Media is a unique commodity — it’s one of the few things we consume that we don’t pay for. Most digital media is entirely free. When we do pay, via cable subscription or at the newsstand, the price is nowhere near the full cost of the good. Unlike, say, gym memberships, your cable provider is happier the more you watch even though the price of your subscription doesn’t increase with use.
All this free or subsidized media is brought to you, of course, by advertising. Media companies sell some of the attention they receive to advertisers — media, it’s said, is ads for ads. As readers, viewers, and users, we pay for what we consume by looking at, or at least potentially looking at, ads.
This may seem basic, but it’s crucially important to examine this value exchange in the context of the digital revolution upending parts of the media and advertising business. By looking at the advertising, we can see what a media property today is really worth, and make projections for its future.
From a media perspective, advertising breaks down into two categories: Interruptive and Non-Interruptive.
Interruptive advertising blocks the media experience for a time, commanding all of the attention until the regularly scheduled programming resumes. This includes television commercials, online “interstitial” or welcome ads, and radio.
Non-Interruptive advertising is adjacent to the media experience. It hopes to attract attention while the media is being consumed. Examples like online banner ads, product placement, and billboards fall in this category. Magazine pages, which try to attract your eye as you flip through, may as well be in this category, too.
For a consumer, interruptive advertising is obviously a much higher “price paid” than non-interruptive advertising. And the price a consumer is willing to “pay” via ad-viewing — whether they’ll accept interruptive or only non-interruptive ads – tells us how they value the experience of that media product vis-a-vis their other options.
To convince viewers to sit through two and a half minutes of TV commercials, the underlying media product – the show – has to provide a worthwhile, high-value experience. On the other hand, a potential reader browsing articles in their Facebook feed has near-infinite options to click, spending only a few moments with any given article in a pretty unintentional manner. So, the “price” any of these article-providers can charge is low. They certainly can’t expect the reader to watch a :30 commercial before reading. The best they can do is put a few banner ads in the content and hope the reader notices.
The ad market values media along the same lines consumers do. The advertiser is buying attention, and interruptive ads capture more attention than non-interruptive ones. Where a :30 ad slot on cable TV might cost a $20 CPM, a banner ad alongside a web article only costs $2. A recent study by Accenture, commissioned by ABC, also showed that interruptive TV ads produce higher ROI, mostly through a “halo effect” produced by the fact that the memory of :30 interruptive ads lingers.
A consumer’s acceptance of interruptive advertising is dictated by how “replaceable” the media is. If there are many other options for equally good experiences, as in the case of web articles, most consumers won’t be willing to “pay” the price of interruptive advertising. On the other hand, a must-have experience, like a show everyone is talking about on Monday morning, is irreplaceable. In this case, “replaceability” is another way to say “supply” — a high supply of similar experiences makes media easily replaceable, while a low, or zero, supply of other options makes it irreplaceable.
From this, we can boil down to a simple equation for understanding interruptive vs. non-interruptive advertising: When there is more demand from consumers for a media product than there is supply of that product (for instance, premium TV), that media will be able to “charge” consumers with interruptive ads. Where there is more supply than demand (for instance, web articles), the media company will only be able to insert non-interruptive ads.
Put another way, the more irreplaceable a media experience is, the more lenient a consumer will be with ad experiences, and the more easily replaced, the lighter the ad load must be.
Here’s where it gets interesting: you’d think media companies, wanting high ad prices, would just create more supply of premium content (e.g. TV shows). However, that new content would give consumers more options, and the more options they have, the less willing they will be to tolerate those interruptive ads. The tipping point would occur through a tragedy of the commons, where many media outlets chase the same strategy, creating an oversupply, and one company would seek to win that crowded market by removing the interruptive ads. It won’t happen today, but as the internet eats away at old-fashioned TV distribution, and as production costs go down, eventually the “TV form” is no longer going to be worthy of interruption.
This is a great outcome for consumers, but a warning for the web publishers chasing “digital video” with hopes of breaking into the interruptive ad market. If they can’t make something irreplaceable in a consumer’s life, they are out of luck. With more options on the horizon, the standard of irreplaceability may only get higher and higher.
A few subtle points are required to make the framework whole. First, utility-based ads, like search ads or classifieds, are non-interruptive but much higher value, because they are part of the utility the user was going for. This is so valuable that Google goes to lengths to protect it — the ads they show are not necessarily those of the highest bidder, but those of the most useful advertiser to the user. Like other media, these ads pay for the experience, though in this case the alignment of the experience and the ad are such that the “interruptive” vs “non-interruptive” distinction isn’t very useful.
Second, new models for premium, low-supply/high-demand media have arisen where the user pays directly for the content, like Netflix. This works because Netflix is able to go “over the top”, and deliver content more efficiently than traditional television, which had to pay a middleman in the form of the cable companies. (By comparison, where a Netflix subscription costs about $120 per year, Facebook is making only about $12 per year on U.S. users via advertising.) Netflix, by being both a more premium experience and a more efficient business than it’s TV competitors, is so aligned with the value it delivers consumers that it doesn’t need to be ad-subsidized at all.