The FINANCIAL -- IBM (NYSE: IBM) Global Business Services unveiled its new report, "The End of Advertising as We Know It," forecasting greater disruption for the advertising industry in the next five years than occurred in the previous 50.
To examine the factors influencing advertising and explore future scenarios, IBM surveyed more than 2,400 consumers and 80 advertising executives globally. The IBM report shows increasingly empowered consumers, more self-reliant advertisers and ever-evolving technologies are redefining how advertising is sold, created, consumed and tracked.
According to IBM traditional advertising players risk major revenue declines as budgets shift rapidly to new, interactive formats, which are expected to grow at nearly five times that of traditional advertising. To survive in this new reality, broadcasters must change their mass audience mind-set to cater to niche consumer segments, and distributors need to deliver targeted, interactive advertising for a range of multimedia devices.
Advertising agencies must experiment creatively, become brokers of consumer insights, and guide allocation of advertising dollars amid exploding choices. All players must adapt to a world where advertising inventory is increasingly bought and sold in open exchanges vs. traditional channels.
"Digital entertainment is experiencing faster adoption than anyone had previously anticipated. The advertising community needs to dramatically re-orient its business to serve consumers who increasingly access content in non-linear formats," said Bill Battino, Communications Sector managing partner, IBM Global Business Services. "Companies must re-look at how they serve content to consumers with business models based much more on engaging consumers in a relationship."
The report observes four change drivers tipping the advertising industry balance of power: control of attention, creativity, measurement, and advertising inventories. As shown in IBM's global digital media and entertainment consumer survey released in August, consumers' attention has shifted, with personal Internet time rivaling TV time.
Consumers have tired of interruption advertising, and are increasingly in control of how they interact, filter, distribute, and consume their content, and associated advertising messages. IBM's survey findings demonstrated that half of DVR owners watch 50 percent or more of programming on re-play, and that traditional video advertising doesn't translate online: 40 percent of respondents found ads during an online video segment more annoying than any other format.
“Amateurs and semi-professionals are increasingly creating low cost advertising content that threatens to bypass creative agencies, while publishers and broadcasters are broadening their own creative roles.
Advertisers are demanding accountability and more specific individual consumer measurements across advertising platforms. Self-service advertising exchanges are attracting revenues that were once exclusively sold through proprietary channels or transactions”, research says.
IBM's research found that advertising experts recognize the changing nature of consumers and also anticipate dramatic changes on the horizon. More than half of ad professionals polled by IBM expect that in the next five years open advertising exchanges (currently led by companies like Google, Yahoo, AOL) will take 30 percent of current revenues now commanded by traditional broadcasters and media. Nearly half of the advertising survey respondents anticipate a significant (greater than 10%) revenue shift away from the 30-second spot within the next five years, and almost 10 percent of respondents thought there would be a dramatic (greater than 25 percent) shift. Two-thirds of advertising experts surveyed by IBM expect 20 percent of advertising revenue to move from impression-based to impact-based formats within three years.
Saul Berman, IBM Media & Entertainment Strategy and Change practice leader, said, "Advertising remains integral to pop culture and continues to fund a significant portion of entertainment around the world. But it needs to morph into new formats and offer more intrinsic value to consumers, who will have more choices. The wealth of new advertising outlets means consumer analytics will have a more prominent role than ever regardless of where you reside in the value chain. Young people in particular have grown accustomed to not paying for content. Despite greater consumer control over content and advertising, we envision a world where consumers will continue to prefer to view advertising rather than pay for content directly."