also caused hand-wringing about his intentions for The Journal, a publication that has long led the pack in authoritative business coverage.
Perhaps the chief worry among those concerned about the journalistic future of Dow Jones is how much editorial independence the company would have under Mr. Murdoch’s rule. It also raised questions about how well the strait-laced Journal would fit within a conglomerate whose offerings include the online hangout MySpace, racy British tabloids, and table-thumpers like Bill O’Reilly.
WHATEVER the media mogul says he may do with such a powerful enterprise, a close look at what he’s actually done in the past — particularly how he has deployed his far larger Hollywood and television properties — is a telling indicator of what life may be like for Dow Jones in a Murdoch regime.
When Mr. Murdoch bought the struggling 20th Century Fox studio in 1985, Hollywood viewed him as just the latest arriviste, doomed to be suckered by the industry’s vagaries. Yet Mr. Murdoch restored the studio, let his staff there produce the films they wanted (for the most part), and used Fox as a springboard to start his Fox television network and a passel of cable channels and other ventures around the globe.
“Rupert Murdoch is utterly consistent,” says Barry Diller, who once ran Fox and now oversees the IAC/Interactive Corporation. “It’s not like he’s adding toys. This is oxygen to him.”
In almost every case, Mr. Murdoch endured years of losses to put new offerings like Sky Television in England the Fox News Channel in America on the map. There is scant evidence of Mr. Murdoch’s envelope-pushing imprimatur at the studio that is the center of it all, just as it is less in evidence at the large quality newspapers he owns, including The Times of London and The Australian.
Mr. Murdoch’s long-held desire to own The Journal fits into a similar grand plan: to revitalize if not save the original business — newspapers — on which he built his empire. Mr. Murdoch’s vision is to fold together the far-flung news businesses he owns into a seamless digital platform anchored by the Web-oriented Journal and, in the process, reinvent the newspaper industry that his company was built on. “We are a relatively old company deeply rooted in print journalism,” Mr. Murdoch told his top news executives in his Aussie drawl a few days after the “Idol” party. “Now, we have to make huge leap into a completely different world.”
The digital future he envisions has information zipping across an expanding, ubiquitous array of screens — TVs, laptops and cellphones. In a world of proliferating broadband, Mr. Murdoch sees video as a bigger component of the news blur and he wants to meld his disparate video assets into his sprawling digital infrastructure: from Fox News in the United States, Sky News outlets around the world, and the business TV channel he is launching this fall in America and plans to take international (which, if his cards play out, he hopes to tie closely to The Journal).
As Mr. Murdoch tries to make the digital future a reality, skeptics wonder whether he will use his newfangled media platform to merely transmit news and analysis or whether he will package information according to his own needs — and even use it as a cudgel.
A couple of days embedded in the Murdoch camp yields a few clues about what makes Rupert run and why. At age 76, he appears to be in his strongest position in years — with his company’s share price up nearly 50 percent in the past two years and his grip over his company finally secure. He remains unblinkingly fixated on the advancement of the News Corporation as though it were a nation state and his relentless corporate march has imbued his company with a maverick culture less apparent at other media giants scrambling to adapt to the hurly-burly of the digital age.
Mr. Murdoch has also shown little hesitation to reverse course when his plans go awry. He says that China, for instance, is no longer the corporate imperative that it once was for him. Until recently, he was determined to build a global satellite-TV empire to delivery his programming, but the rapid emergence of the Internet cooled his ardor. DirecTV, was a company he pursued for years with as much fervor as he now shows for Dow Jones, but he recently agreed to sell it only three years after it was acquired. While the News Corporation’s involvement in the newspaper business could seem like nostalgic attachment to an industry that has seen better days, Mr. Murdoch is hardly known for being sentimental. Indeed, Mr. Murdoch is pretty much the same in public as he is in private, with little evidence of an inner Rupert — even to some who work closely with him.
