Advertising and Network Bandwidth

eyeballA study was done at Simon Fraser University in British Columbia that showed a significant decrease in network bandwidth on an enterprise network through the application of an ad blocker. In the study the group created an enterprise network and then implemented Adblock Plus to eliminate advertising and the associated video trailers. They found that at the peak the ad blocking reduced network traffic by as much as 40%.

As is usual with these kinds of studies you have to look at the specific circumstances before jumping to the conclusion that ad blocking could do the same for all enterprise networks. In this case the network was created specifically to undertake the test. And I would assume that most of the volunteers using the network are students, and as such they might view more content with video than older workers.

But even when considering those caveats it was an impressive result and it demonstrates how overwhelmingly prevalent and video-laden web advertising has become. You can’t surf web pages or look at social media without getting inundated by video, most of it unwanted.

And all of this unwanted video really adds up to real bandwidth. I see where people with data caps on their bandwidth usage are always amazed at the amount of bandwidth they used, and unwanted video is probably a big reason for the extra bandwidth. Nowadays I would think that spending time on a social media site like Facebook could be more bandwidth intensive than watching Netflix.

The study does suggest to enterprise network administrators that they should consider implementing a network version of an ad blocker. While that might not result in a 40% traffic reduction across the network, even half of that would be very impressive.

If you don’t use an ad blocker you may have noticed that some web sites seem to load very slowly. This happens pretty routinely with many of the prevalent news sites which make their money from advertising. Look at sites like the Huffington Post and you’ll see it’s full of ads. According to Adblock Plus, the first article I pulled up on Huffington Post had 56 separate ad scripts running.

It is the process of filling the many ads on web sites that slows them down. Web sites contain two kinds of advertising. There are embedded ads that a web site owner puts directly onto their site and locks. Embedded ads cannot be accessed or changed by an outside party. But there are also remnant ads, which are ads that fit into blank spaces left for that purpose by the website owner. It is the process of filling ads into these spaces that causes the delay loading the page.

There is a whole industry of companies that compete for the open ad slots on web pages – companies like Google (Doubleclick), Yahoo, Amazon, Facebook, AOL, AppNexus, Openx, Adroll, RightMedia, and dECN. Each of these companies sell internet advertising and the remnant ads slots are where they place most of their ad inventory.

When somebody puts a remnant ad space on their web site it is open real estate and there is an auction where the highest bidder for an ad spot will gain access. It is the process of going through multiple rounds of auctions for ad slots that ultimately can slow a site down.

And all of this takes bandwidth. If you run a network, cutting down on the ad auctions and cutting out the trailer videos can significantly cut down the traffic you are seeing from web browsing. And as a side benefit, ad blocking also eliminates some of the more vicious viruses that can be embedded in advertising these days. Adoption of ad blockers is growing rapidly by individuals, but I see some sense in network owners encouraging the use of more ad blocking as another good traffic management tool.

The Changing Face of Advertising

advertiseherebillboardmedThere has been talk for a number of years of advertising dollars shifting from television to the Internet, and it looks like maybe this is finally starting to happen. Consider the recent advertising revenues from Viacom and Facebook.

Viacom is one of a handful of the big programmers and owns such channels as Comedy Central, MTV, and Nickelodeon (along with Paramount Pictures). This has always made Viacom one of the powerhouses in attracting advertisers along with other large programmers like Disney, Fox, Comcast, Warner Brothers, and a few others. Viacom’s ad revenues in the first quarter of this year were $1.123 B, down slightly from $1.172 B a year ago.

But Facebook’s ad revenues were $5.201 B for the first quarter of this year, up from $3.317 B a year ago. It’s pretty obvious that the big web companies are starting to win the advertising battle. For all of 2015 the total advertising for television was $80.4 B, down slightly from $82.0 B in 2014. But in 2015 the advertising revenues for just Facebook and Google had grown to $84.5 B and is still growing rapidly.

This is not particularly surprising since ratings for television as a whole are plummeting. People are watching traditional television less and are watching more and more video on the web. It seems like the battle between television advertising and web advertising has passed a milestone and that web advertising is now dominant for the first time. I have no idea how fast (or by how much) television advertising will fall, but it looks inevitable that it will.

What does this trend mean to small cable providers? I think it matters a lot because advertising revenue is a major source of revenue for programmers. To the extent that advertising revenues drop for them there is going to be more pressure for them to raise programming rates to cable companies even faster to make up for the revenue difference.

But that could lead into a classic death spiral. Rapidly rising cable TV rates is one of the major factors in driving people towards alternate programming. Many cord cutters and cord shavers cite the cost of traditional cable as a big reason they are looking for alternatives. The more that programmers raise rates, the more eyeballs they are going to lose, and one assumes the more revenue they will lose.

