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Dan Ramsden
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Dan Ramsden has been active in finance, markets and strategy, at global institutions as well as boutique firms, for over twenty years. He has covered the media and technology segments, through their transformations and transitions, since the mid-‘90s, and has been involved in private and public,... More
My company:
CoRise
My blog:
The Age of Convergence
My book:
The Age of Convergence
  • Unlocking value through simplification 0 comments
    Mar 3, 2010 6:41 AM | about stocks: GOOG

    The media market has never been larger. The products offered by media have never been more various and exciting. And yet advertising, which has always been media’s revenue engine, has been hurting. I do not believe this phenomenon is strictly a matter of economic cycle. While media has never been more exciting, advertising has never been more complex.

    The parallels between media and its advertising sub-sector are long-standing, and there may not be another sub-segment that more perfectly reflects the state of the broader industry. Advertising and media go hand in hand, each depending on the other. In past times, when media was dominated by the traditional and analog, Madison Avenue was quaint and full of artisanship. (I know, I know, but bear with me.) The effectiveness of advertising was measured through an assortment of surveys, studies, “ratings,” that were not doubted (be patient) even if the science of these was subject to interpretation. It was (more or less) a matter of trust, and there was a sort of clubbiness in the dynamic, in which advertisers, agencies, and publishers all participated. Today, as the analog handshake of traditional media is being replaced by the digital interaction of the web, advertising is becoming technical, more mechanic, algorithmic, hugely complex, and not necessarily more effective. One thing is sure: the advertising model is more difficult to explain, and trust is out of the picture completely.

    I was just the other day conversing with a friend about the confusing mess that advertising has become in the last few years, and we each took comfort from the other’s shared state of confusion. Luckily, neither of us is in advertising, but we sympathize. I had a similar discussion with another acquaintance later, and the gist was the same. So here I had been thinking that I was on my own not “getting” it all this time, and in two discussions I uncovered two allies. That’s a percentage of 100. A survey of two is not exactly a market study, this is no Arbitron or Nielsen report after all, and one should not rush to conclusions… but I suspect there are lots of us out there.

    So to my great excitement and opinion validation, I came across this article in Business Insider, authored by a senior editor of Advertising Age no less. Here is a representative passage: ”The space between advertiser and publisher has become jam-packed over the last decade, with literally hundreds of ad networks, data companies, yield managers, ad servers and exchanges all purporting to serve advertisers or publishers in some unique way; but all have their own business models that may or may not be adding value to either.” Thank you!

    This mess has to be cleaned up if the media sector is to live up to its potential. When one of two revenue sources for media is bogged down by the chaos described, while the other is driven by direct customer payments (i.e., subscriptions and variants thereof) in an increasingly free environment, that cannot be a healthy situation for sector economics. And it isn’t strictly a matter of economic value – although the same AdAge article argues that publishers only see $1 for every $5 of advertising sold – but also one of business soundness and, frankly, morale. With so much algorithm, intermediation, digital chaos, and lack of understanding separating the publisher and the advertiser, is it possible for either one to appreciate the other? For either one to even hear the other? For either one to see the point of the other? I entertain doubts, but that being as it may, the numbers tell a story that cannot be denied.

    With all this in mind, however, a powerful case can be argued that we are at a market bottom. As the complexity described is more likely to abate than to increase, just looking at the matter relatively, there should be economic upside built into the very simplification that will happen. The question is one of time, and letting the process run its course. For those who are more inclined to take charge rather than wait, here is a call to action: Google’s advertising product, embarrassingly simple, drives revenue that has never stopped growing, in any cycle. 

    Disclosure: No positions
    Themes: Media Stocks: GOOG
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