Ad bubble? ION Media Networks' Burgess thinks so

NEW YORK--Online video advertising looks to be gaining significant ground this year--but is that really the case? Some analysts and industry players think the industry is experiencing an advertising bubble … that's bound to pop.

"I think there's a bubble," said Brandon Burgess, chairman and CEO of ION Media Networks, in the CCW/SATCON opening session here Wednesday. "In some respects there's too much right now. …You can also look at it at a macro level: Overall budgets are going down, discretionary is under pressure, advertising is largely financed (and) has been for years."

John Rose, senior partner and managing director of Boston Consulting Group, pointed out that ad markets wouldn't see decent returns for their ad dollars for several years. "Right now we're at this really interesting inflection point that will take quite some time to play out. … First of all the ad markets will take three, to five, to eight years to adequately reward the audiences that are being provided these channels," he told the audience.

Further, he said analysts are overestimating the money that's being spent, similar to the way traditional media like the music industry overvalued itself. "(T)he current enterprise values of all the players that are providing this are two to three times more--and by that I mean all of the players in the video side of the world plus the people who are doing, like Hulu and others, the aggregation of content. It's two to three times more than any estimate, however optimistic, about how much consumer paid dollars and how much ad dollars there are."

Estimates alone can't take the place of cold hard cash. "You can't double or triple the enterprise value of the video industry without also increasing revenues in some comparable way," Rose said.

Part of the problem, Rose explained, is that many analysts stick to just the industry to which they're assigned. Broadcast, cable and digital analysts, even within the same firms, often don't bring together their data into a holistic view of the media and entertainment industry, he said.

The muddled outlook for digital advertising may throw cold water on some of the optimistic forecasts for online video gains. A September report by Digital TV Research said that by the end of this year, online video advertising would revenues would total $8.3 billion. By 2020, it predicted those revenues to jump to $18.1 billion worldwide.

But the numbers tend to jump around a bit depending on the research firm. A Jeffries report in the same month said that YouTube alone will generate advertising revenues of $5.9 billion this year and will grow to $6.9 billion in 2016. And smaller advertising firms like YuMe and Rocket Fuel, while seeing more revenues come their way, aren't yet turning a profit; much of their capital is being invested into programmatic ad technology.

For media and entertainment companies, then, the answer to a possible ad bubble is to stay streamlined and ready to move. "The opportunity is to be quick, nimble, and figure out how to zigzag and take share," said Burgess. "Anybody who thinks of a value proposition or good configuration, will do pretty well in this environment, because there's a lot of confusion. One thing that's not going to work is sitting still and rethinking one's business. … Because the environment we're going to be living in 10 years from now is going to be a cost-pressured environment."

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