Entries posted in October, 2006

Plenty of media attention has been given to the Google acquisition of YouTube and what it means for the major media companies and the advertising business. I have been sitting back for a while to let it settle down, but now it is time to step back and take a look at the major implications. There are two major trends that have developed over the last 18 months.

1. The acceleration of consumer-generated media that is shifting control of the marketing and PR message from marketers to consumers and the lessening of control by broadcast and cable television over media consumption. The latter allows the public, through the blogosphere and other viral tools, and not the big media companies, decide which stories are significant and need to tell.

2. Attractive core target audiences, e.g. 18 - 34 year old consumers, have been shifting their attention away from television to the Internet and especially social networking web sites like MySpace, Facebook and YouTube. As a result, YouTube with more then 6 million and MySpace with more than 56 million unique visitors a day have become very attractive online advertising vehicles.

Broadcast television outlets such as NBC, ABC, CBS and cable networks (News Corp, Time Warner, Viacom, etc.), have traditionally dominated three media areas: content creation, content distribution and ad placement (e.g. television commercials). Currently they make most of their revenue from content distribution and ad placement.

Google on the other hand, has been in Web adverting placement since it started its syndicated Adwords paid search network about five years ago and through its extremely profitable Adsense contextual advertising network. In the past, Google has rented advertising space on other Web properties where publishers receive a cut from the advertising revenues generated on their sites. Google recently made a multi-year $900 million ad placement deal with News Corp's MySpace to get ad exposure to the 56 million visitors that visit MySpace every day. With the acquisition of the YouTube Google now competes directly with MySpace in the web video market and has penetrated into content distribution business which makes the traditional media companies very uncomfortable.

Google's entry in content distribution arena and the widespread adoption of user-generated content is not going to overrun the traditional media companies and eliminate professionally produced entertainment and video content, but it definitely will impact their ad revenue stream and reduce their control over media consumption. Big media has some serious strategic thinking to do about how to adjust their businesses model accordingly.