Digital Media Prospers, Traditional Suffers In Recession

A full-blown recession would probably take a substantial bite out of traditional media, according to a survey of industry analysts and independent researchers. But digital media will benefit from these draw-downs as financially strapped marketing executives shift dollars online, seeking more transparent measures of ROI. In many cases, a recession would simply accelerate a long-term trend that is already underway.

Of course, the $64,000 question is: are we actually headed for a recession, defined as two consecutive quarters of negative GDP growth? While this issue is beyond the scope of this article, recent headlines are discouraging. On Monday, JP Morgan Chase bought Bear Stearns for a negligible $2 per share, and last week Standard & Poors said banks still stand to lose up to $285 billion from bad sub-prime mortgage loans, further tightening the global credit crunch. On the consumer side, the Conference Board's monthly Consumer Conference Index fell to 75 in February, down sharply from 87.3 January--reaching its lowest level since November 1993. And manufacturers are reporting lower sales in the automotive, technology, and packaged goods categories.



Some ad agencies are already feeling the squeeze, according to a global survey by ICOM, a network of independent agencies. The ICOM survey found that six out of 13 American ICOM member agencies said their clients were already cutting back budgets, with an average reduction of 34%. Most of the burden fell on print and broadcast.

So what would a recession mean for traditional media? TV and consumer magazines should be able to hang tough, say industry observers--but it's not a pretty picture for radio and newspapers.


TV may eke out some growth in 2008, according to Vincent Létang, a senior analyst with Screen Digest, a global media research firm based in London. Létang predicts 1.5% growth in U.S. TV ad revenues in 2008, thanks to big boosts from the Olympics and the presidential election. But the hangover will come in 2009, he added, as the weak economy and lack of big events drive marketers to freeze and maybe even slash broadcast budgets. As revenues stagnate, Screen Digest sees TV's share of total U.S. ad spending falling from 43% in 2008 to 41% in 2012.


In the event of a recession, consumer magazines will continue to vary in terms of success, according to Samir Husni, the chair of the journalism department at the University of Mississippi, also known as "Mr. Magazine." "Luxury magazines are fairly recession-proof, and can really weather any market, because the upscale advertisers don't get affected nearly as much," but "the mass magazines are going to see a slowdown in terms of ad pages." To make up the revenue shortfalls, many magazines will raise their newsstand prices, a trend that's already in motion. While this will produce a short-term slump in newsstand sales, Husni said magazines typically rebound within 6-12 months.

On a somewhat surprising note, Husni also expects the recession to spur the launch of new magazines. Pointing to past recession launches like Fortune, Esquire, and Entertainment Weekly, he explained that the weak advertising environment lowers the competitive bar for entry to the magazine business. That is, while big publishers struggle to maintain expensive operations, new titles can sneak in and carve out a niche. "Then when the market recovers, they ride the upward trend with everyone else."


In the event of a recession, the outlook is considerably gloomier for newspapers and radio, where revenues are already declining because of long-term secular trends, which were in evidence well before the economy began to sputter.

After slipping 1.68% in 2006, total U.S. print newspaper ad revenues tumbled an alarming 9% during the first three quarters of 2007 compared to the same period in 2006, to $30.5 billion (fourth-quarter figures aren't yet available). "And that was in relatively good economic times," observed Ken Doctor, a newspaper analyst with Outsell, Inc., who said "a recession would simply compound the structural change of readers and advertisers moving from print to online."

Newspaper woes are due mostly to competition from the Internet, where online classifieds, for example, provide a superior platform for matching individual buyers and sellers of goods and services. Thus, print classifieds--a traditional mainstay of newspaper revenues--fell over 15% in the first three quarters of 2007 compared to 2006, to $10.2 billion. Meanwhile, national and retail categories are posting single-digit declines, as online search and display ads give big advertisers a more precise view of ROI. Between this earlier trend and new data showing a decline in retail consumption, Doctor forecast "a deepening, accelerating slide in newspaper revenues," although he wouldn't venture a prediction in percentage terms.


In a recession, radio is in the same boat as newspapers, although maybe not the sinking end. Despite impressive reach--with nearly 94% of the U.S. adult population listening to radio at least once a week--radio recently seems to be losing its charm for key advertisers, for reasons that have nothing to do with the economy at large. According to the Radio Ad Bureau, total revenues fell 2% to $21.3 billion in 2007, and Marci Ryvicker, a radio analyst with Wachovia Capital Markets, predicts that even with political ad spending, revenues will fall at least 1% in 2008.

