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Executive Report - By Thomas Baekdal - June 2016

Traditional Media Needs Influence-based Advertising to Succeed

The future of advertising, from a media perspective, is looking increasingly sketchy. If we look at the format of display advertising, we see a very persistent trend that the value of each ad view is getting less and less. This is true both for brands and for publishers. The value brands get out of display advertising, per view, is exceptionally low, and the overall revenue earned by publishers is dropping as well.

The outcome of this is a focus on scale. In order to keep up the current levels, you need to add more and more scale into the mix.

This isn't really a problem (yet) for the big platforms like Google or Facebook. They haven't yet reached their maximum level of scale, so they are doing fine. For instance, if we look at Google's annual report, we see that their total advertising revenue is up 40%, which is incredible. But we also see that the revenue per view is down 16%.

So as long as more of the ad budgets are moving to digital, Google (and Facebook) have a promising future. They can just keep scaling faster than the decline in the value per view.

This, however, isn't the case for publishers. Most publishers have already reached, or are close to reaching, their maximum level of scale.

Take a publisher in Sweden, for instance. Sweden is a country with only 9 million people, which means that Swedish publishers will hit the ceiling of scale very quickly. You would never be able to create a publication like BuzzFeed or Huffington Post in Sweden if you were monetized by advertising alone. Also remember that the media industry is an incredibly crowded market, which means that people's attention is shared across a much bigger pool of publications.

Even if you do everything right, the market just isn't big enough for the scale needed to offset the terribly low (and declining) ad rates that we see today.

Things don't actually improve that much when we look at the modern forms of advertising, like native ads. We see this, for instance, with BuzzFeed.

Native advertising is very time consuming and meticulous to do. You have to be in direct contact with the brands and their agencies. You have to arrange what the stories should be about. You have to write them, get them approved and do a number of other steps before they can be published.

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Thomas Baekdal

Founder, media analyst, author, and publisher. Follow on Twitter

"Thomas Baekdal is one of Scandinavia's most sought-after experts in the digitization of media companies. He has made ​​himself known for his analysis of how digitization has changed the way we consume media."
Swedish business magazine, Resumé


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