Technology journalist Walt Mossberg has called advertising “the mother’s milk of all the mass media.” Advertising dollars are a critical input for most media business models, which are often two-sided markets—distributors rely on advertiser dollars as well as consumer dollars. Advertising revenues can lower the subscription price for consumers, sometimes to zero. For instance, services like broadcast radio, Facebook, and Google Search rely almost solely on advertising revenues, and consumers pay nothing to the provider for the service. Most distributors—like magazines, newspapers, Pandora, and cable channels—use a mix of subscriptions and advertising in a fragile balancing act of maximizing revenues from ads while attracting customers to their service. Still other products are almost entirely subscription-based and not ad-supported, like HBO, Netflix, and most video games.
Using industry data, the chart shows that the distribution of advertising revenues has varied significantly by media over the last few decades. There are two notable winners of advertising share: cable TV has had a steadily increasing share of ad dollars since 1980, and the Internet’s share has rapidly grown. In 1995, only a negligible amount of ad dollars was spent on online sources. Today, the Internet attracts around 16 percent of advertising, and may soon overtake broadcast TV and direct mail. The primary loser has been the newspaper industry. Newspapers captured nearly 30 percent of ad dollars in 1980, but the medium is down to under 7 percent in 2013.
Although there are a few notable exceptions—like broadcast radio and broadcast TV—regulators have generally let media companies freely seek advertising, subscription, and other types of revenue. This hands-off policy gives firms flexibility to experiment with business models and pricing and, notably, allows American tech companies to continue to quickly innovate. Since advertising is a largely competition for eyeballs, the shift in advertising strategies reflects shifts in consumer behavior. As more consumers look to the Internet, online apps, and television for their news, sports, and entertainment, newspapers are a less attractive platform. Nevertheless, no company or distribution medium dominates the market for ad dollars, and ad companies quickly shift ad dollars as consumer preferences and business strategies change. This dynamic market will continue to lower consumer prices and permit innovative new business models.