The big blows for radio are coming in the local ad market, where--like newspapers--radio suffers in comparison with interactive media: total local revenues fell 2% in 2007, to $15.1 billion. "In general, the traditional local ad market remains under attack from more targeted media," Ryvicker observed, adding that "we anticipate the reallocation of ad dollars to new media to continue for the foreseeable future."


As indicated, analysts expect digital media to win big during a recession. True, Internet revenues plunged 27% during the 2001 downturn, but they reason that the Internet has proven itself as an advertising medium in the intervening period (Google, for example, saw total ad revenues rose from $66.9 million in 2001 to over $16.4 billion in 2007). In the event of another downturn, analysts expect marketers to turn to the Internet's superior targeting and metrics to maximize ROI.

But there's some disagreement about where, exactly, all the cash will go. In a recent note, Forrester Research predicted that cost-per-action marketing (principally search) and online direct marketing (including email) will be the biggest beneficiaries. That agrees with a survey of marketers by the Direct Marketing Association which found that, even as 47% of marketers anticipate a recession, 50% said they would spend more on email marketing, 44% plan to spend more on database segmentation, and 35% plan to spend more on search optimization.

Forrester also predicted more spending on social applications that allow advertisers to launch low-cost word-of-mouth, viral, and buzz marketing campaigns. Forrester says these kinds of social campaigns are more likely to get the consumer to consider a product than traditional brand advertising--a key advantage when consumers are guarding their pocketbooks.

Forrester sees less of the new money going to online branding, principally display advertising. But some executives say this ignores growing interest in the Internet as a branding tool. Sarah Pate, CEO of AdMission, boasted that "the accountability of many of the new branding models has already brought more budget from some of our larger national consumer clients for 2008."

Can We Do That Measurability Thing?

Well before the current economic woes set in, some traditional media strove to adopt digital measurement techniques that would allow them to compete with the Internet. But it now looks like the new metrics will have only limited availability through most of 2008, meaning the Internet will still run the table on measurability, at least for the time being.

TV advertisers have been guardedly optimistic about Nielsen's C3 commercial ratings, promising to measure audience exposure to commercial pods, but in February Nielsen sent a letter to clients conceding that there were systemic problems in the delivery of these ratings and advising of further delays. A series of phased improvements at 20-day intervals will take at least until July to get the system up to speed. Meanwhile, the Media Rating Council continues to audit Nielsen's C3 system, meaning media buyers are using unaccredited ratings as currency for ad buys.

Radio broadcasters hung their hopes on Arbitron's Portable People Meter, a passive electronic measurement device that will eventually replace the old-fashioned paper diaries filled out by listeners from memory. But problems with the PPM panels have kept Arbitron from meeting its target sample sizes, prompting the company to delay deployment in the country's biggest markets by 3-9 months, including New York, Los Angeles, and Chicago, all now scheduled to get PPM ratings in September 2008.

Magazine advertisers have also pushed publishers to begin producing more rapid and precise measures audience and circulation. The Magazine Publishers of America recently responded to these demands with its plan to solicit proposals for a new audience metric derived from Internet surveys about readership. But this project is in its infancy, and is unlikely to bear fruit before the end of the year. Meanwhile, the Audit Bureau of Circulations has succeeded in signing up most major publishers for its new Rapid Report service --but a recent note from ABC urging publishers to turn in data in a more timely fashion suggests the service is struggling to fulfill its mission.

For Newspapers and Radio, Online Growth Isn't Enough

In the event of a recession, the rising Internet tide may well lift all boats, including Web revenues for newspapers and radio. But it's unlikely that growth in these areas will offset losses due to structural and cyclical downturns, as their contribution to total revenues remains small.

Ken Doctor of Outsell, Inc. noted that most big newspaper publishers' online revenues have dwindled from the robust rates of 20%-30% a few years ago to a more modest 8%-15% per year. The slowdown is bad news, he went on, because most publishers still derive less than 10% of their total revenues from online advertising.

Meanwhile, according to Wachovia's Ryvicker, the majority of big radio broadcasters get at most 1%-2% of their total revenues from online business. Non-spot revenues, including online, grew 10% to almost $1.7 billion in 2007. However, online radio revenues accounted for no more than $500 million of that, or just 2.3% of the total. Furthermore, broadcasters remained locked in a battle with recording artists over royalties for songs played online, which could jeopardize future growth.

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