Marketing and Media in 2009

An opinion about the key trends that will inform our world as we face the challenge of 2009

Change Management

Times of transformation are opportunities for dramatic business gains or losses. Stable times offer only iterative benefits to the better marketer. 2009 is a perfect storm of transformations – financial, political and digital. Smart, prepared companies will view change as an opportunity.

Everybody is dealing with change. In 2009, the difference between companies that react to change with a sense of urgency and the companies that pursue change with a sense of direction will determine their outcomes.

Marketing During Times of Transformation

Boom times see marketers excited about big new ideas that have never been done before. Recessionary times see a re-prioritization towards scalable, repeatable ideas that are grounded in certainty. The hard part is that best practices have changed since the last recession because digital empowerment changed consumer behavior in between 2001 and 2009.

During the last boom, the focus of advertising investment shifted dramatically towards big ideas that happened outside of the advertising itself. For example, the advertising trades seemed to spend more time talking about how the Coca-Cola cup got on the table of the “American Idol” judges than they did talking about the ads Coca-Cola ran during the show. In fairness, nobody can remember the ads but everybody can remember those red cups. This recession will see a shift back towards the advertising itself. Advertising environments are scalable and repeatable opportunities to reach the right person at the right time with the right message. We are already seeing a lot of marketers recall that this is why we spend money on advertising in the first place.

2008 gave us a useful example of successful marketing during times of rapid transformation. The Barack Obama campaign used a strategy to attract, engage and retain voters that was relentlessly consistent. Many things happened that the campaign could not have anticipated but it did not react to forces that it could not control in ways that were unaligned with the objectives and strategies that it did control.

If you watched the Town Hall debate, remember that handling change with a sense of urgency looks like John McCain running around the stage announcing his plan to bail out everybody with a mortgage problem. Handling change with a sense of direction looks like Barack Obama sitting patiently with a bemused smile without interrupting his opponent’s rant.

My point is that we allowed “innovation” to become the strategy during the last boom. Innovation is not what we set out to do; it is what great value creation looks like after the fact. Innovation is what excellence looks like during times of transformation.

Marketing During Times of Recession

Long ago, the advertising business was the last to feel a recession but also the last to recover. Clients would be reluctant to cut advertising budgets until the reality of a recession could no longer be denied but once reality set in, media budgets were the largest liquid budgets so they were hard hit. Media budgets recovered along the lines of the client’s fiscal year and the TV Networks Upfront calendar so they lagged behind the actual upturn in the economy.

Over time, the model changed. Advertisers came to believe that recessions were efficient opportunities to grow share at the expense of competitors. So, the content of advertising would change to increase the emphasis on promotional messages instead of brand equity but the budgets were more stable.  This should hold true in 2009 except that the financial crisis is so extraordinary that many big budget marketers are simply falling out of bed.

For example, the Japanese car companies are feeling the pain of the recession but their TV advertising is very aggressive. Ad Age is lamenting the frequency to which we are being bombarded with “Saved by Zero” but this is a modern response to a recession with a strategy to maximize market share. However, the American car companies are so upside down that they may have no choice but to slash ad budgets in 2009. Looking forward, the “Big 3” will never rely on TV to “move metal” the way that they used to. The way consumer’s buy cars has changed too much.

A few other companies will also have their ad budgets collapse. One would hope that we will never have to listen to another kid telling us how great AIG is. But, for the most part, advertising accountability has reached the point where strategic marketers understand that this is no longer a liquid budget that can be cut without consequences. Many marketers rightly believe that advertising investments work harder during poor economic times especially if their company is stronger than the competition.

Media Industry Trends and Implications

No one knows what the depth or length of the recession will be heading into 2009. Therefore, it is hard to prognosticate the price of media in 2009 because the demand side of the equation is unstable and disconnected from trend data. However, some of the things that we understand about advertising value (as opposed to price) and some of the long term trends in the major media channels (TV, print and online) will come into focus in 2009 because of the pressures created by the recession.

