Phil Ruthven Columnist

Phil is founder and chairman of IBISWorld, an international corporation providing online business information, forecasting and strategic services. He is considered one of the nation's most respected strategist and futurist on business, social and economic matters.

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Internet ads surge ahead

Published 21 March 2013 17:04, Updated 22 March 2013 17:22

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Internet ads surge ahead

It would seem that this is the year internet advertising overtakes free-to-air television advertising. Photo: Louise Kennerley

The media industry at large, consisting of main media, internet service providers and online information, is a big industry with an estimated revenue in this financial year of more than $33 billion.

The advertising component of this revenue is expected to be around 40 per cent, at $13.3 billion, growing slowly over recent years; and is a tiny 0.31 per cent of the nation’s total revenue across all 500-plus industries in the economy.

So it needs to carry some clout to influence the sale of the nation’s $4.3 trillion goods and services – being final and intermediary goods and services – plus send messages from governments, charities and other not-for-profits, lobby groups and other vested interest groups. In the process, as said by John Wanamaker (a US merchant and the man named over a century ago as the “father of advertising”), half the advertising spending will be wasted.

The first chart shows the anticipated advertising revenue in the 2012-13 financial year.

It would seem that this is the year internet advertising overtakes free-to-air television, although not yet all television (including pay TV); but that seminal event is likely the following year. Print media – consisting of newspapers, magazines and other publications – is already a shadow of its once dominant stature that it had for well over a century.

Outdoor advertising is equally as old as print, and has preserved a not insignificant share for a very long time. Cinema, on the other hand, has relied more on admission fees than advertising for its existence.

Radio advertising emerged in the 1930s, and vied with outdoor advertising for second place to print before being supplanted by television after its introduction in 1956; and boosted by colour TV in the mid-’70s.

The extraordinary evolution of various media and their relative importance is shown in the second chart, where the supplanting of one medium after another has been de rigueur.

The three most striking changes – all electronic and now digitised as well – have been radio, television and the internet. By 2020, the internet may well account for 40 per cent of all advertising; maybe more. Indeed, given the digital era we are now in, and the advent of very fast broadband, we are likely to see the subsuming of both radio and television into the internet.

But if we think that is extraordinary, it is the quiet revolution that is more so. In the course of the New Age since 1965 when the economy became a more consumer-oriented one than a production-oriented one, it has been what we call “below the line” marketing that has well and truly supplanted the dollar spending dominance of main media or “above the line” advertising.

The mix of this direct and promotional spending, made up of direct mail, letterbox drops, sponsorships, etc, is nearly double the main media expenditure; and considered these days more effective in many applications. But it too has immense wastage.

Then again, lest we forget good old-fashioned selling. The outlay by businesses on selling and representation with sales and marketing personnel swamps both above and below spending by a factor of two to three times.

So, all in all, we will actually spend nearly 10 times the $13.3 billion advertising amount in the 2012-13 fiscal year, or closer to 3 per cent of the nation’s revenue, in getting the nation’s businesses, government, households and overseas customers to buy our products.

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