• by Diane Mermigas , March 12, 2008

With media chiefs finally conceding that their companies are under economic pressure, they are rethinking survival and growth strategies. This has been complicated by the digital sea change that is altering industry financial models. Core advertising revenue--a lagging economic indicator--is beginning to falter and shift to interactive venues, which are also proving to be recession-sensitive.

Newer and more traditional players on media's elongating spectrum have arrived at the same seminal "Ah ha" moment. They can no longer conduct business as usual, and they cannot convert to new markets fast enough to counter losses from a deteriorating economy. Leading media companies provided a glimpse of their consternation at a Bear Stearns industry conference in Florida this week.

News Corp. Chairman and CEO Rupert Murdoch rendered the most candid economic assessment. Just a month ago, News Corp. and other media companies denied any evidence of weakening advertising, while offering relatively bullish 2008 forecasts during their quarterly earnings calls. Now, Murdoch says he is "a lot more pessimistic about the economy," and sees Fox's local TV station ad revenues lagging 5% behind expectations, but adds that his growth drivers--cable, filmed entertainment, digital--mean "we're in great shape." Although its newly acquired Dow Jones Co. "may be in for a temporary downturn for a year or so," Murdoch says News has lowered its ad reliance to 23% of overall revenues.

In a conference appearance late Tuesday, CBS CEO Les Moonves said he was "surprised" by Murdoch's pessimism. Election-year advertising has bolstered CBS' otherwise advertising- and economy-sensitive pure broadcasting revenues.

Viacom CEO Philippe Dauman insists that there has been no recessionary impact on his company's cable and Web-based businesses so far. He echoes NBC Universal CEO Jeff Zucker, who in the past month has made a 360-degree turn on the subject. Comcast CFO Michael Angelakis reaffirmed the cable operator's recent weakness in ad spending and housing markets. That has prompted Comcast and other MSOs to create a $150 million venture to sell targeted ads across their systems to keep Google from siphoning a planned tripling of cable's current take to $15 billion of all $70 billion TV ad spending.

Google's Advertising and Commerce President Tim Armstrong suggested that not even the Internet giant is recession-proof, as "search is changing overall" in response to macroeconomic conditions. However, Google's secret weapon is its DoubleClick, which it will use to make an aggressive assault on all media company ad dollars by ramping display advertising on YouTube. Armstrong is also casting an eye on international to counter the domestic economic slowdown.

Therein lies media's multifaceted challenge: Google has the wherewithal to gain display ad market share at the expense of traditional and other new media rivals. Although many media companies have radically reduced their advertising dependence, most of their other core income is tied to consumer spending--everything from retail goods and services to movie and theme park tickets, to DVDs, books and content downloads. As long as consumer spending is weak, media companies are in big trouble.

Free-falling consumer spending topped out at $9.5 trillion in 2007, driving two-thirds of the gross domestic product. Already in 2008, the brick-and-mortar retail sector is at 20-year lows. Despite the Federal Reserve's unprecedented liquidity measures to stimulate lending and ease the credit crisis, the trickle-down impact will not be felt for months--or years--by consumers who were using their home equity as a personal checking account in better times. In short, there is no way that theme park, resort-related, consumer product and other businesses owned by Walt Disney, NBC Universal, Viacom, News Corp., Time Warner and others can escape recessionary ravages.

With endless places for consumers and advertisers to spend money and time, every strategic choice comes down to how much money can be made versus lost in each media venture. For instance, Time Warner CEO Jeff Bewkes told Bear Stearns attendees that CNN earnings have doubled in recent years with some cost-cutting, but more by amortizing content in digital and international outlets where it retains more ad revenues. CBS Interactive retains all ad revenues, cycling its owned content through affiliate Web sites instead of forfeiting 30% to participate in NBCU's and Fox's new Hulu.com. It will take News Corp. three to five years to build a premiere global business from its acquired Dow Jones Co. and newly launched Fox Business.

Meantime, Disney tirelessly mines its global content and character franchises. Although Disney CEO Bob Iger declines to revisit easier bullish forecasts, he talks about how the company is better positioned these days to weather the economic storm, with more than $1 billion in annual revenues being generated from mobile, iPod and other digital platforms.

There is consensus among media's brain trust on where future growth must come: digital, international and targeted advertising e-commerce. They also concur that the flow of new revenues may not come fast enough to match or replace altering older revenues. And that's where the commonalities end.