Internet Publishers Mobilize: Advertising-Driven Mobile Content Provides New Revenue
By IBISWorld Analyst Kevin Boyland
Buoyed by more robust internet connections and an exponential increase in internet traffic, the Internet Publishing and Broadcasting industry, which publishes nonphysical products such as news, music and video exclusively through the internet, has grown consistently over the five years to 2012. Industry revenue is expected to rise 6.6% per year on average to an estimated $20.4 billion in 2012. The rapid proliferation of broadband-enabled smartphones and tablets has given consumers the ability to access the internet from almost anywhere and helped the industry maintain its rapid revenue growth. IBISWorld estimates that the number of mobile internet connections in the United States has increased at an astounding annualized rate of 59.9% over the past five years to total 167.2 million in 2012.
While some of the industry’s largest players have had success in the paid-content realm, the majority of industry revenue is generated through the sale of advertising space. Consequently, industry growth is highly dependent on the internet’s share of advertising revenue. In 2007, the internet attracted about 6.0% of all advertising dollars spent in the United States. In 2012, that number has grown to about 9.0%, benefiting the industry. Dollar amounts, however, do not paint the entire picture. A prime-time 30-second advertisement on network television can cost upwards of $500,000; successful internet advertising campaigns can be run for less than that amount annually. Thus, the increasing level of attention and time advertisers have devoted to internet advertising cannot be fully conveyed through advertising expenditures alone. Advertisers have turned to the internet for its flexibility, effectiveness and scalability -- ads can be changed on a daily basis, tailored toward particular audiences and scaled back on an as-needed basis.
While the shift toward internet advertising has benefited the industry as a whole, larger internet publishers have benefited the most. Internet giants like Facebook, Google and Yahoo! operate automated ad-serving platforms that match advertisements with advertisers’ targeted demographics. These platforms have underpinned the transition from mass-media marketing to targeted one-to-one advertising.
The effectiveness of these ad-serving platforms works to reinforce the dominance of the industry’s largest players. For example, as Google's AdSense network has increased in popularity, it has gained more advertisers and third-party publishing partners every year. The more advertisers and partners the network has, the greater the efficiency with which ads can be placed on relevant sites, increasing the network's popularity. Similarly, as the number of Facebook users increases, the scope of Facebook advertising campaigns expands. Increasing advertising contracts translate into more revenue, which a firm can then use to further develop its advertising platform or market itself to new users. This self-perpetuating cycle has been a boon for industry giants and has made it very difficult for other medium-to-large firms to compete in the industry.
Nonetheless, the extremely low costs associated with starting an internet publishing operation continue to attract new producers; employment in the industry has grown at an annualized rate of 4.9% over the five years to 2012 to 70,465 employees, while industry wages have increased at an annualized rate of 2.9% to $4.6 billion. Notably, employment has outpaced wage growth, as technical aspects associated with setting up a website have been abstracted away from internet publishing. Industry employees increasingly consist of writers and marketers rather than higher-paid website designers and coders. Additionally, while small, nonemployer publishers (i.e. publishers with no paid employees) routinely enter the industry, they often fail to generate enough revenue to turn a profit, driving down industry wages as a whole. IBISWorld estimates that most nonemploying internet publishers generate less than $100 a month.
The industry may have extremely low barriers to entry, but barriers to success are high. In today's cluttered digital world, attracting and maintaining the attention of internet users is incredibly difficult. While there are exceptions, developing a successful site typically involves providing a significant amount of original content, updating it on a daily basis and aggressively marketing it through search engines and social networks.
Industry risk assessment
IBISWorld uses a nine-point scale to assess industry risk, with a score of one indicating very low risk and a score of nine indicating very high risk. The Internet Publishing and Broadcasting industry has a low risk level: 3.6 on the nine-point scale. The industry is in the growth stage of its life cycle, with recent growth spurred by a rapid proliferation of broadband-enabled mobile devices. However, the extremely low barriers to the entry in the industry create an intensely competitive environment, pressuring profitability and limiting industry concentration.
Firms with limited capital resources can still achieve success by targeting untapped niches that drive traffic to their sites. As the internet garners a larger share of advertising revenue every year, websites that generate and maintain enough traffic have a greater chance at survival and may even thrive through partnerships with ad-serving platforms that target users with tailored content. Internet publishers compete on a global scale, however, and the potential to create a new, original site that has a unique value proposition to users is decreasing every day. Consequently, the low risk level is skewed toward the industry’s well-established major players. Smaller entrants to the industry must overcome immense obstacles to succeed.
Outlook
Going forward, the industry will favor the advertising-driven side of the market as opposed to paid content. Paid content, while favored by older internet users, has not fared well among younger generations, which have demonstrated a reluctance to spend money on digital content. Competitors in the paid-content space will have a difficult time competing in the face of widespread internet piracy.
Mobile content (e.g. articles, games, photos and videos) has become commonplace due to smartphone proliferation throughout the United States. As the number of mobile internet connections surpasses fixed internet connections over the next five years, advertisers are expected to target this burgeoning market even more aggressively. Content publishers that design mobile applications with advertising in mind will be able to cash in on this trend.
Challenges associated with standardization across different mobile devices and operating systems have hindered growth in the mobile market over the past five years. Similarly, publishers have struggled to monetize mobile content in an inherently new and different market; mobile users’ screen space is limited and advertisers have struggled to deliver engaging, media-rich ads. However, as these challenges are overcome and the number of mobile internet connections continues to rise, internet publishing and broadcasting will be increasingly focused on mobile content moving forward.
During the next five years, the industry will likely be made up of large, horizontally integrated players and small, independent publishers, with very few in between. Nevertheless, small, independent publishers are anticipated to continue entering the industry over the next five years. A forecast annualized increase in industry enterprises of 6.0% to 44,856 in 2017 is indicative of how easy it has become to publish content on the internet. However, the long-term viability of these firms, the majority of which are nonemployers, hinges on their ability to attract internet traffic to their sites. For example, Google reimburses members of its AdSense network anywhere from $0.02 to $15.00 per advertisement click, depending on the type of advertisement. To succeed, small firms must develop targeted, original content that holds the interest of internet users and provides advertisers with a unique opportunity to reach a desirable demographic. Most small firms entering the industry will generate extremely modest revenue, while other publishers will fail to generate revenue at all. As internet publishing becomes more accessible, it becomes increasingly difficult for the average industry firm to succeed.
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Internet Publishing and Broadcasting
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