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The age-old advertising models of television and radio finally aredead. Kaput, that is. Gonzo. As the models shift away from these old mediato the new media, there's going to be a lot of money made and lost as thewinners and losers separate.
The good news is the Internet is presenting new avenues for advertisers, aswell as new avenues of stock gains. So let's see how we got here, and thendiscuss how to gather profits on the road ahead.
For decades, advertisers primarily have used commercials as theadvertisement style of choice on these broadcast media. Along the way theydeveloped sponsorship models and product-placement models, but those nevercaught much traction. Instead, the interstitial advertisement model -- morecommonly known as "commercials" -- is the one that has been successful,embraced by industries and their advertisers. Hundreds of billions ofdollars have been plowed into that model for the last half century or so.
Look around you now. Broadcast radio is dying, and the competition forthose ears is heating up. You've got satellite radio from
( XMSR). You've got Internet radio stations thatcan be listened to via your Real Audio, iTunes or Windows media player.You've got millions of songs being traded (illegally for the most part)over the P2P networks. And of course, there's the rise of iTunes andNapster as legal song outlets.
All these new outlets competing for the ears that so long weredominated wholly by the broadcast radio industry have huge implications forthe advertising world. Other than Internet radio stations, the other newoutlets broadcast few, if any, commercials. Sponsorship models might cameback into play, as in, "Howard Stern on Sirius, brought to you by
," or some such scenario. But the tens of billions of dollarsspent on radio advertising are in a steady, secular decline, and that's notpretty for those companies that have depended on those models for revenue,nor for those companies that have depended on that outlet to deliver theirmessage.
Radio companies recognize the diminished value of their assets, especially in the rolled-up, national form that companies such as
( UVN) thought would be the model of the future.Viacom recently wrote down the value of its networks, swallowing a bitterpill of reality. That pill turned into a course of chemotherapy with therecent news that the company actually is looking to break itself intosmaller pieces. Regional radio is coming back and will find its nicheagain. But the days of big radio are over.
Television commercials face a similar future, after a long and steadysecular growth cycle on the back of the steady increase to the number ofchannels that you don't watch on cable. But
and other digital video recorders have delivered the first shot across the bow, quickly gaining share and eliminating the need to watch commercials. Internet television on demand is next, and so too is the iShows model that will reflect the iTunes model that Apple has popularized. All those billions upon billions of dollars that for solong have been plowed into TV commercials will have to find new outlets forgetting their messages out. Net companies such as
willincreasingly be getting a bigger piece of the advertising pie.
None of this will happen overnight, and the broadcast commercial modelis about to disappear anytime soon. But over the next five to 10 years,the shakeup will intensify. You want to make sure you're positioned on theteam that will be taking share and not the team that will be losing it.I'll stick with companies like Google, Yahoo! and
, as they look positioned to be among the clearest winners thus far.
I'm still not quite ready to chase XM and Sirius, but they also will be big winners in the future. I traded Sirius to the long side as it rose from about 80 cents to $2 back a couple years ago, but unfortunately I took my profits and moved on.
Sirius has a better brand than XM at this point -- and better content -- butI'm leery of the dilutive nature of some of the deals they've puttogether to raise money over the past few years to capitalize themselves. XM is a cheaper way -- by market cap and a host of other metrics -- to play satellite radio, but I'd like to see it come down another 25% or so for me to feel like I've got some margin of safety in the stock.
The brave new world is here. Hasta la vista, broadcast world.
At time of publication, the firm in which Willard is a partner was long Google calls, Yahoo! common, Apple common and calls 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. 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 and invites you to send it to