Broadcasters have embraced the Internet and its promise of survival in the age of convergence. Looking at its growth in recent years, it seems like a wise decision. When broadcasters announce million-dollar investments in online development, however, you start to question if you’re staring into the screen of a zealot or a visionary. How do broadcasters plan to recoup such large investments from a medium that has yet to prove its relationship with television is indeed symbiotic?
Let there be Advertising
Advertising, broadcasting’s traditional mistress, is currently the main source of revenue for broadcasters’ online ventures. Banner ads (which generally run along the top of a web page) or tile units (smaller, strategically placed buttons) are usually priced according to the number of hits a particular site is averaging. Generally, their success is judged by the number of click-throughs they receive. A click-through takes the user away from the editorial site and moves them into the advertiser’s site (or bridgepage) for more information and links.
Broadcasters and advertisers have discovered the secret to increasing click-throughs is to closely align the advertised product with the broadcaster’s content. Hence, the rise of sponsorships – a method of advertising in which the client can create unique content for the website and capitalize on a high profile relationship with a specific project or area of interest. ‘If a viewer sees this great program on-air, and on-air we’re directing them to go online to get more information, then [the advertiser] will want to be there too,’ explains Dina Roman, VP of advertising sales and sponsorships for Discovery.com. ‘What we try to do is provide [advertisers], within that program’s space online, the ability to tell their message. When advertisers align themselves with our content, the click-throughs, on average, are about double the standard for what the banners are now. This especially applies to sponsorships and partnerships.’
Mitchell Praver, National Geographic.com’s senior VP and managing director, sees a similar relationship to click-throughs and sponsorship advertising: ‘Typically, with a sponsorship advertiser the advertisement is somehow correlated to the subject matter that’s on the website. The closer the correlation between the type of advertiser and the type of content, the higher the click-through rate.’ National Geographic.com’s website has evolved from its online magazine format in 1996, to now include a network of thematic pages – what Praver calls channels – such as news, kids, maps and geography. In the next few months, space and science, travel and adventure will be added. One of the advantages to these divisions, a set-up similar to that of Discovery, is the ability to offer niche marketing. Explains Praver, ‘Advertisers can now sponsor the individual thematic channels, they can sponsor specific applications within those channels, or they can advertise in the area of the site directly related to our media properties. For the first time it is clear to readers and viewers where to click on the website in order to extend their experience.’
The standard rate of click-throughs is astonishingly low, about 0.5 to 1%. When advertisers involve themselves with sponsorships, those rates can double and even quadruple. Although this sounds impressive, it still only translates to 4% – and that is rare. Despite this, broadcasters are optimistic that advertisers will increasingly look to the Web to market products and services. ‘In the last two years there has been great interest in the Internet as a viable advertising medium,’ says Roman. ‘[Advertisers] are committed to this medium as another venue, and it’s still very young. Everyone is still trying to figure out how to best use it in their advertising mix. The fact that it can be tracked in real-time creates all kinds of interesting expectations that have never been applied to any other standard media. I think the frustrations are centered around that.’ Praver also predicts the nature of internet advertising will improve as new technologies are introduced and standardized. ‘It’s a great medium for advertising, but it still has to progress in terms of the types of things you can do in that space. Streaming video, broader bandwidth and enhanced audio formats will make the Internet much more powerful from a user’s standpoint, and will hopefully increase the value for advertisers.’
Although broadcasters are predicting advertising will remain the predominant source of revenue in the next few years, alternative sources of income are being put into practice. Among these is the opportunity to capitalize on e-commerce. Toronto-based broadcaster Chum City International, which has dabbled in interactive television since 1995, set up a web version of their streetfront store in December and now offers advertisers the chance to sell their products through the online store. Discovery.com currently generates 20% of its revenue from e-commerce (the remaining 80% is from advertising). National Geographic also benefits from e-commerce. ‘We are one of few interactive companies that can say we have broken even in the past two years,’ boasts Praver. ‘But, National Geographic.com includes our CD-ROM business as well as the website. In e-commerce last year we ranked fairly significantly . . . selling CD-ROM products, home videos, books, magazine subscriptions, map products and globe products.’ National Geographic.com receives a commission from the products sold. The remaining revenues are funneled into the non-profit activities of the National Geographic Society.
Like the phone companies before them, broadcasters are realizing they can profit from optional services. Says Mark Rubinstein, senior VP at Chum City International ‘We are really bullish on the pay-per-transaction model, whether it’s downloading music, downloading a video clip or having the chance to watch one of our shows exclusively online. We all need to figure out the consumer application of these.’
Parting a crowded sea
Advertisers and viewers can only take advantage of a broadcaster’s website if they know it exists. Discovery announced that us$70 million of its initial $500 million investment is devoted to marketing Discovery.com. Chum set up links with advertising partners to develop cross-promotional activities, such as contests.
Nat Geo is set to launch several international websites in countries where National Geographic products and services are available. The intention is to improve accessibility to their website – currently one-third of the traffic on Nat Geo’s home page is non-U.S. – but it also represents a chance to tie in the role of the publications and channels with activities on the Web. ‘Whenever you create awareness through targeted cross promotion, there will be a positive impact on viewership and readership, because you’re creating awareness for people who are already pre-disposed in terms of their interest in the subject matter,’ explains Praver. Web browsers will be able to sample video from upcoming programs and get e-mails reminding them when a selected program airs. Praver hopes this will also drive usage of all three mediums.
On the seventh day, they tried again
Directly linking the success of a channel with the success of a website is tricky business, but broadcasters are arguing that’s not the reason they are establishing themselves online. Praver credits the success of National Geographic.com to their experience with the medium. ‘We got in very early. We’ve continued to stress integration with existing media and we’ve enjoyed success because we stuck to our areas of core confidence and those are reflected in the core channels you see on the website.’
For Rubinstein at Chum, evaluating the success of a website is best left to the future. ‘For us, it’s not just a question of if there is a business on the Internet. The question is, will the Internet continue to significantly change the way people receive information and entertainment? That will have a direct impact on our core business. You have to be moving alongside the technology and working out business opportunities as they come up. It’s not like a traditional medium where you know what the mechanics and barriers are to real success. Things change so quickly on the Net you’re constantly having to re-think business plans, financial benchmarks and other indicators of success. ‘
As one of the first broadcasters on the Web in Canada, Chum has fallen victim in the past to the hype surrounding internet technology and its applications. ‘We spent a lot of time and money in ’97/’98 doing things like online live productions and concerts when the technology just wasn’t there,’ remembers Rubinstein. ‘We over-estimated the ability of narrowband customers to really enjoy that. We learned a lot though, and as broadband rolls out we’ll be able to capitalize on that.’ Armed with the lessons learned from both the failures and the successes, Rubinstein is still confident the Internet and broadcasting are set to converge: ‘As the Internet becomes a more influential medium, people are going to expect a more interactive experience. Television companies that don’t understand the Web or don’t have a history of producing content for both the Web and television and haven’t figured out a way to approach some of those convergence issues will gradually be left behind.’