Legacy Media’s ‘Agency’ Business: Just More Brand Extension?

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Business ReinventionThe paradox of industry reinvention is that the more the industry evolves, the farther away it gets from real reinvention. That’s because the industry will forever be trying to hang on to what defined it in the first place, so technological innovations — no matter how different they may be from the industry’s core competencies — are actually seen only as extensions of those core competencies. We have long noted, for example, the difference between innovations that extend legacy brands versus those that function as new businesses with new business models.

In his speech to SXSW in 2010, Clay Shirky noted the logical problem with this when he said, “Institutions will always try to preserve the problem to which they are the solution.” So an institution with, let’s say, “public success and happiness” as its goal is destined never to produce it, because if it did, it would no longer be needed. Social movements, once institutionalized, don’t stand a chance of producing the desired change, because they cannot allow the problem to end.

In the broadcasting world, for example, the problem being solved is how to reach mass audiences, and for the industry to remain viable, that problem must remain. Broadcasting counts on Wanamaker’s dilemma to reach the conclusion that it doesn’t matter. As long as its reach can cover the multitudes, who cares if half of Wanamaker’s advertising is wasted? Well, for one, Wanamaker does. He’s trying to run as efficient an operation as possible and a 50-percent effectiveness rate on his ad dollars is an area he’d like to improve. Broadcasting’s lifeblood, we can then fairly extrapolate, comes from waste, and that’s not a value proposition with legs.

The reinvention paradox is at work in the latest “innovation” being touted from local media companies. It’s called DMS for “Digital Marketing Services,” and it’s billed as something new and exciting for local media, because it’s providing incremental increases digital revenues of local media companies. It seems a perfect new tactic to grow revenue, but that’s exactly the problem. We don’t need to grow revenue; we need to make money by competing with the broad reach value proposition. Why? Because to do otherwise is to place ourselves in an ongoing defensive posture, when we need to be playing offense. At best, DMS is just lipstick on a pig, although it’s actually worse than that, because managers think they’re really onto something.

NetNewsCheck recently published a neat outline of the problems this idea is causing local media sales people:

The shift creates a challenge for sales representatives, many of whom have spent decades selling space and impressions, whether it’s in print or a digital banner. Now, a salesperson is selling SEO, SEM, video solutions, social media, website design, reputation management and more.

Neal Polachek, president of Board Advisors, says sales reps must now assume more of a consultative approach, rather than a straight sales approach. The rep must understand the services he or she is selling, the business they’re selling to and day-to-day problems faced by the SMB, Polachek says.

The article goes on to rightly note that a digital services salesperson is competing with dozens of other media companies, marketing agencies and pureplays vying for a merchant’s dollars. The average business owner is approached by 39 sales reps per month, according to BIA/Kelsey.

“We find that, even sometimes when we’re delivering results, the SMB will fire back and say, ‘You know, I think I probably should give this a try,’” Smith (Jason Smith, KSL Local Interactive’s GM and director) says. “Now you’re reselling over and over, plus managing them on your behalf.”

“Before, there were maybe two newspapers and two yellow pages companies in the marketplace,” LocalEdge’s Lewis (David Lewis, LocalEdge’s VP of marketing) adds. “Now, there could be 17 or 20 digital companies in the same market. It’s easy to switch and try somebody else out.”

So when we clear aside all the hype about it, all these companies are doing is creating clutter in the marketplace without offering anything of substantial new value for merchants. If you deconstruct the sales pitches from TV stations A, B, C and D, you’ll discover that the only difference between them is where inventory is being filled, and that’s with the stations’ own web properties. This is why it’s merely another brand-extension play and nothing really “new.”

market share by media 2013 courtesy Borrell AssociatesTake a look at this Borrell Associates chart (right) of the share of online advertising by media type from its 2013 Benchmarking Study. Notice that the TV stations — noted in red — garner a 12% share. That means that no matter what kind of costume it’s presented in or what kind of mask it’s wearing, these businesses are competing for 12% of the market. What about the other 88%? No. Local media companies seem simply incapable of creating NEW value for their companies, choosing instead to bolt everything onto their brands. Imagine if this chart represented a lake. What kind of fisherman would only cast his nets in the red section?

DMS gives the appearance of “working” when all it’s really doing is making things easier for the digital sales staff. After all, if you only have a website to sell, then you can’t compete with all these other people. But if you can combine the best of those (and split revenue with them, by the way), the value proposition being offered is much less a time-waster for the merchant, or so the thinking goes. The problem with this is its false premise, because, again, where online “inventory” is needed to fulfill the package, stations go back to their own properties. But Terry, you say, inventory is inventory, so what does it matter? Besides, all the other stations — plus the newspaper — are doing the same thing. We have no choice, or we risk losing our share of that 12%.

Media companies are far too busy playing defense to consider offense, and defense always includes copying what the other guy across town is doing. In this way, the industry moves as an industry, regardless of the business logic or lack thereof. And not all inventory is equal. Not even close.

The paradox of industry reinvention is that the more the industry moves as an industry, the farther away it gets from real reinvention. Despite the fact that I can offer irrefutable evidence that media companies sell audiences and not content, their market solutions still always tilt towards content, because, at core, content has traditionally CREATED those audiences. It is the broad reach of television stations that justifies the industry name “broadcasting,” and, as Shirky noted above, part of the mission of broadcast companies is to make sure that “broad reach” is the advertising solution that matters. This is not only taught in the broadcast sales world, but it becomes intuitive to anybody who’s been in the business longer than five minutes.

This chart was put together by Street Fight from data provided by eMarketer, and it shows the projected growth of ad revenue in the U.S. by media. The red line is digital, which is rapidly closing in on TV. A local TV salesperson in a market with 4 stations looks at this and is choosing between between his station’s share of the blue line (television) — perhaps 25% — and his station’s share of the red line — perhaps 3%. Based on commission, her time would be better spent selling television, not digital.

But look at that chart again. There are many assumptions that go into the ongoing growth of the blue line, including — as we addressed last week — continued dependence on the biennial bonus of political advertising. In other words, this projection could be way off, but the more important point is that digital is continuing to go upward, and that includes the currently exploding category of mobile.

Local media companies — especially television stations — need to get busy before the bottom drops out of the industry. The answers lie not in “being” television stations — for that industry is on the verge of collapse — but instead seeing themselves as multimedia companies that happen to own TV stations.

This DMR business is fool’s gold and a dangerous diversion at a time when reinvention is the way.

TerryNaplesTerry Heaton is President of Reinvent21, a consulting company specializing in business reinvention for the 21st Century. He’s an internationally-recognized creative expert on all things web-related, especially as they relate to local media.