Louis Halpern's View

The recent headline in the Independent was enough to make any station exec throw up their TV dinner.  It seemed straightforward enough, “Google’s UK advertising revenues to surpass Channel 4’s”, but what seems a simple statement carries enormous implications for the broadcast industry. 

Traditional free-to-air TV is now undergoing a systematic attack that has had more than a few commentators ask a priest to carry out the last rites.  Nick Waters, European Chief of media agency Mindshare, added his own not-insignificant tuppence worth to Channel 4’s disclosure and said that ‘there is a danger free-to-air broadcasters will get caught in a death spiral”. 

Whilst it’s too early for a funeral march, it’s clear that Joe Public is spending more leisure time on the net and less on television.  You could argue that terrestrial TV has been its own worst enemy with some of the tripe it’s served up over the past few years, but programme content is not the issue.  With the internet ad market already more than half the size of the TV industry with ad revenues of £2 billion, structural change is happening anyway.

What to do?  If you can’t beat them……It’s time the television industry viewed the internet not as a threat but as an opportunity.  To date, however, many broadcasters have held onto the interactive rights and simply ‘warehoused’ them to prevent giants like AOL, Google, MSN etc purchasing them and setting up their own interactive ‘channels’. Broadcasters have argued that if this happened it would dramatically weaken their programming propositions.  But what’s preventing broadcasters developing their own interactive offerings?
Look at Big Brother. The Channel 4 Big Brother website recorded 200 million page hits during series 3 with nearly 200,000 people logging on to the site every day. Another £500,000 was generated by charging 25,000 fans £9.95 a month to watch live video streaming on the internet. 
Supernanny is the latest to grasp the nettle with maker Ricochet rolling out an interactive Supernanny website to nearly 50 countries worldwide.  Supernanny.com is a dynamic, supportive online community for time poor parents who need practical parenting advice, fast.  It’s a perfect fit with its broadcast namesake and captures the fun spirit of the TV show whilst extending the brand to cater to a range of parenting topics.
Channel 4’s Andy Duncan states that the TV industry is too “backward looking and underestimates the scale of change that is going on”.  But it needn’t be this way.  Broadcasters are sitting on vast goldmines of intellectual property that are just waiting to be exploited online. In fact the UK content industry is the largest in proportion to GDP in the world and second only to the US in terms of billings.  Quite simply, the ‘storing’ of interactive rights is seriously damaging the wellbeing of the TV industry and is a huge missed opportunity.  Time to change, I’d say.

As everyone grapples with Web 2.0, mobile marketing/J2ME, blogging and user-generated content along with a host of other new digital applications, sneaking up almost unnoticed is the next new phenomenon, virtual worlds.

Virtual worlds are websites where people, in the form of avatars, live much like they do in the real world. They socialise, build homes, buy clothes and possessions but without the restrictions of a physical body or gravity. Many digital consumers are now spending hours upon hours in what is a ring fenced synthetic world.

Figures for the phenomenon are breathtaking. Second Life, which along with There.com and Warcraft is one of the leading virtual worlds, boasts one million signed up members with thousands online at any one time. This is up from 350,000 in July, making Second Life the biggest upcoming threat to Myspace as the web’s largest online community.

The most surprising aspect about virtual worlds, however, is the level of revenue they are generating. $300 million dollars a month in the US is now spent on virtual worlds as community members spend money on virtual houses, virtual leisure, virtual clothes and a host of other virtual products. Second Life itself has over 7,000 in-world businesses. The phenomenon has become an even bigger craze in the Far East with virtual world spending in South Korea reaching a staggering $230 million a month whilst in August, Levi Jeans sold $36,000 of virtual clothing in Japan.

For marketers, virtual worlds offer both a threat and an opportunity. The threat is that as more digital consumers log onto virtual worlds, they end up in a closed world which prevents other online communication tools from reaching what is a very lucrative, predominantly young target audience. Banners, podcasts, blogs and other forms of online advertising fall by the wayside when consumers are spending hours in what is a tightly ring-fenced environment.

If brands are willing to participate in virtual worlds, however, the opportunities are huge. Adidas has bought centrally located land on Second Life to support the launch of its new A3 Microride sports shoe giving consumers who buy the virtual trainers extra bounce throughout the virtual world. The company has even created a bouncy floor where consumers can try out the extra bounce before purchase. The cost of the virtual shoes is 100 Linden dollars (Second Life’s monetary unit) which is equivalent to the actual real-life cost of the trainers.

What Adidas and Levis have achieved is a holy grail for marketers – virtual products that create the same brand connection that real products do, but at no real cost of production. In what could be the prelude to a second major digital ‘land grab’, other brands forging ahead on Second Life are American Apparel, Toyota, Major League Baseball, LEGO with many other brands considering entering the space. Sun Microsystems even held a virtual press conference earlier this autumn.

Virtual worlds also offer brands an outstanding three dimensional test bed for new marketing designs. Companies such as Adidas are able to offer virtual product lines and test how each product fares. The most appealing designs subsequently make it into the high street, effectively cutting out the need for costly focus groups and allowing brands the opportunity to maximise revenue in the real world too.

Whether Second Life and other virtual worlds will be a long lasting marketing channel remains to be seen. Some commentators view it as broadband’s ‘killer application’ whilst others view it as no more than a computer game that will reach critical mass in record time but will disappear just as quickly. Parallels certainly exist with the best-selling game SimCity, yet in terms of ongoing income generation, virtual worlds are in a league of their own. That’s the major difference.

Whatever the views, the numbers don’t lie. Secondlife’s home page has a running total of dollars spent online and the site currently generates $500k every single day. In fact, if virtual worlds such as Second Life continue to grow at the same rate as they have over the past eighteen months, their growth will dwarf the rise of Google and eBay. It’s for this reason that the US Congress has already launched an investigation into the tax implication of communities like Second Life and how virtual economies should be taxed. If the US Congress is getting involved at such an early stage, it’s a clear message that governmental authorities view the medium as a future threat to their own streams of tax income generation.

Such is the projected growth of virtual worlds, Reuters has created a virtual world news agency and allocated a full time virtual bureau chief to cover Second Life. Reuters rationale for entering the virtual world arena was simple, “it’s a good chance to engage with a new audience of people that ……may not be consuming our products in any other way.” For brands, it’s the second half of that sentence that’s important. Virtual worlds are ring fenced and it’s only by participation within them that brands can benefit – previous online marketing methods won’t work. It’s for this reason that brands must prepare now. In a year’s time it will be too late.