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."