New TV Model: Create More Value Options

Anyone expecting television advertising--including network upfront spending that could decline more than 15%--to rebound to former levels is in serious denial of the deep-set economic changes underway. 

Systemic shifts in how companies and consumers make and spend money could throw media and other commercial players into a death spiral if they are unwilling to alter behavior and expectations. Advertising is not going away, but its fundamental economics are changing. That makes widespread media market deflation and deterioration (the worst being local media) much more than a cyclical glitch, according to a new Goldman Sachs report.

A major test of resetting value propositions will be the networks' spring bulk-buying ritual, where overall dollars spent could decline 15% to 20%, according to consultant Jack Myers. Advertisers will emerge from the trickle of scatter and spot markets to cautiously place fewer long-term TV bets against their ravaged business models and a murky economic outlook.  Even as TV networks ease upfront buying restrictions and hold back inventory, how far are they willing to lower prices in order to protect their market share?



Without mainstream interactivity or the measurability of consumer connections, advertisers now embrace the Internet. Broadcast networks and stations can only tread water. Except for the promise of Project Canoe's geographically targeted addressability, television will not soon be a meaningful part of interactive ad buys to stem the erosion of nearly $70 billion--its 25% share of overall annual U.S. ad spend.

The democratization of digital content on Internet-based platforms, devices and services luring consumers and advertisers away from traditional TV is only generating 10% or less in new revenues for media companies. The Internet and the Cloud eventually will become the ultimate distribution platform for video content to smart TV, PC and mobile devices, making the YouTube motto "broadcast yourself" (and the video you create, package and distribute) a self-fulfilling prophecy. Whatever digital interactive growth media companies aggressively prepare for will be linked to radical economic and secular retrenchment--factors too often lost in the advertising conversation.

The automotives provide a dramatic example of an industry collapsing under the weight of its own dysfunctional economics, legacy structure and business models. Major manufacturers spurred to reinventing themselves with federal funds are slashing their number of advertising brands and local dealerships by 50% over the next several years. Those still advertising will demand greater ROI and target measurement found in Internet and cable over broadcast TV and newspapers, according to JP Morgan.

There will be fewer buyers overall for a glut of reduced price inventory, which is especially problematic for local media, since auto ads are 40% of revenues. On the other hand, the "volatile swing factor" posed by autos, as well as other "troubled" categories (retail, financials and media), will yield to healthier advertisers attracted to TV's lower priced inventory, according to a new Goldman Sachs report.

The oversupply, underdemand of advertising has only begun to show up on media company balance sheets. The most vulnerable of ad-supported media giants, CBS, reported a 13% decline in national and a 20% plunge in local fourth-quarter TV ad revenues, with autos contributing 15% of the company's overall ad income base. This isn't occurring in a vacuum. Accurate economists like Nouriel Roubini say the worst is yet to come as the free fall in most corporate operating profits and revenues continues.

In a Goldman Sachs conference call Friday, Myers said there will be no media turnaround until mid-2010; he now expects overall U.S. advertising to decline as much as 10% this year. UBS revised its 2009 forecast for even steeper negative declines in global advertising and in traditional media (broadcast comprises nearly half of global ad spend), and now calls for a mere 1.4% growth in online ad revenues (from a previous growth estimate of plus 10.4%).

The bigger secular forces at work include what former GE CEO Jack Welch calls an "institutional preservation" mentality by companies. They slash all costs and spending to stop short-term bleeding, while resisting investment in long-term paradigm shifts that will pay off later, such as digital interactive business models. Consumers likewise have stopped spending amid rising unemployment and falling home equity.

Advertiser and consumer pullback are symptoms of the more painful, complex re-valuation of commercial and private assets, which may result in the massive devaluations that triggered the Great Depression. The permanent devaluation of houses, companies and even advertising radically alter all things economic. So does any recovery plan calling for more debt without equity and unmanageable risk. 

The angst of resetting values, reallocating funds and reinventing strategies is taking a public toll in ways more profound than the Oscars telecast, which is generating less revenue for ABC. Fewer blue-chip advertisers, such as General Motors, are participating. The decade-low stock market free fall Friday left GM trading at less than $2 a share with a market cap of $1 billion.

