TV ad model: Dead

Television as we knew it died this week at 73. Or at least the advertising model did. Boomers and Generation X won't have to quit ad blocks cold turkey but they will note that a growing percentage of what they see will be ads for retirement villages and Cialis. The kids, which in this case means anyone under 34, are moving online and the money is going with them.

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Commercials started with a 10-second spot for Bulova watches during a baseball game in 1941. The death blow came yesterday during PepsiCo's (PEP) conference call when CEO Indra Nooyi said her company's ad budget would stay at 5.9% of revenues but be "reallocated." A Pepsi spokesperson tells Yahoo Finance that means "realloacted to consumer facing activities." I read that to mean moving ads off television and into other formats.

5.9% of PepsiCo's 2014 revenues works out to roughly $3.9 billion. They're the company that brought us Katy Perry and Left Shark, for God's sake. Sports was the last great hope for ads and one of its biggest backers is drawing the line. There's nothing in Indra Nooyi's history to suggest she's bluffing.

But don't take PepsiCo's word for it. Omnicom Media (OMC) which positions some $50 billion worth of ads a year for not just Pepsi but Apple (AAPL), McDonald's (MCD) and Starbucks (SBUX) advised its clients to shift 25% of their budgets away from TV last year.

The ability to track audiences online behavior made the idea of placing ads based on Nielsen (NLSN) data look like something out of the Middle Ages. That's been the case for a while but the fourth quarter of 2014 was when it became impossible to ignore for even the most obtuse cable or network exec. Running through the conference call transcripts is an experience not unlike reading the star studded eulogies for the TV experience as execs at once celebrate and distance themselves from the old model.

Bob Iger Disney (DIS) CEO: "There's definitely an opportunity to to put products in the marketplace that reach consumers directly". Chase Carey President of Fox (NWS): "Industry trends impacting advertising will be larger than previously expected and viewership will continue to migrate to digital platforms.

Jeff Bewkes Time Warner (TWX) CEO: "we're in the midst of a secular shift to on-demand consumption".

Companies like Viacom (VIA) are trying to make ad revenues "Non-Nielsen dependent" but that's akin to a little kid trying to reframe a lousy report card as meaningless. Sorry, kid, but ratings are how we keep score and the Viacoms of this world are getting smoked.

As an investor look for more partnerships and cross breeding. Iger and Bewkes are being cagey about how they roll-out their non-cable or "over the top" products but they're coming. Also watch companies like Comcast (CMCSA) which straddles the two worlds by owning NBC and the pipes that bring broadband into U.S. homes. Bundling is going away and they have to figure out how to monetize in a new world. So far the network has been amazing at the transition, Jimmy Fallon stole huge share from Jon Stewart in those high-value young eyeballs but that's a one-off bulwark fighting a tsunami. History won't be kind to networks trying to fight this shift. You want to own the players in front of this trend. Those are going to be the winners of 2015. The rest will end up competing for space with "I Love Lucy" and infomercials at 3am. Just a bunch of old timers waiting to die.

Editor's note: An earlier version of this story suggested that PepsiCo CEO Indra Nooyi planned to move ad dollars away from television and into other formats. That was the opinion of the author, Yahoo Finance's Jeff Macke, and not a direct quote from the Pepsi CEO.

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