“This is a man who’s been single-minded since he was 22 years old and he’s woken up every morning with the same agenda: which is to extend the reach and power and influence of his company,” said one person close to Mr. Murdoch who was given anonymity to speak openly about him. “I think tomorrow is the same as today in that respect.”
Mr. Murdoch has had an eventful personal life — including six children from three marriages — and his raw ambition dovetails with an endless curiosity about world affairs, a mischievous streak, and a self-image as the ultimate outsider. In fact, Mr. Murdoch says he is most energized when he is taking on “the elites” — words he practically sneers when he says them — in what he perceives as a career-long battle to offer consumers more media choices. (The Journal, of course, represents one of the quintessential elite media trophies).
Asked if even now he doesn’t consider himself an elite, Mr. Murdoch shakes his head. “No, I’m going to keep myself as much of an outsider as possible,” he says. “We just don’t join clubs.”
MR. MURDOCH’S many critics over the years have viewed him in a far less noble light, accusing him of a cynical worldview that appeals to the lowest common denominator. In sum, they say, he is willing to sacrifice principle for profit.
“His business is privatized, government propaganda; that’s all the company essentially does,” says Bruce Page, a journalist who worked at The Sunday Times of London before Mr. Murdoch owned it and is among his toughest critics. Mr. Page’s 2003 book, “The Murdoch Archipelago,” portrayed Mr. Murdoch as nothing less than a threat to democracy. “It isn’t that Murdoch’s particularly wicked. He’s not a fearsome, warriorlike figure. He’s Falstaff. He has absolutely no concept of honor.”
James H. Ottaway Jr., whose family owns 6 percent of Dow Jones, sounded a similar, if more measured, alarm in a statement on May 6 opposing the offer. “When Rupert Murdoch’s news interests conflict, his business interests usually prevail,” Mr. Ottaway wrote.
This is far from how Mr. Murdoch sees himself, although he has acknowledged that “it has been a long career, and I’m not going to say that it hasn’t been punctuated by mistakes.” He also argues that he has evolved as a newspaper owner and does not interfere in coverage or dictate editorial positions at his quality titles.
There are certainly well-worn stories about how he dropped BBC from his Chinese satellite service to appease the government, published the so-called Hitler Diaries in his Sunday Times, and pummeled foes in the pages of The New York Post. But his proponents say that there are the less-told stories about how he once owned The Village Voice and New York magazine and left their editorial operations largely alone.
Asked what he would tell the Bancrofts if they granted him a meeting, Mr. Murdoch says, “I want to tell them how much I appreciate them as a family and to impress on them that my family would be a worthy successor.”
Mr. Murdoch half-jokingly says that he is too busy to roll up his shirtsleeves and write headlines; after all, he has 47,000 employees. He has also offered to install an independent board at The Journal to ensure independence, something he did at The Times. But he has also made it clear that he is not offering a 67 percent premium over Dow Jones’ share price to stay away from the place — and that he vows to invest in the business. In the British market, for example, he has spent nearly $1 billion on new presses, converted the venerable Times to a tabloid format while expanding its foreign bureaus, and started a free daily — all in the past few years.
Although Mr. Murdoch is a huge fan of The Journal’s conservative editorial pages, which are routinely aligned with the political tenor of the Fox News Channel, he insists that most of his editors pick for themselves which candidates they support in elections. In England, it is not unusual for The Sunday Times and The Times of London to support different candidates; same for his big tabloids The Sun and News of the World. (In this political season, Mr. Murdoch says that personally, he is keeping his options open; among the American presidential candidates, “I’m not madly enthusiastic for anyone,” he says.)
Without his cherished newspapers, Mr. Murdoch would be just another billionaire spouting about politics and world affairs and occasionally chairing fund-raisers — not playing as defining a role in shaping public opinion and packaging information. But print isn’t, at first blush, where the action is in the Murdoch kingdom.
