It was reported by Adobe that “The global loss of ad dollars due to ad-blocking software is an estimated $21.88 billion and $10.78 billion in the U.S. alone”. It’s an alarming statement, but it is not accurate. Here’s why: there was nothing “lost”. Without ad blockers, the market for advertising doesn’t grow by $22 billion. No incremental money will be spent by marketers at all just because more supply of inventory is added.
However, the rise of Ad Blocking is real and certain to increase, but I don’t believe its impact on ad investment in online media will play out in the way that people fear. There is strong evidence that ad blocking will not unbraid the advertising industry.
Let’s take a closer look at why ad blocking won’t upend the digital advertising industry after all:
1. Ad sellers will be open to change and innovation. Many media companies are already finding ways to work around ad blocking, and history tells us that they will be successful. In television, broadcasters originally feared DVRs and worried that they would lose billions of dollars in ad revenue. As the New York Times reported in 1999, Forrester Research made the claim that “viewing of commercials would be cut in half, that without ad revenues to cover production costs…free network channels…would be left with…the dregs of programming.” This dire prediction never came true.
Annual revenue for the top four ad-supported national broadcasters has increased year after year over the past 15 years, with few interruptions. Broadcasters smartly updated their strategies to reflect changing viewer behavior. For example, ESPN built advertisements into their sets and playing fields. Digital publishers will follow broadcasters’ lead and transform themselves in order to thrive in the new market. Many of them are already succeeding. The New York Times recently highlighted how Allrecipes is successfully deploying advertising, in which the ad is woven into the fabric of the recipes and editorial, making ad blocking much more difficult. At MediaRadar, we have tracked a sharp increase in this trend.
2. The law of supply and demand. An almost unlimited supply of digital ad inventory has the net effect of relentlessly driving prices down. This trend has only accelerated in recent years, and it affects all the major players in digital advertising. For example, Yahoo’s 10-K report filed on February 27th, reveals that their price-per-ad fell 18% year-over-year.
But if ad blocking gains substantial adoption among users, supply of inventory will contract. A decrease in ad inventory will benefit nearly every publisher selling advertising today since it will effectively set a floor on prices. Pricing will increase as demand from advertisers remains constant or grows. Of course, there are caveats to this rule. For example, if you are a niche publisher and your ad inventory is constrained, then ad blocking will directly hurt your bottom line. Overall, however, publishers could stand to make greater profits per ad.
3. Publishers will install technology to counter ad blocking and create incentives to view ads. In the unlikely event that all users employ ad blocking technology, media companies may require users to view advertising in exchange for free content. They will require users to go through a free registration process and make the link between advertising and content more explicit. Other publishers will charge users for content and update their pricing policies for advertisers as well. The Financial Times sells advertising exclusively by time, instead of impressions or clicks, and also requires all users to register and pay for their content. As another alternative, users may have the option to pay a premium for ad-free content or view free content with embedded ads. Hulu’s CEO Mike Hopkins recently explained how customers self-select. Those who passionately dislike ads can pay a monthly fee for Hulu’s No Commercials plan, while others are willing to put up with advertising. Finally, publishers and websites may negotiate directly with ad blocking technology firms to find a solution. As reported in the Financial Times, Google, Microsoft, Amazon, and Taboola are already paying the owner of Adblock Plus to unblock ads on their websites.
Ad blocking is here to stay, which means that publishers should be paying close attention to their ad blocking rates and how the market is shifting. It’s clear that inaction is not an option. Yet the advent of ad blocking is certainly not all bad news for everyone in the industry. For those who are willing to adapt, it will give rise to new opportunities.
Todd Krizelman is Co-Founder and CEO of MediaRadar (@MediaRadar). Growing up near the epicenter of technological innovation in Palo Alto, California encouraged him to become an entrepreneur and co-found of one of the world’s first social media sites, theGlobe.com. Krizelman also held leadership positions at Bertelsmann’s Gruner + Jahr and Random House. With his expertise in ad sales and innovation, Krizelman joined veteran web architect, Jesse Keller, to found MediaRadar in 2007.