Advertising Reinvents Itself for Growth

Advertising is dead. Long live advertising.

Every minute of every day, the shift from the age-old advertising model accelerates. Commercials are dying, and print ads are fading away. But advertising isn't dying. It's just that the delivery mechanisms -- yes, the means of distribution -- are shifting to new, and old, modes.

The advertising model typically revolves around delivering paid-for content with creative content, and the ads have been distributed in four general ways: around the content (newspaper ads), interspersed in the content (broadcast commercials), on top of the content (sponsorship of sporting events) or integrated in the content (product placement).

Those ads that go "around" creative content, including both newspapers and magazines, accounted for roughly $60 billion per year in advertising spending in the U.S., according to most estimates, and newspapers made up about two-thirds of that total.

The broadcast or interstitial commercial, including both television and radio, was an $80-billion-a-year market in the U.S., with television accounting for roughly three-quarters of that total.

Sponsorship is a market that annually generates dollars in the high single-digit billions, according to most reports.

Product placement, though it's been around for decades, is just beginning to catch traction as a means of delivering advertisements. Most reports show product placement as a low single-digit billion-dollar market in the last year.

Decline and Incline

The old broadcast and print forms of content are in full secular decline. There is no growth left in those models. To be clear, broadcast television is certainly not about to die, and it's not as if The New York Times is teetering on bankruptcy. But the business models that have been utilized for decades (or even centuries) around those forms of content have reached their peak. They won't even match GDP growth in 2006, and further into the future the growth will turn negative.

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At time of publication, the firm in which Willard is a partner was net long Google, Yahoo! and Microsoft, net short Viacom, although positions can change at any time and without notice.

Cody Willard is a partner in a buy-side firm and a contributor to TheStreet.com's RealMoney. He also produces a premium product for TheStreet.com called The Telecom Connection and is the founder of Teleconomics.com. The firm in which Willard is a partner may, from time to time, have long or short positions in, or buy or sell the securities, or derivatives thereof, of companies mentioned in his columns. At time of publication, the firm in which Willard is a partner had no positions in any of the securities mentioned in this column, although positions can change at any time and without notice. None of the information in this column constitutes, or is intended to constitute, a recommendation by Willard of any particular security or trading strategy or a determination by Willard that any security or trading strategy is suitable for any specific person. Willard appreciates your feedback -- click here to send him an email.