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Say what you will about how Faker Breaker Zynga (Nasdaq: ZNGA ) accounts for 12% of its revenue, or how it hires engineers to dabble with hardware design, or how co-founder Mark Zuckerberg seems bent on knowing, essentially, everything there is to know about you -- but Facebook is changing everything. Advertising more than anything else.
Just ask Procter & Gamble (NYSE: PG ) . Late last month the consumer products giant announced plans to lay off 1,600 workers and moderate spending on traditional advertising channels. If P&G makes good on that promise, 2012 may mark the last year in which P&G puts four product pitches on the air during a Super Bowl. Here's how chief executive Robert McDonald explained the shift during last month's call with analysts:
I believe that over time, we will see the increase in the cost of advertising moderate. There are just so many different media available today and we're quickly moving more and more of our businesses into digital. And in that space, there are lots of different avenues available. In the digital space, with things like Facebook and Google and others, we find that the return on investment of the advertising, when properly designed, when the big idea is there, can be much more efficient. One example is our Old Spice campaign, where we had 1.8 billion free impressions and there are many other examples I can cite from all over the world. [Emphasis added.]
Stretching the advertising dollar 'til it screams
Imagine where this is heading: Big-budget advertising starts to lose its impact. Ad dollars once spent on funding broadcast programming are reallocated. As ad budgets shrink, programming executives rethink strategy in an effort to replace lost revenue. A search for efficiency ensues, resulting in a flight to more personalized media such as ... wait for it ... Netflix (Nasdaq: NFLX ) .
But it doesn't end there. The end of broadcasting almost has to, by definition, lead to a rise in narrowcasting. That could take many forms:
1. Social filtering. Communities of interest are everywhere on the Web. We have Pinterest for sharing visual ideas, The Active Network for finding fitness buddies, Zynga for finding fellow gamers, and GetGlue for sharing what we watch, listen to, and read. In every case, we "follow" those whose interests interest us, which in turn creates a filtering mechanism. Narrowcasting according to what we follow most isn't far off, I suspect.
2. Just-in-time entertainment. Search is still rudimentary in many ways, and yet we've come to rely on real-time database access for many aspects of everyday living. We look up maps to get directions. We look up webpages and LinkedIn profiles to prep for job interviews. Databases are our invisible go-to, and we increasingly access them through searches. It won't be long before search is vocal and ubiquitous, which in turn would make it perfect for serving us entertainment options based on location, mood, and taste.
3. DIY programming. It's the low-hanging fruit of narrowcasting. Imagine customizing your own channel with programs, music, and books you've downloaded, and hook it together with streaming memberships and devices in order to create a my-size-fits-me menu of digital goodness for wherever and whenever you plug into the Web.
4. One-to-one sponsorships. Narrowcasting demands some level of knowledge of and relationship to the recipient. And that has value advertisers could tap into with a very old-fashioned model -- sponsoring a program wholesale. Only in this case, we'd be talking about one-to-one sponsorship. Say you list Pepsi as a favored soft drink in your Facebook profile. Say, too, that you've connected your feed to your Netflix membership in order to post about what you've seen and ask questions about what you haven't. In order to entice you to try its drinks, Coca-Cola could offer to sponsor a new movie you might like, delivered via Netflix. Payouts would go to Facebook (for access to your feed), to Netflix (for the premium cost of streaming a new flick), and the studio (for the rights to said streaming). Everybody wins.
Making the call: buy
Maybe these ideas sound far-fetched to you. And maybe they are -- right now. Just remember that innovation is the result of money spent on satisfying habits and hungers, and I see a vast hunger for on-demand content being met by vast advertising budgets seeking more-efficient means for allocating capital. It's a combination that should favor Netflix and its peers for years to come.
Do you agree? Disagree? Either way, it makes sense to study the diverse ways smart devices are changing how we consume information and entertainment. The Motley Fool recently tackled this trend and ways to profit from it in a special report, "3 Hidden Winners of the iPhone, iPad, and Android Revolution." The research is free, but only for a limited time. Click here to get your copy now.
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