From the sprawling Fox studio lot in Century City and the twinkling lights of the Los Angeles splayed out beneath his terrace, newspapers seem like a quaint and distant quadrant of the empire, contributing just 15 percent of the company’s $21.3 billion in revenue in the nine months ended March 31, 2007, and 14 percent of its $3.2 billion in operating income. Like most newspaper companies, the newspaper group is facing slow revenue growth, and its operating margins are running at a solid, if unspectacular, 14 percent.
Over his usual lunch of whitefish and spinach at the Fox commissary three days before CNBC first reported his bid for Dow Jones, Mr. Murdoch boasted that the “underlying readership of newspapers is going through the roof.” Yet he had notably sat on the sidelines as two of America’s largest newspaper groups, Knight-Ridder and Tribune Company, went up for sale and failed to attract more than a single bidder. Had the industry become so impaired that he would never buy another newspaper again?
“It’s all possible,” he said, with an earnest smile. “Never say never.”
In the days after he submitted his bid for Dow Jones, Mr. Murdoch says that he had started to think his offer was going to be quietly rejected. But the Bancrofts authorized the family’s trustee to hire bankers and lawyers to represent them — an encouraging sign. Then, word leaked out through CNBC, to the chagrin of Mr. Murdoch and his advisers, who worried that if it became public the family may close ranks.
Mr. Murdoch was back in New York when the news broke and went on the Fox News Channel to talk about his offer. While he was in the studio, the Bancrofts issued a statement that family members representing 52 percent of the votes in Dow Jones opposed the offer. Mr. Murdoch said that he held out hope — which he says he still maintains — for a meeting with the family.
Three days after his Fox News appearance on May 3, Mr. Murdoch still had not received any direct word from the Bancrofts. He sat on a sofa in his office on the eighth floor of the News Corporation’s Manhattan headquarters, behind him a wall of TV screens showing his channels, set next to a luminescent blue and yellow map of the world. (There is also a rack for his newspapers, flown in daily).
He said that he believed some of the 35 Bancroft family members may be swayed to take his offer, and then did something he rarely does: talk about the past. He spoke of his father’s beginnings in Australian newspapers, and how he rescued papers that, he said, would have otherwise disappeared. “There’s a pattern that goes right up to today, of providing choice.”
Later that same day, he boarded the company jet for a flight to Monterey, Calif. For the third year in a row, he was gathering his top publishing and digital executives from here and abroad to brainstorm about how to go about conquering the Internet. By the time the jet was over Michigan, several News Corporation executives were playing poker in the back of the plane. Col Allan, the editor of The New York Post, watched the Republican debate on a big television screen and Robert Thomson, editor of The Times of London, phoned his newsroom to get the results of the French election.
Mr. Murdoch had planned to view some TV pilots, but never got around to it as he, Mr. Thomson and his executive vice president of corporate affairs, Gary Ginsberg, sat in his study and talked into the night about politics and world affairs. At one point, Mr. Murdoch, wearing a beige cardigan, glanced at a screen tuned to his news channel.
“Fair and balanced,” he declared, repeating the Fox News motto, which he meant as a playful jab at Mr. Ginsberg, who worked in the Clinton administration.
THE next morning, Mr. Murdoch was joined by Peter A. Chernin, the News Corporation president, to kick off the “Digital News Initiative” conference at the Monterey Plaza Hotel. The 60 or so attendees ran the gamut of his company’s news operations, including teams from not only his British and Australian papers and The Post, but also from Sky Television in London, the Fox television group and MySpace.
There was urgency in the room, because the company’s online media outlets do not have the same kind of dominance they enjoy in TV and in print. For instance, both FoxNews.com and NYPost.com saw the number of unique users to their sites rise around 30 percent in April versus a year earlier, but they still ranked only 9th and 26th among the most visited general news sites, according to ComScore Networks.
Guest speakers included Mark Zuckerberg, the 22-year-old founder of Facebook, Meg Whitman, the chief executive of eBay, and Kjell Aamot, the chief executive of Schibsted, the Norwegian publisher that generates a majority of its earnings from its online operations. Mr. Murdoch was staying at his ranch in nearby Carmel, where he had a dinner for the group.
