If the Worst Is Over, When Does It Get Better?
Now that the second half of 2009 is underway, industry leaders and forecasters appear united in the belief that the worst is over. That’s a relief, but what everyone really wants to know is when we get back to growth. On that point few are clear.Last week, NBC Universal President and CEO Jeff Zucker told CNBC, “It’s still tough out there, but I think we have seen a bottom.” Those comments echoed previous statements by News Corp. CEO Rupert Murdoch, who said on first quarter calls in May, that the outlook was much better. “It’s increasingly clear that the worst is over,” he told analysts, adding, “The days of precipitous declines are done.”
Coming out of the Allen & Co. Sun Valley retreat for industry leaders, Murdoch described the mood as decidedly bearish. “I’m shocked at the business mood, which is talking about either that we’re at the bottom of the recession or we’re going lower, but that it’s going to take years and years, like five years at least, before we see any real growth coming out of this,” Murdoch told Fox Business News. “I don’t see an end to the downturn, and I can’t predict when we’ll start to see a rebound,” he said.
Indeed, as the recession first hit, predictions were for an improving picture in the second half of 2009, a critical component of upfront sales pitches. Things won’t likely be as bleakas first half but there are still declines to come.
The latest forecast comes from Interpublic Group’s research unit Magna which suggests media companies will take in $161 billion, a 14% drop from $189 billion last year, excluding political and Olympic dollars. “The first half of 2009 will likely turn out to be the worst period of the recession,” notes a Magna press release. The author, global forecasting director Brian Wieser, predicts a 2% decline in 2010, and an anemic compound annual growth rate of 1% between 2009 and 2014. Wieser, who picked up the forecasting mantle from veteran analyst Robert Cohen earlier this year, says that things won’t pick-up until the second half of next year.
Magna has instituted a new methodology for calculating the health of the advertising environment by looking at media company ad revenue rather than what advertisers say they spend. The report defines media as including television, radio, print, outdoor, direct and online.
Magna did have some positive break-out for the television business. Population growth and increased TV consumption will more than offset the affect of DVRs by 2014. Total TV will grow by 3.2% over the next five years, but will be down 14.4% this year. As ever the picture for local TV looks worse than for national. The national market is pegged at $32.2 billion for 2009, but will shrink by 6.3%, local is pegged at $14.8 billion, declining by 18.8%. Over the next five years, the compound annual growth rate will be 2.2% for national and 1.3% for local.
Magna’s report followed that of ZenithOptimedia, which revised its outlook for global advertising last week saying its estimates for ad spending in the first quarter were too high. Zenith also predicts that 2010 will be another year of declines in ad spending in North America. Zenith, part of Publicis Groupe, suggests that the back half of 2010 will see a mild upturn–thanks to Winter Olympics, FIFA World Cup and mid-term elections.
If you’re looking for a growth number, better push out a little further than planned.
Phil Leigh commented:
In our analysis, Future Developments in Video Advertising, the ad market will decline for several years. The Great Recession of 2009 is leading sponsors to re-examine long-held assumptions about advertising. As a result they are going to go into competition with their own ad agencies and media buyers by using the Internet as a direct media connection to customers.
Here are five conclusions from our July market research report.
The advertising market will shrink for several years to come. Even five years in the future aggregate advertising spending will be smaller than it was in last year. We project total advertising revenues of $245 billion in 2013 as compared to $285 billion in 2008. Internet advertising will gain share from 8% to 22%.
The Great Recession of 2009 is leading sponsors to radically change long-held assumptions about the use of media in marketing and advertising. In short, advertisers will face new competition from their own sponsors as sponsors intensify use of Internet media as a direct channel to their customers. They will allocate a greater share of marketing budgets to enriching their own websites as interactive, lead-generation properties. Similarly, they will self-manage more of their email marketing and employ embedded video in press releases, product promotions, and corporate communications.
2. Video will migrate to the Internet. Cable and Satellite networks are evolutionary dead-ends that cannot hope to compete with the innovative pace enabled by the Internet.
Consumers are learning to get unlimited Internet access at their TV, most commonly by connecting it to a laptop computer. The computer’s onboard WiFi links over a home network to the Internet thereby transforming the laptop into an Internet Gateway for the TV. The configuration permits users to watch any Internet Video on the TV screen. Given a remote mouse and keyboard consumers get a lean-back viewing experience 15 – 20 feet distant from the screen.
An estimated 10 million Americans watch Internet Video on TV monitors via computers. It is an intermediate forcing factor ultimately leading to two alternatives. One is the browser-centric TV. Second would be something like an Apple TV but with its own Apps Store. Such a store would be similar to the one for the iPhone but instead enable websites like Hulu.com and TV.com to provide simple (typically free) interfaces permitting their programs to be watched on TV via the applicable hardware.
3. Product promotion campaigns will replace product advertising campaigns. To the detriment of the advertising industry, the Internet will redefine product promotions to fit into a larger context. Historically product promotions were nearly synonymous with product advertising. The applicable marketing budget was allocated to the advertising agencies and media buyers responsible for the creative work and media placement.
Increasingly, sponsors will incorporate their own use of the Internet into product promotion. By enriching their websites, press releases, email marketing, and corporate communications with Digital Media they will trigger transactions and generate leads in activities that bypass the advertising industry.
4. Ad rolls will become shorter. There are three reasons why Internet Video advertisers will be able to cut back on the time designated for commercials.
First, is the avoidance of ad-time allocations for local network affiliates or Cable Systems. For example, websites like Hulu.com that host popular TV shows don’t need a local TV affiliate to stream the shows over the Internet. This frees-up about 4 – 5 minutes per hour. Second, unlike DVR users, viewers of streamed Internet Video cannot fast-forward through the advertisements. Third, Internet Video can employ non-disruptive interactive overlay ads. As a result, the typical hour-long TV show on Hulu takes only 48 minutes including 6 minutes of ads.
5. Advertising Industry Bypass will promote interactivity. Websites with the highest “click-through” rates are those engaged in triggering transactions. Examples include Amazon.com and iTunes. As sponsors gain experience with using Internet media to connect directly with customers they also will be focused on inducing transactions. Thus, as an indirect consequence of bypassing the advertising industry sponsors will learn how to increase click-through rates thereby advancing the state-of-the-art for interactive advertising. In short, Internet advertising and Internet retailing will overlap.
Joseph commented:
Even if the economy weren't mired in recession, I think many of the financial problems the TV industry are facing would still exist, due in large part to the very large array of viewing options that didn't exist not that many years ago.
In short, declining revenues for indidivual stations and networks may well continue, and possibly even get worse even after the economy begins to improve.