The Coming Content Wars

    May 31, 2007

A few days ago, a report showed that Internet advertising was up 35% last year, hitting almost $17 billion. It’s been almost a year since we reported, “Web Advertising Spending Too Low,” and it looks like advertisers are starting to close the gap. That’s good news for Web publishers, and not so good news for traditional media. Newpapers have been feeling the pinch already (e.g., Boston Globe Feels Web Squeeze), and broadcast media can’t be far behind. We think the really interesting part of the growth in Web ad dollars will be the competition for compelling content.

The drive to create or acquire Web content is nothing new. Google has been on a mission to add to its content portfolio by acquisition (e.g., YouTube), contract (e.g., MySpace), and internal development (any number of beta and Google Labs sites). Newspapers are pushing their content onto the web, with good results – online newspaper advertising was up 22% in the first quarter alone. And, of course, independent publishers have been busy, too. Everything from vibrant web communities to cheesy made-for-Adsense (MFA) sites are causing an exponential growth in web content.

And there’s the rub – content on the Web is growing faster than the number of eyeballs viewing it and faster than the infusion of advertising dollars. As everyone rushes to cash in on the Internet advertising boom, there are few brick walls ahead – over the horizon, perhaps, but still in the roadway. First, to some degree advertising is a zero-sum game. Web advertising can make rapid gains while it is poaching dollars from traditional media, but may not expand the total of advertising dollars very much. Sure, new media opportunities may cause some increases in ad budgets, but ultimately there is a ceiling determined by the amount of money firms can devote to advertising and marketing. The second wall is the amount of time consumers spend on the Web. Here, too, new media has been poaching time both from traditional media and from other leisure and work activities. Eventually, though, time spent on the Web will have to level out.

What does this mean for Web publishers? I don’t think they have to worry in the short run. Successful content will continue to be successful, and ad revenues have plenty of room to grow. In the long run, though, compelling content will be increasingly important – throwing a hundred thousand pages on the web won’t guarantee strong revenues. Sites that rely on search traffic for most pageviews will increasingly struggle to be found as they find themselves competing with major authority sites for the same visitors. Old media will push into new media publishing more aggressively, using their far from insignificant marketing muscle to drive traffic to their efforts. (In today’s news: CBS paid $280 million for Last.FM, while News Corp – already a new media powerhouse – snapped up Photobucket and Flektor.) With heavyweights like this competing for Web eyeballs, both big and small publishers are going to have to ensure that their Web properties are engaging and involving. Content will have to be better than the competition; Web 2.0 and community features that involve visitors and drive repeat traffic will be increasingly important.

Currently, there’s a dichotomy in advertising rates between major Web properties that command premium ad rates and everyone else, who rely on some mix of Google Adsense or other ad networks for monetization. If anything, this dichotomy will grow – both in revenue per pageview and total ad revenues. Smaller publishers won’t be totally at a loss, though. The contextual advertising push started by Google’s Adsense will continue to allow successful long tail monetization. And, as part of the drive to gain more content, big publishers will look for opportunities to snap up smaller publishers to capture the differential in advertising dollars. Content will continue to be king, but this will be a meritocracy rather than an aristocracy.