Television: Key Trend is a Balance of Power Shift toward Carriers

Let’s take a moment to remind ourselves that the TV commercial is a powerful marketing tactic. For decades, the cost of TV advertising has gone up faster than the rate of inflation but the demand for inventory did not go down. The reason is that the value of TV commercials has been so much greater than the price of TV commercials. Here is the problem; too many of the people who built their careers around TV advertising are in denial about the trends in consumer behavior and the people who built their career in digital media think that the top 100 marketers in the US spend over $30 billion a year in TV commercials because they’re dumb. So, two of the most important media industry communities are out of touch with reality and unable to align with each other strategically. That won’t get fixed in 2009 at the industry level but smart companies that pursue change with a sense of direction will be looking at broadcast and broadband holistically.

Television has followed a trend largely ignored by the advertising industry since the birth of cable television. High quality TV content was funded entirely by advertisers in the 1970’s. Today, subscription revenues outweigh ad revenues. Numbers are hard to pin down but the NCTA reports that Cable systems’ residential revenue in 2007 was about $75B while Ad Age reports that the 100 Leading National Advertisers spent about $30B on TV advertising. Whatever numbers you look at, and knowing that the content providers still want to create value for advertisers, the sea change is evident. The content providers, like Viacom, need to sustain the ad revenue model while the content carriers, like Time Warner Cable, have to super-serve the subscriber to justify the monthly fees. A rationale business executive might expect that these two co-dependent industries would operate in a very complementary fashion with the goal of optimizing both revenue streams. But, the reality is that they behave like hard core competitors. BTW – their most intense battles are not about who gets what share of the ad revenue, the battles are about carving up the subscription revenue. That says a lot about the trends driving the Television industry forward.

Even at $150 per month for Cable TV, entertainment at home is a relative bargain that does well during recessions. We now see sports cable networks like NFL, Golf and YES develop a healthy business long before they develop the scale required to make an advertising model effective. With the recession causing even more downward pressure on TV advertising budgets but the consumer's tolerance for a large monthly cable/broadband/telephony bill still strong, this trend will continue in 2009.

The confidence of advertisers regarding the effectiveness of their TV commercials is eroding but nothing will be done about it because investments that serve the needs of the subscriber take precedent.

Constituencies that depend on TV commercials for their livelihoods will continue to point to Nielsen data that indicates that time spent watching TV is healthy. Nobody disputes this. As the TV box becomes one of the computers in the home, it is being used for many things other than just watching TV shows in real time. But, time spent watching TV commercials is in trouble and anybody who denies this is using research tools to dispel common sense.

I’ll try to save you some time if you want to analyze why consumers are avoiding TV commercials. That exercise will point you towards dozens of articles and research studies lamenting the onward march of technologies that empower the consumer. TiVo is not the problem. The reason why consumers are avoiding TV commercials proactively is clutter.

We can fix the problem of clutter in a way where everybody wins but we need to focus on value (effectiveness) instead of price (CPM). Don't hold your breath.

Print: Key Trend is The End of Force Fed Circulation

Ironically, the digitally empowered consumer still has plenty of time and desire for print media. Tablets are not replacing magazines anytime soon because the consumer would rebel. The irony is that the print industry has taught its best consumers that their product should be priced at far less than its value. Personally, I hate to miss an issue of Esquire but I am used to the idea that I can get a two year subscription for $11. I think I would easily pay $80 based on the value but I would feel like a fool based on the price.

This recession will accelerate the decline of print media vehicles that are overly dependent on ad revenue relative to subscription revenue. Most mass magazines and many newspapers are distributed at loss-leading subscription rates that are underwritten by advertising profit. With each recession since 1981, print has recovered with a business model that was less healthy than it was before going into the recession. In the recession of 1991, rate cards were killed off and ever since, downward pressure on CPMs has accelerated going into recessions and stabilized at the new lower levels coming out. Nonetheless, print media ignored this hard trend and stuck to a model of force feeding circulation to drive up or sustain ad revenue cash flow. Now, these companies must face being on the wrong side of two trends, paper distribution economics and advertising accountability. Iconic media brands in the print world will collapse in 2009 and others will dramatically cut circulation until they reach the point where subscription revenue is a break even proposition.

This is not good news for advertisers because print media reaches a very active mind. Among the slice of subscribers that are the most passionately engaged with their favorite print property, advertising can be very effective. I can say with some certainty that an ad for a single malt scotch in Esquire causes me to try a bottle. Sadly, many years have been lost where we could have been getting a lot smarter about “right sizing” circulation and thereby creating much more powerful insights into how print ads work when the reader is highly engaged.

