• by Brian Wieser , August 11, 2011

Fears of a return to recession are becoming increasingly widespread. Advertising is highly correlated to the broader economy, and a weak(er) economy would inevitably impact the media industry negatively.

Much as they did in 2008 and 2009, advertisers would use recessionary conditions to aggressively reduce media budgets; more specifically, marketers would cut budgets to the degree that all players in their category will do the same.

Once budgets are (re)set, client-side media directors will seek alternative inventory choices that satisfy short-term goals at lower prices. But media owners will be reluctant to reduce the pricing of their "premium" inventory for fear of negotiating with advertisers off of lower-cost bases in the future. As we saw in 2008 and 2009, media owners will find they must inevitably reduce pricing when (and only when) advertisers demonstrate they will walk away from a negotiation.

A decline in advertising is far from inevitable, and may look like a remote possibility to some media owners today -- especially for media owners who are currently capturing high-single-digit or double-digit annual growth rates in revenues, including many online publishers, digital out-of-home billboard owners and cable programmers.

Still, a failure to plan for the worst is unacceptable. To that end, "What are you doing to prepare for a downturn?" is the essential question investors and media buyers should be asking media owners very soon, if they are not already.

Media owners will benefit if they have identified a preferred approach well in advance. By the time a recession is formally declared -- something that often occurs many months or quarters after the recession begins -- it will likely be too late to do anything but mitigate the damage.

With this in mind, what can media owners work on today to mitigate an industry-wide downturn?

Develop pricing schemes that directly tie pricing to business results.

Already, some agencies and media owners have tied their fees to marketer sales. While such an approach requires acknowledging that many choices made by marketers are outside of the control of the media partner, aligning interests will build long-term bonds -- and result in pricing structures that provide outsized benefits during a subsequent upturn in the economy.

Identify new ways to "add value."

A media owner can include more added value inventory, such as program integration, banners or onscreen bugs during programs or gradations of sponsorship levels. Added value can also be "bonus" units out of inventory, which otherwise would be going unsold. Marketers will assess their spending in the context of the total value they received, while media owners will better maintain the integrity of their pricing.

Identify market-expanding third-party sales channels.

Virtually all media owners will have some inventory segments with consistently low revenue yields. Media owners can look for ways to identify value from that inventory by providing -- in a controlled manner -- more of this inventory to those ad networks and rep firms that can identify marketers who value the inventory differently -- for example, on the basis of some audience characteristic rather than on the basis of the content of the program.

Allocating inventory in this manner also has the effect of constraining supply of program-specific inventory, which should encourage pricing stability from specific media owners for existing clients who require long-term, in-depth relationships with those inventory owners.

Media owners can make contingency plans today and test them to learn what approaches will provide the best outcomes in a downturn. Timing is key, as some solutions require media owners to make choices today, such as the selection of appropriate third-party sales channels or the training of sales teams to focus on value-added brand solutions.

But the preparation entailed in those choices will be helpful regardless of whether a recession materializes. Exploring new approaches to generating value for marketers will create value for media owners in good and bad economic times alike.