The State of New Media - "Are We Somewhere over
the Rainbow?"
By Shamsa Rana
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In one of my favourite films, The Wizard of Oz, a young girl named Dorothy sings to her dog, Toto:
Somewhere over the rainbow,
way up high
There's a land that I've heard of,
once in a lullaby
Somewhere over the rainbow, skies are blue
And the dreams that you dare to dream
Really do come true
You may be wondering to yourself, just about now why would I begin a serious article about new media using this song. Well, my reason is simple. Over the past year, I have been observing the frantic activity in the new media space and have often wondered to myself, is this for real? Or am I simply in a new production of The Wizard of Oz, in which I have a feeling that Rupert Murdoch may be the Wizard himself and I will happily settle for Dorothy's red shoes. Yes, that would suit me just fine.
But, I digress and will now return back to the question at hand; are we really over the rainbow? As I pondered this question more than once, I thought it advisable to dig a bit deeper at the phenomenon that is new media and, using Ariadne Capital's amazing database on deals and VC activity, I found some interesting facts to share with you.
To begin with, since the end of August 2005, 67+ new media businesses based in the US and UK have raised over $631M, and during the same period 65+ new media companies that were VC-backed were bought out. The number of new media investments and buy-outs are in all reality larger in number than those collated by our team, however, I believe that this is a good sample of the intense activity that is evident in this market place.
So, why the shift? Why is new media in the world of Oz?
The answer is in fact simple. I believe that The Wizard, or Mr. Murdoch himself, provides the greatest insight into this phenomenon. Mr. Murdoch, who once described classified revenues as "rivers of gold", said recently that "sometimes rivers dry up." Why this pessimism from a man that has built a global media dynasty? As a keen follower of Mr. Murdoch and his activities, perhaps what has been most noticeable to me over the past few years is that he is a man who is visionary enough to recognise that the future is prefaced on the fundamental changes that he encounters today. Unlike his peers in the world of traditional media, he does not hide from the facts, but rather uses them to excite and intimidate, and move his organization with immense speed.
Early this year, Murdoch read and fundamentally understood the implications of a report by Carnegie Corporation about young people's changing habits of news consumption and what they mean for the future of the news industry. The study illustrated that consumers between the ages of 18-34 are increasingly using the web as their medium of choice for news consumption. 44 percent of the study's respondents said they use a portal at least once a day for news, as compared to just 19 percent who use a printed newspaper on a daily basis. More ominously, looking out three years, the study found that 39 percent expected to use the internet more to learn about the news, versus only 8 percent who expected to use traditional newspapers more.
So what does this mean? For Murdoch, this meant that hardly anyone under 30 reads classified advertising in newspapers and if your business is dependent on advertising revenues, well your business faces or will face a fundamental problem. Murdoch's views are backed up by research from the Internet Advertising Bureau (IAB). Internet advertising expenditure for the first half of 2005 in the UK reached £490.8M according to the most recent results of the IAB/PWC online ad-spend study. While online revenues increased by 62.3% on a like-for like basis when compared to 2004, online classified advertising rose by 93 per cent to £131m in the first six months of this year. The fastest area of growth is in recruitment advertising.
If you still have your doubts about the movement of money online, consider that internet advertising revenues in the US as a form of comparison in a similar survey by Interactive Advertising Bureau (IAB) and PricewaterhouseCoopers (PwC) internet advertising revenues totaled a record $3.1 billion for the third quarter of 2005, making it first time that quarterly revenues surpassed $3 billion. The 2005 third-quarter revenues represent a 33.9 percent increase over 2004 third-quarter total of $2.3 billion and a 4.7percent increase over the 2005 second-quarter total of $2.9 billion. Based on historical data, the annual revenue run rate for 2005 could exceed $12 billion, well above last year's record total of $9.6 billion.
Given this underlining trend of agencies and markets committing their spend to interactive as the medium of choice to reach the consumer, what is one to do? In the case of Murdoch, spend $1.5B in the space of less than six months to acquire 32M registered users and boost one's US web traffic to more than 45 million unique monthly users. Perhaps most importantly, these acquisitions provided News Corp with access to and exposure to both the teenage market through Intermix and a predominantly a male viewership through IGN and Integrated Sports Publishing. Both of these consumer segments on average spend more than 20 hours on the internet per week and are the fastest growing consumers of online media.
Is it smart, plain dumb or is Murdoch simply over-excited by new media? If one reviews Murdoch's history, he can be called many things and, in fact, has been. However, News Corp functions as the best testament of his vision and ability to see the future before it is clearly written on the wall. His competitors would all agree; his address to the American Society of Newspaper Editors has led them all to fiercely engage in acquisitions from Trinity Mirror to DMGT. It's unclear whether many of these acquisitions are wise. In fact, there are some that have raised eyebrows. Silence is the better part of discretion; therefore no comment will be made on acquisitions that are widely perceived as being overpriced. However, I would bet my money on Mr. Murdoch and his strategy. The future is online, from making phone calls on your free Skype account, to purchasing your Christmas shopping online, to social networking - to reading your news. Actually, lets just stop a minute and consider - isn't this the present? The movements of advertising spend online are inevitable, making Murdoch The Wizard. Or as Dorothy would say - "Toto, we aren't in Kansas, anymore."