Trouble brewing for meso-audience producers

Posted on March 24, 2017  /  0 Comments

In a recent talk, I described the value of thinking about Internet companies such as Facebook as producers of meso-audiences: “The only revenues that come to the Internet companies are from advertisers. . . . They can describe the meso-audiences in much greater detail than can the mobile operators and can offer raw material for the production of audiences unlimited by national boundaries. Because the content that attracts the meso-audience as well as the data are contributed by the users themselves, the costs of producing the meso-audience are low. As a result, they are making money hand over fist.”

But storm clouds are gathering. The fuss over fake news (which has been around at least since Joseph Pulitzer) was just the beginning. Now big advertisers are pulling out from YouTube because algorithm-driven programmatic advertising has been found, on occasion, to place “respectable” advertising next to “disreputable” content. The low-transaction-cost, human-free advertising model is coming under threat.

There’s a lot at stake for YouTube and Alphabet. Search advertising is not growing as fast as it once did, and television ad budgets are still larger than total spending on digital advertising. YouTube and Facebook have made no secret of their desire for television advertising funds. Internet ad revenue in the United States, which is growing quickly, reached about $60 billion in 2015 while television accounted for about $66 billion, according to a study from IAB and PwC.

James Dix, a senior media analyst at Wedbush Securities, estimates that YouTube accounted for revenue of about $13 billion, or roughly 20 percent of all advertising revenue on Google’s internet properties in 2016. Alphabet does not disclose YouTube revenue.

“If this company is going to look for new growth at scale, it has to pull money from television,” Mr. Dix said. “Period.”

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