Jeff Macke reports that the ad model which from the beginning has sustained broadcast television is dead:
Commercials started with a 10-second spot for Bulova watches during a baseball game in 1941. The death blow came yesterday during PepsiCo’s (PEP) conference call when CEO Indra Nooyi said her company’s ad budget would stay at 5.9% of revenues but be “reallocated.” A Pepsi spokesperson tells Yahoo Finance that means “realloacted to consumer facing activities.” I read that to mean moving ads off television and into other formats.
5.9% of PepsiCo’s 2014 revenues works out to roughly $3.9 billion. They’re the company that brought us Katy Perry and Left Shark, for God’s sake. Sports was the last great hope for ads and one of its biggest backers is drawing the line. There’s nothing in Indra Nooyi’s history to suggest she’s bluffing.
But don’t take PepsiCo’s word for it. Omnicom Media (OMC) which positions some $50 billion worth of ads a year for not just Pepsi but Apple (AAPL), McDonald’s (MCD) and Starbucks (SBUX) advised its clients to shift 25% of their budgets away from TV last year.
I don’t think TV ads’ effectiveness ever matched their broad reach — not even close. But before the internet allowed for real targeting, it was the best anyone could figure out how to do. But that’s an expensive way to reach just a few customers. I suspect we’ll eventually see far fewer ad dollars being spent overall, but targeted much more effectively.
That will put the squeeze on absolutely every content provider who can’t generate enough of an audience to self-finance with paid subscribers.