Critical to reinventing the newspaper business, Mr. Murdoch told the audience, is getting the 175 newspapers the company owns to share resources and move quickly in unison. “We need to take advantage of our global scale everywhere,” he said.
Although Mr. Murdoch had not expected to discuss his offer for Dow Jones at the meeting, he offered a brief explanation. “We had hoped to keep it private and secret for a lot longer while they were having proper time to consider it,” he said. “I think it’s an incredible franchise with outstanding people.”
The challenges facing Dow Jones are somewhat different then those facing Mr. Murdoch’s papers because financial news is one of the few forms of information that consumers will pay for online. Still, The Journal, like other newspapers, has struggled to find ways to grow as print advertising and readership has come under pressure.
Jeremy Philips, a 34-year-old former Internet executive who joined the company last year to oversee strategy and acquisitions, followed Mr. Murdoch with a presentation that brought the challenges and opportunities facing the newspaper industry into sharp focus.
Online news is typically free, and advertising rates for it are comparatively low. Mr. Philips calculated that for every print reader a newspaper loses, it currently needs 100 online readers to generate the same amount of revenue. The more encouraging news is the costs of reaching those readers are less expensive through the Internet than through print — indeed, The Times of London, which recently revamped its Web site, is regularly visited by more users outside of England than within.
Another slide posited that of the millions of readers who come to various newspaper sites in a given month, a huge majority come only once, a consequence of all those referrals from search engines and aggregators. Mr. Philips said he sees that traffic, despite how fleeting it may be, as an incredible opportunity if all those one-time visitors can be compelled to come back a few times more.
Mr. Murdoch perked up when discussing the online potential of The New York Post, which has consistently lost money since he acquired it for a second time in 1993. At a break in the conference, Mr. Murdoch sought out Rebecca Wade, the editor of The Sun, to discuss the results of that day’s Scottish election. For a while, he sat at the back of the ballroom chatting with Mr. Zuckerberg of Facebook, who sat next to him again at dinner. Mr. Murdoch listened closely.
If one thing was clear over the weekend, it was that Mr. Murdoch’s determination to revitalize the news will depend as much on mastering geeky technology as storytelling and layout. Winning The Journal will require other masterful feats like convincing the Bancrofts that the sometimes fractious Murdoch clan will be worthy stewards.
Mr. Murdoch says that if the Bancrofts grant him a meeting, he would like to introduce them to his grown children so they can see the passion they all share for the news business.
Of course, Mr. Murdoch does not exactly see himself as a wizened septuagenarian preparing to hand off his media assets. His wife, Wendi, is 38 years his junior, and they have socialized with the Google co-founder Sergey Brin and his fiancée, Anne Wojcicki. The Murdochs are planning to move into a $44 million penthouse on Fifth Avenue next year. It is the most expensive apartment in New York and was once owned by Laurence Rockefeller; it is another prize that Mr. Murdoch has said he has long coveted.
By every measure, he appears to believe he has plenty of time to get exactly what he wants. As he wrapped up the conference in Monterey last Sunday, he looked out at his employees and said: “You all think I’m too old.” Pausing for a beat, he added: “I think you’re too old.”
Showing posts with label digital. Show all posts
Showing posts with label digital. Show all posts
Sunday, May 13, 2007
Friday, May 11, 2007
The year advertising turned digital
The year advertising turned digital
http://news.independent.co.uk/business/analysis_and_features/article2530809.ece
Traditional media groups are finding it hard to claim a share of increasing advertising budgets as online services grow at breakneck speed. By Nic Fildes
Published: 11 May 2007
Commercial media companies that have struggled amid tough market conditions over the past few years will have to navigate further choppy waters in 2007 with the latest data in the radio and newspaper publishing sectors suggesting that the threat from online competitors will continue to bite hard.