A more savvy survival playbook can be found in Wal-Mart's "save money, love better" appeal to a more upscale, online social media crowd that is expanding its market share when most peers are struggling.

This financial quagmire demands that we think our way into new value-creating options. Interactivity will be one way to unlock and monetize a fluid consumer connection--even in a dire recession. Just imagine what those ubiquitous links will reap in better economic times.

Google Senior Vice President Jonathan Rosenberg's recent Google blog entry suggests the only way forward is taking a different, big-picture approach to creating and realizing new value. "We still have a long way to go in making Web-based applications robust enough for businesses.... The real potential of cloud computing lies not in taking stuff that used to live on PCs and putting it online, but in doing things online that were previously simply impossible ... to conduct commerce in brand new ways." 

4 comments about "New TV Model: Create More Value Options".
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  1. John Grono from GAP Research, February 23, 2009 at 5:47 p.m.

    Ironically, television is one of the few media that has a capped supply - limited by the number of channels and the number of ad minutes per hour - therefore it is the least likely to be affected by its OWN oversupply.

    I believe that what you are seeing is a correction in broadcast as rates due to oversupply in OTHER advertising media - primarily online. Given the immutable economic laws of supply and demand a point will be reached where TV ad rates will have fallen to a level where demand will exceed (the limited) supply, and rates will start to increase again. This is in contrast to the online world, with its virtually infinite supply of inventory, which is already seeing its CPC and CPM rates declining (albeit with total revenues growing). Unless supply caps materialise in online, supply will continue to outstrip demand - which does not bode well as a sustainable economic model. Enjoy it while you can!

  2. Matt Riker, February 24, 2009 at 10:30 a.m.

    Television advertising comes across as extremely expensive and inefficient when compared to other, more targeted forms of marketing.


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  3. John Grono from GAP Research, February 24, 2009 at 4:28 p.m.

    Matt, I agree that televison "comes across" as expensive and untargetted ... because there is a lot written along those lines. Here in Australia a television CPM may be $30-$40. But when you compare that to a CPC cost of say $5, you are not comparing like-with-like. $5 per click is a CPM of $5,000. Now who looks expensive? I agree that a click is more targeted than a TV ad ... but I wonder what may have helped "fill the funnel" that led to that search that led to that click? Recent research shows that generally around a third of all clicks result from TV ads. Attributing "all effectiveness" to the leat click is pure folly - it's like saying that the check-out operator in Wal-mart is the most efficient part of the marketing chain as they are paid $20 an hour and have turnovers of hundreds of thousands of dollars an hour.

    This is all about perception. Doing deeper analysis reveals a different story.

  4. Dean Procter from Transinteract, February 25, 2009 at 6:16 a.m.

    John is on the money with the TV bit, whether or how limited it is doesn't matter, it will always be more limited than the internet. Limited supply but no potential limit in eyeballs. All TV has to do is be more entertaining, they're just going through a boring period, and a recession in ideas. HDTV guarantees the lowest cost and best quality viewing experience into the future. The recession drives consumers to free TV and radio.

    While currently TV may lead to some clicks or searches on the internet, a moment is reached where the message may be diluted, as choice appears in the search results or the page, because it isn't the TV advertiser taking you there.

    TV clicks could take viewers directly to a special place familiar to them with the product they clicked on in the context of their lives. The possibilities are limitless on the web, except in TV's case it'll be directly to one of an infinite choice of custom designed destinations chosen by the advertiser. It could be to the supermarket at the end of the street.

    All you have to do is make the clicks on the TV take the viewer straight there. or perhaps the product straight to the viewer. Not necessarily straight away during their favourite show, but perhaps they'll trust you to do it later.

    The TV is the key, free to air, cable, radio even, really any media you experience if you provide the right easy mechanism and methodology. The golden age of TV and radio is coming, not behind us.
    MTV and radio could sell more music than all the internet sites together. TV will enjoy a golden age.

    The other advantage on the supply side is that TV, as finite, will always have a better budget for entertainment than the growing to infinite number of competing websites. Budgets attract talent.

    All that is missing is the interface, one that the viewer will be happy to use. Of course I've already seen it, in the palm of your hand, ubiquitous. It's the how that is our killer application.

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