Whereas the TV industry has shifted focus towards quality subscription revenue streams at the expense of advertising value, print has the potential to shift its focus towards quality subscription revenue while creating more advertising value at the same time. Unfortunately, change management at the big print media companies is so stressed by a sense of urgency that it can't seem to build momentum with a sense of direction.

Online: Key Trend is Reliance on Ad Revenue to Underwrite Open Technologies

Here’s a joke about Internet company business models:  the founder of the whiz bang technology company says “We are going to distribute everything for free and publish all of our code so that anybody can put it to use for their own ideas.” To which the CFO replies, “Well, I guess we better learn how to sell advertising.”

The recession of 2009 is very different than the dotcom bust. While the old joke holds true, this time around the advertising and marketing investments going into the Internet are the most accountable and efficient investments in the marketer’s portfolio. So, ad revenue growth in the absolute is hard to predict for online because of the scale of the economic crisis but the gains in ad revenue share are almost certain. Advertising budgets that move to online media never move back into analog channels of media.

No media channel is working harder or more sincerely to create value for advertisers. The dilemma is that this channel is usually working with a very narrow definition of “value” that only captures the essence of direct response marketing objectives.

Online is primarily used for direct response advertising because that part of the advertising business is not constrained by dysfunctional legacies that hamstring the pace of change for brand and promotion advertising. That will start to shift in 2009 but not much. Direct response dollars that are still tied to direct mail will accelerate their tip to online tactics. Local promotional budgets that tend to go to newspapers and yellow pages will tip more dramatically now that Google and Yahoo have mastered local targeting. Brand advertising budgets will tip slowly because the talent that focuses on great TV and magazine advertising is at a loss for how to apply their skills with rich media display advertising. But, this bottleneck will be addressed with more intensity in 2009 because of the economic pressure.

Nonetheless, when it comes to the use of online display advertising in support of brand equity strategies, advertising industry process hamstrings progress and that will hold true in 2009.

(This very slow tip is further exasperated by an online industry that appears bound and determined to arbitrage its display inventory down to $0.50 CPMs with tactics that appeal primarily to lowest common denominator direct response advertisers. Who would have guessed that Yahoo would be the first media company to feel the pain of the lending crisis because it had re-focused value creation for advertisers around marketers like lowermybills.com?)

Moving media dollars from newspaper preprints, direct mail and primetime television into online media is usually a transition from $80 CPMs to $5 CPMs so there will be a lot of media budget cuts in 2009 that do not translate into lower media weight. However, online media spending is stealthy and many advertisers will come to appreciate that so the trend will be hard to monitor.

Reasons to be Optimistic

Consumers like relevant advertising. Advertisers like relevant consumers. Media consumers do not like to be unduly disrupted. Brands prefer to go where they are welcome.

This recession will help everyone who touches advertising to focus on win/win solutions. When they do, they will be reminded that the “R” in ROI is about the relationship between the consumer and the brand as much as it is about the costs and the revenues.

Reaching the right consumer at the right time with the right message is what we all want to do. This has always been true. When we do this well; digital efficiencies makes it easier for the consumer to engage more deeply. When we do this poorly, digital empowerment makes our efforts easy to ignore. Either way, we have more data than ever before to deeply understand the consumer’s behavior and improve our tactics.

The Internet is now an important media channel but “Digital” is a much bigger and more profound concept that informs every aspect of our lives. When the fundamentals of good marketing that hold true over the long term are applied in the context of new consumer behavior, we quickly come to understand that we really can get on a path towards a better and healthier advertising industry.

Today, when our messages are relevant, the consumer welcomes an opportunity to engage. Watching the movie trailer, using the car configurator, mapping the location, printing the coupon, sharing the recipe, asking for the white paper; all of these are powerful engagement opportunities that align marketers with their consumers. The digital era can decommoditize all forms of advertising because the friction has been removed from the invitation to engage.

Advertising value is primed to go up even as it appears that the price is ready to go down. That’s reason enough to be optimistic.

It just seems like it takes a recession to bring our priorities into focus.