The Real Reason The Ad Supported Business Model Doesn’t Work

February 22, 2012 · Posted in business, Marketing 

VEVO is coming under a lot of scrutiny lately but, this post isn’t about whether they pay artists/publishers and what not. I saw a quote from VEVO C.E.O., Rio Caraeff, at Digital Music News and nestled within that quote is something that’s getting close to the crux of the biscuit…

“We (VEVO) pay every single video licensor fairly (based upon all revenue, not just revenue generated from video watch pages like some other services do), on-time and on the same commercial terms no matter whether one is a major or independent label or distributor.”

So, forget about artists getting stiffed for a bit. Concentrate on the word “fairly”.

The “fairly” is in regard to the ad rates; what the aggregator (VEVO) charges the advertiser.

See…somewhere, somebody or some entity has determined what is a fair advertising rate. Somebody is the arbiter of fair on the World Wide Web and the determined fairness is not being questioned.

As I’ve said before, Google sets the rates…they are the power player in the world of advertising. VEVO is basically a partnership between traditional major record labels that, in turn, partners with Google (go figure) on ad revenue.

Beyond the fact that Google garners the more-than-lion’s-share of all web ad revenue is the fact that they don’t have to do any heavy lifting. They don’t have to chase sponsors, the sponsors come to them and not just because Google is the only real game in town…because it’s cheap.

You got to hand it to the Goog Gods because, not only do they control the prices and, effectively corner the market, they are the go-to on the analytics and thus, control the data.

Consider some traditional advertising stuff for a bit; if you run an ad on the radio there is no way to tabulate the number of people who turn up the radio during the commercial as they drive down the road…there is no way to tabulate how many people actually read a billboard as they drive by. The factors that determine ad rates boil down to the number of impressions (people exposed to the ad) and the effect on the advertisers bottom line.

Now, within the mix you also have to consider demographic characteristics and stuff like the quality and creativity of the actual advertising.

With web advertising, there are a whole new batch of parameters most of which revolve around some sort of click ratio. If an ad gets clicked, the rate goes up exponentially. As a web publisher I am aware of this first hand as very little of the data I get involves actual impressions but there is a ton that has to do with performance and the criteria is clicks. This is an important point because if you look around for advice on how to improve ad revenue (as a publisher) the focus is inevitably on how to improve click rates by ad placement and focusing content to narrow subject matter in order to make relevancy easier to accomplish on the part of the aggregator.

Nobody ever seems to bring up the notion that a crappy ad or a crappy product might have negative effects on these click rates. That’s why, traditionally, impressions have been the key criteria. If you are an advertiser and you get eyeballs looking at your ad; you are very much responsible for making that ad interesting enough to get results.

Once again, Google is going to get the majority of all web ad revenue so, the rates are secondary…keeping their market share consistent while total web ad revenue grows is primary.

Now, let’s distill the original thought here; why ad supported business models aren’t working.

To be fair, they are working for the aggregators, the ad agency (Google) and the advertisers but not for the the people creating the actual web content. The content creators are getting screwed because the ad rates are too cheap!

If you are involved in any way with creating content or creative content, all of this should matter to you. It should matter because not only is creativity not being justly compensated, if this lack of compensation continues creativity will diminish in general as time goes by. Yes, there may continue to be a glut of stuff oozing around that purports to contain creativity but, the development of the real stuff requires practical support.

I’ve been putting a lot of thought to all of this…I’ve also been wracking my brain to come up with some solutions, not just for my own fiscal purposes but because I believe strongly in the notion that creativity flourishes when there is some sort of compensation system in place and wish to promote such.

And, to that end, I have been working on some ideas to develop an alternative to the web advertising status-quo based on impressions, demographics, human research and interaction rather than logarithms and old fashioned footwork. I don’t have all of the puzzle pieces together yet but I’m getting there and will update as I go.

As always, I would love to hear any input on any of this stuff…leave comments or hit the contact button and, if you are a content creator and would like to know more about what I’m up to, get in touch…meanwhile, I’ll look out across the landscape and ponder.


One Response to “The Real Reason The Ad Supported Business Model Doesn’t Work”

  1. Pat Darnell and Friends on March 3rd, 2012 11:43 am

    This is one of your “patented” expunges of scurrilous meanies with unearned scrilla misplacing it like unscrupulous, scrofulous characters. They must have graduated from the school of the ‘Federal Reserve of the Morally Contaminated.’

    *[OR …scurrilous imposters who use a religious exterior to rob poor people — Edwin Benson]*

    Great article: Hall of Fame stuff. You should write that book soon.

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