According to the Interactive Advertising Bureau’s Internet Advertising Revenue Report, U.S. internet advertising revenue from sponsorship fell from 8% of Internet advertising revenue in 2004 to 2% of Internet advertising revenue in 2008. Sponsorship revenue here means revenue from “custom content and/or experiences created for an advertiser.” Compared to search ads (45% of Internet advertising revenue in 2008) and banner ads (21% of Internet advertising revenue in 2008), such sponsorship has high transaction costs for organizing an advertising buy and a high minimum value for a buy.[1]
Sponsorship was the predominate funding source for U.S. radio and television programming prior to the early 1950s. Programs typically had a sole sponsor. Often the sponsor’s name was included in the program name. Early radio’s most popular programs included Maxwell House Show Boat (1933-34, Maxwell House coffee), Ed Wynn, The Fire Chief (1932-33, Texaco Fire Chief gasoline), Pepsodent Show (1942-43, Pepsodent tooth paste), Raleigh Cigarette Program (1942-43, Raleigh cigarettes), and the Fleischmann’s Yeast Hour (1933-34, Fleischmann’s yeast). In 1940, the Bell System began sponsoring a radio program called the Bell Telephone Hour. It featured light classical music performed by the “Bell Telephone Orchestra.” It was a popular program, but not one of the most popular radio shows of its time.[2]
Material created for advertisers includes much more than sponsored programming. In the 1940s, radio programming was probably about 15% of the Bell System’s media advertising budget.[3] Bell System advertising expenses also included spending on booklets, pamphlets, bill inserts, window displays, exhibits, posters, placards, lectures, demonstrations, central office visits, general press service, special news stories, and other miscellaneous advertising. These are all categories of custom-created content and experiences delivered outside of major media channels. From 1941 to 1950, these types of advertising expenses probably averaged about 20% of Bell System advertising expenses. Even in the golden era of sponsored radio advertising, various forms of custom-content delivered in various ways were a larger share of the Bell System’s advertising budget than was radio.
The decline in sponsorship revenue in Internet advertising revenue from 2004 to 2008 is probably best interpreted as a disintermediation effect. Companies have always used a wide variety of means to communicate with potential customers. For 2007, the Coen Advertising Expenditure Dataset classifies $37 billion in advertising expenditure (13% of total ad spending) as miscellaneous. Much of this advertising expenditure is probably custom-created content delivered outside of major media channels. With the Internet, non-media firms gain powerful new capabilities for communicating custom-created content. Custom-created content delivered outside of major media channels is likely to be increasing in importance in the communications industry.
Notes:
[1] For advertising shares over time, see p. 10 of the IAB Internet Advertising Revenue Report. The definition section, p. 16, defines sponsorship revenue. Sponsorship revenue includes theme-oriented, custom-built pages featuring an advertiser’s brand; advergaming, including both sole-sponsored games and custom-branded games; sole-sponsorship, with custom branding, of particular content sections; and brand-focused sweepstakes and contests.
[2] The AT&T Annual Report for 1940 (pp. 10-11) explained:
After a series of local and regional experiments with radio broadcasting programs extending through several years, the Bell System started a nation-wide program in April, 1940. The program is heard regularly every Monday evening over one of the major radio networks [NBC Radio]. It is know as “The Telephone Hour” and is made up largely of light classical music. The entertainment is furnished by a symphonic orchestra, a chorus of mixed voices and two well known vocal soloists.
Two brief messages are a feature of each week’s broadcast. These informative remarks cover a wide range of subjects — company policies, organization, service aims and practices, rates and other information about the Bell System which seems timely and appropriate.
This radio program supplements the newspaper and magazine advertising which the companies of the System have carried on for years. It provides a medium for speaking directly and quickly to a large number of the public. At the turn of the year, the weekly audience was calculated by an outside commercial survey organization as totalling more than eleven million listeners.
The Bell System provided about 85% of telephone lines in the U.S. in the 1940s. Competition between the Bell System and independent telephone companies was relatively weak in this period. The Bell System’s advertising probably was primarily directed at expanding interest in telephone service. From 1940 to 1950, the share of U.S. households with telephone service rose from 37% to 62%.
[3] For the U.S. as a whole, radio advertising as a share of total advertising expenditure was 11% in 1940, rose to 15% in 1945, and then fell back to 11% in 1950. The Bell System’s radio advertising share probably followed a similar pattern. Thus a rising share of custom-created content probably accounts for most of the rise in custom-created content (inc. radio) from 30% to 40% of Bell System advertising expenditure from 1940 to 1950. Here’s all the available Bell System advertising data by media from 1941 to 1950. The beginning of the Bell Telephone Hour in 1940, and the beginning of FCC collection of data on telephone companies’ advertising expenses by media in 1941, probably is not a coincidence.