Despite steady increases in the amount of money that companies have spent on advertising, the proportion allotted to television and radio marketing has stayed flat and, in the case of newspapers, has fallen.
The UK radio sector has been one of the worst hit by the surge in interest in online advertising. Alongside outdoor and cinema advertising, radio companies have struggled to fill the gap left by advertisers attracted to online advertising, a form of marketing that can be targeted specifically at individual groups based on demographic data.
With advertising industry heavyweights such as Sir Martin Sorrell predicting that online advertising will continue to grow at breakneck speed in the UK, newspaper publishers, television broadcasters and radio companies face the prospect of further revenue declines in the coming year.
Online advertising has taken off particularly quickly in the UK due to the equally rapid uptake in broadband services among consumers. Traditional forms of advertising like billboards and radio jingles are fairly unsophisticated compared to flashy new video advertisements that can be used on webpages. While traditional advertising relies on attracting the attention of random passers-by or unknown radio listeners, online marketing can be targeted at specific individuals, increasing the relevance of the advertising. Advertisers can also tell whether the user looked at the marketing, important data in gauging the effectiveness of the campaign.
Radio companies' struggle to attract more advertising revenue is not helped by volatile audience figures. The latest data from Rajar, the radio industry's ratings body, yesterday showed that commercial radio companies have continued to lose market share to the BBC, which took a record 56 per cent of the radio audience during the first three months of the year. Despite the ongoing progress of digital radio, commercial broadcasters slipped to 42 per cent from over 43 per cent last quarter.
Commercial broadcasters like Emap, Chrysalis and GCap took some heart from increases in the number of young people listening to stations like Magic and Galaxy. However there is still much work to do to challenge the BBC and win back advertisers that have moved online.
Some commercial radio companies are coping better with the tough market conditions. UTV's TalkSport station reported record listening figures whilst Emap's Magic station won back its top spot in London status during the quarter.
However analysts were disappointed with the performance of Chrysalis, whose Heart station lost out to Magic, and GCap's flagship station Capital which reported a record low audience share of 4.6 per cent. Paul Richards, an analyst at Numis Securities, said that SMG's performance was the most disappointing with Virgin FM recording its worst ratings performance since 2003.
Analysts said the data suggests that radio companies face an uphill struggle in 2007. Howard Bareham, an investment director at Mindshare, said: "It's a Catch-22. Radio companies need to invest in product but to do that, they need the advertising revenue."
Newspaper publishers have also struggled as advertising budgets have increasingly moved online. Trinity Mirror yesterday warned that advertising conditions remain "challenging and volatile" with advertising revenue falling 2.4 per cent in the first four months of the year. The drop represented an improvement on the 6 per cent fall that Trinity Mirror reported in the last quarter of 2006, but analysts attributed the slowing rate of decline to easier comparative figures, rather than an improvement in the underlying advertising market. Advertising revenue at the company's national newspapers such as Daily Mirror fell 4 per cent while circulation revenue dropped 0.7 per cent.
Companies such as GCap, run by long-serving chief executive Ralph Bernard, and Trinity Mirror, which has Sly Bailey at its helm, face tough challenges over the coming year as the structural shift in the industry gains pace. Mr Bernard has said that he doesn't expect recent investments in improving its radio stations to show up in Rajar figures until August but remains confident that the company can be turned around after a disastrous performance since the merger of GWR and Capital in 2005. Meanwhile Ms Bailey has overseen the acquisition of a number of websites in areas like online recruitment and real estate to offset the collapse in newspaper advertising revenue. However, digital revenue still only accounts for 5 per cent of Trinity Mirror's revenue.
Publishers, terrestrial television broadcasters and radio companies also face significant threats from emerging online competitors aiming to take advantage of changing consumer behaviour to take a large chunk of advertising budgets. In the radio sector, Rajar reported that 24 per cent of people in the UK now listen to the radio via the internet while 11 per cent listen to the radio on mobile phones. With computers becoming an increasingly popular way to consume media, a new form of radio station has emerged where consumers have control over the sort of songs that are played. Pandora and LastFM, two of the most high profile user-controlled radio stations, have proved very popular among young radio listeners.