Programmers are also starting to get some pushback from small cable operators. There are a handful of smaller cable systems with less than a million customers in total that have dropped Viacom completely in the last year due to the unreasonable rate increases the company is demanding. I have a number of small cable clients who – when they do the math – realize that they are either losing money on cable or are getting close to the time when they will lose money. Once a company gets to that point then dropping programming is a natural response. It’s better to cut costs and lose customers when you are losing money rather than to keep shoveling money out the door to the programmers.

The programmers are also facing an FCC that is leaning more and more towards giving customers more choices in programming. You can see this in the recent NPRM for settop box reform where they want the cable companies to include ‘channel slots’ for alternate programming like Netflix. The FCC has yet to act on the open docket that is looking at the rights of companies to put content onto the Internet – but it’s clear that the FCC favors consumer choice.

And all of the big cable companies are now implementing or looking to implement skinny bundles. These are smaller packages of just the channels that people want to watch, at a much lower cost to consumers than the big traditional packages. The cable companies want to get off the treadmill of paying huge amounts for programming, and skinny bundles reduce and reset the bar. The cable companies also want to offer an alternative to people to stop them from totally dropping the cable company.

It’s a tough time to be a cable company because margins on the cable product keep tumbling. But it’s starting to also be a rough time for the programmers. Probably the best thing that can happen to the programmers is for Wall Street to lower their stock price to reset the expectations for earnings performance. At that point maybe the whole industry can take a pause and see if they can salvage what is looking like a slowly sinking ship.

What’s the Future for Media Advertising?

Film4I’m glad I’m not in the advertising business. We think telecom is undergoing big changes, but the advertising firms that represent large clients must be struggling to know where to find the eyeballs to view their ads. The public’s traditional viewing habits are changing quickly and dramatically across all forms of media.

Not many years ago ad revenues were spread across TV, radio, and print and the big companies had a pretty good idea who was seeing their ads by demographic. But the way that people view all forms of media is changing so rapidly that it’s a lot harder to know who is seeing your ads.

Consider the following statistics comparing how people spend their time viewing different media versus how advertising dollars were spent. Both sets of numbers are from 2014 and come from Business Insider.

‘                            % of Time Spent         % of Advertising Dollars

Digital                         46.3%                                28.2%

Television                   36.6%                                38.1%

Radio                          11.8%                                  8.6%

Print                             3.5%                                 17.6%

Digital includes the web, cellphones, and all forms of digital advertising.

These percentages show a interesting picture of how people are spending their time and I think this is the first time I have ever seen this expressed in a side-by-side comparison across all forms of media. It’s obvious that people prefer digital media and spend nearly half of their media time there.

The problem that advertisers have is that there are still huge amounts of change happening within each category. For example, it looks on the surface that the amount of advertising spent on television is about right according to the eyeball time purchased. But consider the following facts:

  • The demographics for television are changing dramatically and rapidly. For example, the percentage of households of 18–24 year olds that buy a cable subscription dropped 7 total percentage points (or 12% overall) just last year.
  • The percentage of people who watch TV on a time-delayed basis is up dramatically and over 40% of TV watching is now done on a delayed basis (using a DVR or video on demand), and these viewers largely skip the commercials.

This means that the demographic for those who watch television is aging rapidly, and even many of those who watch are doing so on a time-delayed basis and skipping the ads. This has to be a huge concern for advertisers.

But there are equal issues with web advertising. One of the fastest growing categories of web apps is for ad blocking, meaning that a huge number of people are now blocking ads from showing up on the pages loaded by their browsers/devices. Studies have shown that people are capable of ignoring web advertising compared to advertising on television or the radio. They can and do read news articles or other content without looking at or clicking on any of the ads.

And so an advertiser has a very tough choice to make. They can place ads on television with its rapidly-aging demographic and quickly-decreasing percentage of people who see the ads, or they can advertise on the web where people either block the ads or become good at ignoring them.

This is all evidence that technology has given the average person the ability to skip ads if they so choose. I know I have largely wiped ads out of my life. I can’t recall having watched an ad on television this year and I very rarely click on web ads. I used to be a voracious reader of magazines and I have not looked at a magazine this year. I read a local paper every day but I cannot name even one company that advertises in that paper. The one place where ads still get to me is on the radio that I always have on when I’m driving.

The problem with my behavior (and everybody else that ignores ads) is that advertising is what pays for a lot of the content we enjoy. If advertisers eventually bow to reality and cut back on TV and web advertising then a lot of the content we like will not be produced. It’s a real dilemma not only for the advertisers, but also for the television networks and web sites that rely on advertising to fund their content.