What if Google and Yahoo! are the next major TV brands?

see edited version at Media Guardian, April 11th, 2005

Over the last few months the New York Times has paid $410m for About.com, Dow Jones $528m for Marketwatch, eBay $415m for Rent.com and Barry Diller’s IAC has paid $1.85bn for Ask Jeeves. All of these deals have been driven by a fundamental belief that not only has the Internet become a permanent fixture of the media landscape, but real growth now lies online.

After the irrational exuberance of the bubble economy when they fondly hoped that the Internet would go away, major media companies and more importantly the advertisers who sustain them are no longer ignoring the cold, hard fact of hundreds of millions of people online and billions of dollars of economic activity. They are finally becoming meaningfully engaged.

For nearly a decade Internet businesses have extolled online media’s unparalleled levels of accountability and interactivity but for all this, what mainstream advertisers really wanted more than anything else is reach and frequency. Well the future might finally have arrived, in the UK there are now over 32m people online at home, 16m shop and 12m bank online. This is a big number and these are people who are now spending as much time online as they do listening to the radio and twice as much time than they spend reading newspapers and magazines.

This is a remarkable figure – and remarkably scary for most traditional media owners because when an advertiser can buy both scale and accountability it starts to have a direct impact on the amount of revenue that they will direct to any particular channel. In fact for the first time, online advertising has now overtaken radio in terms of total spend and the IAB showed in November 2004 that paid search alone in the UK is now 50% larger than cinema advertising.

Yahoo!, Google and MSN are increasingly biting major chunks out of the traditional advertising budgets and along with eBay and Amazon making serious in-roads into local and classified revenues. It’s no wonder that the New York Times and Dow Jones are starting to acquire some sizeable online assets to boost their attractiveness to advertisers and Rupert Murdoch has sounded the rallying cry at News Corp to start taking the Internet seriously again.

But unlike episode one when News Corp, Time Warner, Viacom, NBC Universal and Disney had the advantage of scale and the prospect of an open market at its very earliest stage, populated by relatively small and undercapitalized businesses, in episode two it will truly be a clash of the titans. In fact in the sequel the odds will be stacked in favor of the businesses who have been born online and who have been feeding further up the value-chain than the sprawling empires of these news and entertainment businesses.

The Internet is now part of our social fabric. Every day nearly a quarter of the UK population goes online through MSN, Google and Yahoo! for the basics of e-mail, communications and search. But as more and more people use broadband to download music and video, these businesses are moving directly into the sweet spot of the traditional media – news and entertainment.

In the UK alone, broadband is growing at over 50,000 new subscribers a week and Nielsen reports that household penetration has more than doubled from 2003, reaching over 11.5m homes. In fact as the broadband Internet becomes more of a source of news and entertainment, those of us who are going online are watching two hours less TV every week. While we are not yet at a point where broadband can truly deliver the quality or selection of programming available to Sky’s nearly 8m subscribers and Freeview’s fast-growing base of over 4.2m homes, it doesn’t take a visionary to see broadband’s existing 11.5m homes competing more aggressively with digital TV and taking more and more share of people’s time and advertisers’ money.

The spectacular success of services like iTunes, Sky+ and online DVD rental services, all point to an increasingly sophisticated and liberated consumer who wants media and entertainment to be made available so they can make the choice rather than having it pushed at them. Now that so much information and entertainment is available through the Internet, we have come to expect the same level of control, flexibility and most of all choice in all our media and retail experiences. In fact through BitTorrent and other online services you can easily download a pirated copy of any major network TV show, or thousands of others for that matter, within hours of broadcast and burn them to a DVD.

If Malcolm Gladwell’s “tipping point” was the buzz word in the marketing world for the last few years, it is fast being replaced by Chris Anderson’s “long-tail” of almost infinite shelf-space, which digital distribution offer that breaks the distribution bottlenecks of broadcast and bricks-and-mortar. This of course put businesses like Google, Yahoo! and Amazon who are network and device independent and are able to offer people a fun, easy and efficient way to navigate huge catalogues of content – digital or otherwise – in an extremely powerful position.

No wonder both Yahoo! and Google, who hold two of the largest front doors onto the Internet have begun to experiment with video searches. In Yahoo!’s case you can scour any video file available on the web and in Google’s you can scan all the close-captioning from the latest TV shows to find just the clip that you want to watch. Now put yourself in the shoes of a TV business that relies on either advertising or subscriptions to monetize people’s viewing habits and map that against broadband adoption, the amount of time people are starting to spend online and the “long-tail” – where do you get to? Google TV? Maybe, they certainly have an advertising model to support it.