In the television sector, Joost has created headlines as the first broadcast-quality internet TV platform that offers users free access to an increasingly large amount of content. Similarly advertising-funded services have been launched in the music and mobile-phone space as new media companies look to offer consumers free services if they agree to listen to advertisements.
Patrick Yau, an analyst with Bridgewell Securities, said that radio companies have been slow to invest in the internet despite attracting large audiences to basic internet radio websites due to a "fear of the unknown". "Radio and the internet are very complementary media - we can consume both at the same time. Why aren't we seeing a more integrated online strategy from radio companies?" he said. He noted that Virgin Radio argues it has the most popular internet radio site in the world but has not taken advantage of that traffic, perhaps by offering community-based information.
Richard Menzies-Gow, an analyst with Dresdner Kleinwort, said that overall radio-listening figures will continue to rise as more people listen to radio on mobile phones or at work but that radio companies need to figure out how to ramp up revenue as a result of higher listening figures. He expects that over time, there will be an interweaving of old and new media with a relaxation of cross-media ownership laws "inevitable" as advertisers look to run integrated campaigns.
Mr Bareham said: "In some respects, technology is against radio at the moment but the strengths of radio are as relevant today as a decade ago when the young and sexy radio industry outflanked the traditional media sector. Now it's online that is in vogue." He said radio companies needed to focus on taking advantage of the interactive elements of online radio and personal devices such as mobile phones over the coming year to stimulate growth in 2008 and 2009.
BT unveils vision to compete with Sky and Virgin
The media sector is getting increasingly crowded, with BT upping the ante in the television space.
Sky and Virgin Media have torn strips off each other to win new customers over the past few months while BT has slowly added customers to its BT Vision service. Customers will receive a set-top box that connects to BT's broadband network and offers customers video-on-demand services, Freeview television and an in-built video recorder.
BT will kick off a multi-million pound national marketing campaign tomorrow to promote the service and compete more aggressively with Sky and Virgin. BT is expected to spend at least £10m promoting the service.
BT Vision is designed to be more flexible than its cable and satellite-based rivals as it does not charge customers a minimum monthly subscription. There will be a set-up fee of around £90 although BT expects to launch a self-installation version later in the year at which point, analysts expect customer numbers to soar. The company has invested in building a large library of content for the on-demand service, including sports and hit movies.
BT expects to have up to 3 million customers in the medium term as it continues to invest in offering services outside its legacy residential telecoms business.
The threat to advertising revenue
* Personalised internet radio stations such as Pandora and Last.fm have built large customer bases by giving listeners control over playlists and dispensing with DJ chatter. Such stations ask the listener to list bands they like and then play songs by similar artists based on those preferences. Listeners can reject songs they don't like and buy ones they do. However the companies have hit licensing problems and Pandora has stopped allowing access to the site outside the US.
* Following on from the success of YouTube, new companies that offer free broadcast-quality television over the internet have started to emerge. Joost, set up by the founders of Skype, has made headlines and built a large library of content, and the company has just secured financial backing from a series of investors, including eBay backers Sequoia Capital, to strengthen the offering. However analysts expect it to be a niche service in the medium term.
* Another possible threat to advertising revenue comes from new companies which aim to offer free content and services to consumers who accept advertising. Blyk, a mobile phone company that uses Orange's network in the UK, will offer free calls and texts to people looking to save money by pumping ads down their handset. Meanwhile, We7, backed by Peter Gabriel, left, offers free digital music tracks to customers happy to accept advertising.
http://news.independent.co.uk/business/analysis_and_features/article2530809.ece
Traditional media groups are finding it hard to claim a share of increasing advertising budgets as online services grow at breakneck speed. By Nic Fildes
Published: 11 May 2007
Commercial media companies that have struggled amid tough market conditions over the past few years will have to navigate further choppy waters in 2007 with the latest data in the radio and newspaper publishing sectors suggesting that the threat from online competitors will continue to bite hard.
