This week Amazon announced the launch of the Fire TV. It’s the box that will deliver Amazon Prime and Amazon Studio content to your living room, as well as Netflix, Hulu among others. This completes the ecosystem for the next movie studio of the future. The launch event in Manhattan highlighted Amazon Studios’ original shows, featuring a second season of “Alpha House,” moving into production during the launch of its new distribution device.
Just imagine the impact of this move in the midst of the digital media revolution. It’s been more than a year since Morgan Stanley analyst Benjamin Swinburne reported the 50% decline of broadcast TV ratings that happened over the last decade. But, advertisers continue to drone on, content to pay an average CPM rate that is more than double the cost of 10 years ago. As advertisers, we have to watch this trend and evaluate the return on our investments. What year will be the last year broadcast TV advertising makes sense? Studies show the death of broadcast TV will happen over the next 5 to 10 years.
Nielsen recently released a report that projects that paid advertising on digital TV devices like the Amazon Fire TV, Apple TV, Roku or Xbox will begin soon. In fact, the current video advertising online is at $6 billion, but it should reach $116 billion by 2024, according to MyersBizNet. Unfortunately, these studies don’t predict what this advertising will look like. The fact remains that advertising, as we define it today, does not exist on an AppleTV or Netflix. Perhaps it will find a new way to reach out to consumers. Like, for example, how Red Bull and North Face produce ski and snowboard documentaries for streaming. In fact, Red Bull now has the first branded TV channel on Apple TV.
People want free TV, and there is only one way to fund that – Advertising. However, I don’t see advertising’s iconic 30-second spot retaining its hold in the digital space. Think about it. The whole point of digital TV is watching what you want when you want it. And, if you don’t want commercials, there will be a service somewhere that will gladly remove them for you. By the way, do you remember the last digital display ad that drove you to make a purchase? “Banner Blindness” is a phenomenon that will only increase as we click the “skip” button for pre-roll ads.
No, advertising will not emerge the same way on Netflix that it did in the 50s for broadcast TV. Why in the world would Amazon ever spend good money to advertise on Netflix? In the 50s, advertising soap and cereal brands produced programming after their namesakes for the “soap operas” that eventually built the model for interruptive TV commercials that we view today. Amazon Studios has the same ambition. It’s nothing but a content strategy that will eventually be turned to influence the sale of products at Amazon.com. In a way, Amazon Studios is the new advertising agency.
We often hear that Netflix is the dominant digital TV channel responsible for 30% of all internet traffic at peak hours. Yet Netflix’s $4.4 billion in 2013 sales actually pales in comparison to Amazon’s $74.5 billion in total retail sales. Amazon could use its entire movie industry as a loss leader to gain retail sales of its advertisers. How could Netflix ever compete with that? The consumer always goes where the deal is best.
If Amazon is becoming a TV studio to compete, then Netflix will have to become a retailer to compete. How else will Netflix win advertising sponsors? Amazon will have the negotiating power to guarantee product sales against sponsorship, but all Netflix has to offer is impressions. When advertisers get a taste of guaranteed retail results for advertising spending, the retail business will take over control from Hollywood, Netflix and all of the TV networks.
Welcome to the convergence. The line is blurred between retailer and movie studio. The line is blurred between advertising and entertainment. There is no going back. The studio age is over. The network TV age is over. The age of TV advertising is over. Retail brands are the future influencers of every aspect of culture. Branded content and branded channels will be their tools of influence.