Media Substituted by Platforms
YouTube and all other digital platforms are displacing traditional media. If we take the U$ as an example, individuals aged between 18 and 34 reduced traditional TV weekly consumption from 22 hours in 2012 to 11 hours in 2020,2 a 50 percent reduction in just eight years. The only age group that increased traditional TV consumption were individuals over 65. Competition for the attention of the audience (“eyeballs”) has intensified.
Eyeballs are migrating away from traditional TV to platforms. In 2019, the average adult in the U$ spent 6:31 hours per day browsing the internet via PCs, smartphones, and tablets. This is particularly the case with younger generations. The 16-21 age group spends 7:22 hours per day online. Among teens, slightly more than half of all screen use was dedicated to TV or videos, and 31 percent went to gaming. Video chatting, reading online, or creating content like art or music each accounted for 2 percent?
Advertising money is migrating according to the attention focus of the audience. The revenue from internet advertising in the U$ ($124 billion in 2019, growing 15 percent) is much higher than that of TV advertising ($70 billion).4 Global TV ad spending dropped 4 percent in 2019/ at a pace similar to the annual reductions in postal services during the past years.
One of the leading reasons for the success of platforms in the advertising market is the appearance of new content providers. Eyeballs are spending a growing proportion of their attention span on user-generated content. User-generated content is the driver of platforms such as YouTube and Facebook. This is a revolution, as the generators of content that attracts eyeballs not only have a low cost of production, but do not usually expect to recover their costs in the form of a payment by the platform (this is the case of Facebook users and most of the content producers in YouTube), or they accept incurring the risk of production and being paid only a fraction of the ad revenue generated by the content (YouTubers). By contrast, traditional media have to accept the fixed costs of producing content, often taking the risk of paying upfront and independently of future success in terms of audience and advertising revenue.
A deeper reason for the success of digital platforms in the advertising market is the indirect network effects. Media has always exploited indirect network effects. Network TV, newspapers, and radio broadcasters relied on massive audiences enticed by attractive content, whose attention was then sold to advertisers.6 The larger the audience, the larger the payments of the advertisers. The larger the payments of the advertisers, the better the content that could be produced to attract audiences. Media has always been the ultimate model of a non-transactional multi-sided market.
Digital platforms have scaled-up to dwarf traditional media in terms of audience. The audience of the leading multi-platforms is measured in billions. Google, the most prominent example, attracts eyeballs with its search engine (90 percent of market share in most countries), YouTube (2 billion), Gmail (1.5 billion), and all kinds of minor products (maps, translations, etc.). The same strategy is followed by Facebook, which owns not only the ubiquitous social network (2.7 billion users), but also WhatsApp (2 billion) and Instagram (1 billion). Verizon Media owns Yahoo, AOL, the Huff Post, and TechCrunch and reaches an audience of 1 billion monthly active users. The combined audience of these multiplatforms runs deep into the billions.
By comparison, traditional media has always been fragmented. Television audiences have always been fragmented, as networks tend to be national, and various networks must share the attention of the audience in each country. The most popular TV event of the year in the US is the Super Bowl, which attracts an average of 100 million viewers for a few hours, twice as much as the second event - the semifinals leading to the Super Bowl. Newspapers such as the New York Times trail far behind, with around 6.5 million subscribers for its digital and paper versions.
Fragmentation has even been a regulatory goal in itself to protect pluralism. In most jurisdictions, specific rules limit ownership of media outlets, both to prevent concentration in a specific type of media, particularly TV networks, but also across media, by the creation of conglomerates in control of newspapers, radio stations, and TV broadcasters.7 It is proving complex to extend this kind of regulation to digital platforms, despite concentration in digital media being far more acute than in the traditional media.8
Furthermore, indirect network effects are larger in platforms. Digital platforms have a larger number of advertisers than traditional media. Facebook has more than 8 million active advertisers. Platforms have made advertising more accessible, as the minimum investment is very small and the tools made available by advertisers are easy to use. In any case, the platforms still rely on large advertisers for most of their revenue. The largest 5-10 percent of advertisers make up more than 85 percent of Facebook revenue in the UK.9
Substitution of the traditional media is reinforced by algorithmic network effects. In 2020 the UK antitrust authority, the Competition & Markets Authority, published a comprehensive report on digital advertising that identifies the role of data.10 Traditional media broadcasts content (and ads) to an unknown pool of readers and viewers. There is minimal segmentation of audiences by type of product (music channels are more attractive among youngsters, sport channels tend to be more popular among males, etc.) and geography (local papers, radio stations broadcasting to a city, TV stations broadcasting to a regional market, etc.). At the same time, advertisers in traditional media have limited tools for measuring the effectiveness of their campaigns. As the department-store mogul John Wanamaker famously stated: “Half the money I spend on advertising is wasted; the trouble is, I don’t know which half.”
On the contrary, data empowers platforms to sell more effective ads. Platforms have privileged access to a rich variety of data. They have data about users, either volunteered by themselves, observed by the platform or even inferred (such as income based on the location of the user’s address), data related to searches, contextual data, and so on. Even more importantly, platforms have analytics data; in other words, data on how users respond to ads in the form of clicks, purchases, etc. Large platforms are in the position to harvest massive data from the platform’s own consumer-facing products and they can complement this with data provided by third parties, such as content publishers, advertisers, and even data brokers selling data. For instance, Facebook partners can install the “like” button on their sites, as well as analytic software provided by Facebook and Google to scrutinize consumers’ behavior. The platforms have massive amounts of information about individuals, even those who think they are not using their services.
Data has a dual function in digital advertising. On one hand, advertisers can better target their ads. Advertising can be contextualized, being displayed in the precise moment users are searching, reading, or commenting on an item. Advertising can also be personalized; that is, targeted based on personal information about the user. On the other hand - and equally if not more importantly - data are also used to ascertain the effectiveness of advertising, helping advertisers to optimize their investment. Data empower advertisers to measure attribution; that is, tracking what actions follow the display of an ad (clicks, purchases and so on). Thus, data are used to measure the effectiveness of ads. Finally, data are used to verify that there is no fraud (paying for ads that are not effectively displayed).
The more data a platform has, the better equipped it is to support advertisers in targeting their ads and the better it can help advertisers to ascertain the effectiveness of the campaigns. It has been calculated that “publishers earned around 70% less revenue when they were unable to sell personalized advertising but competed with others who could.”11
The leading digital platforms benefit from the largest direct network effects, the largest indirect network effects, and largest algorithmic network effects. The combined network effects not only substitute traditional media, but are also concentrating the market. Thousands of newspapers, radio stations, and television networks around the world are being substituted by a very limited number of global digital platforms that are increasingly concentrating their advertising expenditure in the entire world.