Despite steady increases in the amount of money that companies have spent on advertising, the proportion allotted to television and radio marketing has stayed flat and, in the case of newspapers, has fallen.
The UK radio sector has been one of the worst hit by the surge in interest in online advertising. Alongside outdoor and cinema advertising, radio companies have struggled to fill the gap left by advertisers attracted to online advertising, a form of marketing that can be targeted specifically at individual groups based on demographic data.
With advertising industry heavyweights such as Sir Martin Sorrell predicting that online advertising will continue to grow at breakneck speed in the UK, newspaper publishers, television broadcasters and radio companies face the prospect of further revenue declines in the coming year.
Online advertising has taken off particularly quickly in the UK due to the equally rapid uptake in broadband services among consumers. Traditional forms of advertising like billboards and radio jingles are fairly unsophisticated compared to flashy new video advertisements that can be used on webpages. While traditional advertising relies on attracting the attention of random passers-by or unknown radio listeners, online marketing can be targeted at specific individuals, increasing the relevance of the advertising. Advertisers can also tell whether the user looked at the marketing, important data in gauging the effectiveness of the campaign.
Radio companies' struggle to attract more advertising revenue is not helped by volatile audience figures. The latest data from Rajar, the radio industry's ratings body, yesterday showed that commercial radio companies have continued to lose market share to the BBC, which took a record 56 per cent of the radio audience during the first three months of the year. Despite the ongoing progress of digital radio, commercial broadcasters slipped to 42 per cent from over 43 per cent last quarter.
Commercial broadcasters like Emap, Chrysalis and GCap took some heart from increases in the number of young people listening to stations like Magic and Galaxy. However there is still much work to do to challenge the BBC and win back advertisers that have moved online.
Some commercial radio companies are coping better with the tough market conditions. UTV's TalkSport station reported record listening figures whilst Emap's Magic station won back its top spot in London status during the quarter.
However analysts were disappointed with the performance of Chrysalis, whose Heart station lost out to Magic, and GCap's flagship station Capital which reported a record low audience share of 4.6 per cent. Paul Richards, an analyst at Numis Securities, said that SMG's performance was the most disappointing with Virgin FM recording its worst ratings performance since 2003.
Analysts said the data suggests that radio companies face an uphill struggle in 2007. Howard Bareham, an investment director at Mindshare, said: "It's a Catch-22. Radio companies need to invest in product but to do that, they need the advertising revenue."
Newspaper publishers have also struggled as advertising budgets have increasingly moved online. Trinity Mirror yesterday warned that advertising conditions remain "challenging and volatile" with advertising revenue falling 2.4 per cent in the first four months of the year. The drop represented an improvement on the 6 per cent fall that Trinity Mirror reported in the last quarter of 2006, but analysts attributed the slowing rate of decline to easier comparative figures, rather than an improvement in the underlying advertising market. Advertising revenue at the company's national newspapers such as Daily Mirror fell 4 per cent while circulation revenue dropped 0.7 per cent.
Companies such as GCap, run by long-serving chief executive Ralph Bernard, and Trinity Mirror, which has Sly Bailey at its helm, face tough challenges over the coming year as the structural shift in the industry gains pace. Mr Bernard has said that he doesn't expect recent investments in improving its radio stations to show up in Rajar figures until August but remains confident that the company can be turned around after a disastrous performance since the merger of GWR and Capital in 2005. Meanwhile Ms Bailey has overseen the acquisition of a number of websites in areas like online recruitment and real estate to offset the collapse in newspaper advertising revenue. However, digital revenue still only accounts for 5 per cent of Trinity Mirror's revenue.
