Targeting:Bottom Line on Bottoming Out
We will first see the culling of the secondary services. This has started already with the closing of Nielsen's ooh tv service, a good idea to measure out-of-home broadcast viewing, but it lacked a core support, the monetization of value. Networks could not find a way to sell the additional audience and, therefore, they would not pay for measurement. The economy threatens any media-research service that does not tie directly to an audience that can be bought and sold. Management at agencies and media vendors are much less likely to support research that does not directly tie to revenue.
The size of the revenue a medium represents will be important as well. One of the big cost drivers for agencies has been the morphing of media - the creation of new media forms, from street furniture to mobile. Fewer venture-capital funds will exist to create and support these new media. Consumers will not have as many dollars to buy new gizmos. There will be more time spent at home. Advertisers, besides cutting back in spending and demanding lower prices, will consolidate dollars in the "tried and true." In short, less new media dollars will lead to less media research.
The cost pressure will also squeeze duplicative services. Agencies will question the need to buy two major consumer surveys, like mri and smrb. A large-scale decimation of either service will be prevented by the existence of long-term contracts. However, because most contracts last three to five years, 20 to 33 percent of these firms' revenue will be at severe risk next year. Buyers will either drop one service, or force price reductions. Duplication also exists in local market and competitive monitoring services. These will all face challenges.
Of course, a recession is also a time to gain share. If you spend, competitors lose out. An example of this is Nielsen's radio measurement service startup. There will be an immediate price pressure on Arbitron, as station groups and agencies look at the potential of the new service. Nielsen is looking at long-term growth, and unlike ooh, there is a direct tie to audience revenue, so it is willing to go with a single supporter (Clear Channel) in hopes of gaining a strong share of radio research revenue from its erstwhile partner in passive people meters. (Say that last phrase five times fast.)
This leads into the positive effects of a recession on media research. For buyers, it means lower prices, a shift down in a basic cost of doing business. Syndicated media research, after rent and salaries, accounts for a major cost of agency overhead. Research contracts will be renegotiated and new contracts will come in at a lower price. When we exit the recession, it will mean a greater opportunity to invest in new forms of media research, since the basic services will come in at a lower relative expenditure.
For media research vendors, the price of doing business will drop. First, labor costs will decline. Many former investment bankers will be willing to man the phone banks, enter data or do intercept interviews. Some outsourcing that occurred with call centers will come back from overseas or marginal markets, because higher quality personnel who can generate higher response rates will become more affordable.
In regard to response rates, I believe they will increase more than we saw in the 2001 recession. That recession was primarily driven by a cutback in business spending. This recession is being driven by a cutback in consumer spending. With high unemployment and underemployment rates, people will become easier to reach at home and more responsive to the trade-off of time and money that incentivized research offers. The drop in miles driven, generated by high gas prices, will also continue, as people still need to curb spending and have developed new patterns.
The recession's bottom line will be a shake out in the research business, lower costs and higher quality. There is some reason for hope.