Publishers, terrestrial television broadcasters and radio companies also face significant threats from emerging online competitors aiming to take advantage of changing consumer behaviour to take a large chunk of advertising budgets. In the radio sector, Rajar reported that 24 per cent of people in the UK now listen to the radio via the internet while 11 per cent listen to the radio on mobile phones. With computers becoming an increasingly popular way to consume media, a new form of radio station has emerged where consumers have control over the sort of songs that are played. Pandora and LastFM, two of the most high profile user-controlled radio stations, have proved very popular among young radio listeners.
In the television sector, Joost has created headlines as the first broadcast-quality internet TV platform that offers users free access to an increasingly large amount of content. Similarly advertising-funded services have been launched in the music and mobile-phone space as new media companies look to offer consumers free services if they agree to listen to advertisements.
Patrick Yau, an analyst with Bridgewell Securities, said that radio companies have been slow to invest in the internet despite attracting large audiences to basic internet radio websites due to a "fear of the unknown". "Radio and the internet are very complementary media - we can consume both at the same time. Why aren't we seeing a more integrated online strategy from radio companies?" he said. He noted that Virgin Radio argues it has the most popular internet radio site in the world but has not taken advantage of that traffic, perhaps by offering community-based information.
Richard Menzies-Gow, an analyst with Dresdner Kleinwort, said that overall radio-listening figures will continue to rise as more people listen to radio on mobile phones or at work but that radio companies need to figure out how to ramp up revenue as a result of higher listening figures. He expects that over time, there will be an interweaving of old and new media with a relaxation of cross-media ownership laws "inevitable" as advertisers look to run integrated campaigns.
Mr Bareham said: "In some respects, technology is against radio at the moment but the strengths of radio are as relevant today as a decade ago when the young and sexy radio industry outflanked the traditional media sector. Now it's online that is in vogue." He said radio companies needed to focus on taking advantage of the interactive elements of online radio and personal devices such as mobile phones over the coming year to stimulate growth in 2008 and 2009.
BT unveils vision to compete with Sky and Virgin
The media sector is getting increasingly crowded, with BT upping the ante in the television space.
Sky and Virgin Media have torn strips off each other to win new customers over the past few months while BT has slowly added customers to its BT Vision service. Customers will receive a set-top box that connects to BT's broadband network and offers customers video-on-demand services, Freeview television and an in-built video recorder.
BT will kick off a multi-million pound national marketing campaign tomorrow to promote the service and compete more aggressively with Sky and Virgin. BT is expected to spend at least £10m promoting the service.
BT Vision is designed to be more flexible than its cable and satellite-based rivals as it does not charge customers a minimum monthly subscription. There will be a set-up fee of around £90 although BT expects to launch a self-installation version later in the year at which point, analysts expect customer numbers to soar. The company has invested in building a large library of content for the on-demand service, including sports and hit movies.
BT expects to have up to 3 million customers in the medium term as it continues to invest in offering services outside its legacy residential telecoms business.
The threat to advertising revenue
* Personalised internet radio stations such as Pandora and Last.fm have built large customer bases by giving listeners control over playlists and dispensing with DJ chatter. Such stations ask the listener to list bands they like and then play songs by similar artists based on those preferences. Listeners can reject songs they don't like and buy ones they do. However the companies have hit licensing problems and Pandora has stopped allowing access to the site outside the US.
* Following on from the success of YouTube, new companies that offer free broadcast-quality television over the internet have started to emerge. Joost, set up by the founders of Skype, has made headlines and built a large library of content, and the company has just secured financial backing from a series of investors, including eBay backers Sequoia Capital, to strengthen the offering. However analysts expect it to be a niche service in the medium term.
* Another possible threat to advertising revenue comes from new companies which aim to offer free content and services to consumers who accept advertising. Blyk, a mobile phone company that uses Orange's network in the UK, will offer free calls and texts to people looking to save money by pumping ads down their handset. Meanwhile, We7, backed by Peter Gabriel, left, offers free digital music tracks to customers happy to accept advertising.
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