Barreling into ought-six
To be sure, there is a reasonable chance the sodden sales and profit forecasts soon to be proffered by edgy media execs indeed will come to be. Their darkest fears could be surpassed by the time we are staring up the barrel of ought-six at the end of next year.
But it also is fair to postulate that newspapers and broadcasters are purposefully haircutting their predications for 2006 so they have a chance at exceeding them – the better to buoy, not necessarily in order of importance, their stock prices and bonus packages.
With the mostly gloomy media execs bearing down on the Big Apple to brief investors and analysts on prospects for the new year at a couple of conferences sponsored by investment banks, Merrill Lynch analyst Lauren Rich Fine set the tone by cutting her ad-growth projections by 13.5% for 2006 to 5.2% from 4.5%. She also said she believes ad sales this year will grow 3.2% vs. a previous forecast of 3.7%.
With Lauren and most other gurus seriously burned by too-optimistic predictions for the media-industry this year, they can’t be blamed for wanting to moderate the case for 2006. Lauren’s cautionary calculus is likely to be echoed many times in the coming weeks. And, to be perfectly clear, she and the others may be dead right.
But there are glints of hope out there for the legacy media companies. They may not add up to a thousand points of light, but, as we come upon the days of Advent and Hannukah, perhaps it is fitting to light a candle or two instead of merely cursing the darkness. Here goes:
Advertising by telecommunications, financial, airlines and other national advertisers has been extremely soft this year, as compared with the good old days before Cingular bought AT&T and Sprint acquired Nextel. But each of these sectors is finding new life.
Several major new cell phone brands – and tons of new mobile phone services – are emerging to compete with the big three (Cingular, Verizon and Sprint). Everyone from 7-Eleven to ESPN has started new virtual mobile networks, and they are going to have to advertise to grow. Ditto, the new content services, ranging from pay-per-view TV programs to mobile news clips. For good measure, add a major dogfight between cable companies and the Baby Bells, who each are vying for triple-play supremacy in voice, TV and broadband.
This has been a pretty good year for financial services, from Wall Street to mortgage companies, not counting Refco and Bayou Securities. Although much of the bounty will be dispensed in corpulent bonus packets, most firms likely will be smart enough to save a little something to invest in advertising next year, so as to keep the good times rolling when interest rates start to climb.
Although high fuel prices and heavy fixed operating costs make the airline business no joy ride, load factors in the travel industry are sufficiently strong that experts predict the cost of getting there, while perhaps not half the fun, will climb 8% in 2006. As the industry regains its health in the post 9/11 era, watch for market-share grabs in places like Denver, where the weapons of choice will be cut-throat fares and heavy advertising.
Advertising expenditures typically are shrinking in markets where Federated is absorbing May’s department stores and tagging most surviving outlets with the Macy’s brand. That is going to hurt the big metro newspapers and broadcasters. For smaller, local newspapers and radio stations, who rely on local merchants and never saw much advertisng from Federated or May, this contraction is a non-event.
The battle for retail dollars is moving away from classic department stores and into sprawling discount chains and specialty merchants. Wal-Mart, the biggest of them all, plans to build 335 to 370 new stores in 2006, increasing its available sales space by 60 million square feet, or 8%.
Faced with strong competition from Target, Sears/Kmart, Best Buy and others – as well as a need to improve its public image in many communities – Wal-Mart, though once a reluctant advertiser, steadily has been increasing buys in newspapers and the broadcast media. Its efforts are running up against campaigns from the challengers, creating the kind of creative tension that ad-sales guys love.
If you think retail advertising is no longer relevant to consumers, remember that most of the people trampled at the door-buster sales on the Friday after Thanksgiving went down clutching newspaper circulars. So far as can be determined, none of them was surfing Shopzilla or listening to a podcast.
Although Craig’s List and Monster.Com are encroaching aggressively on the lush domain of classified advertising once owned exclusively by newspapers, let’s put these busy, fast-growing online interlopers into perspective.
Many of the searches and free listings on Craig’s List are for things that never were, never will and never ought to be advertised in newspapers. Among the listings are ads for free moving cartons, notices about yoga classes and urgent, if not necessarily discreet, pleas for immediate sexual relief.
Monster says its has a stupendous database of 43 million resumes (including mine, if anyone is interested), but the list of positions is pretty thin in most communities – and generally limited to entry-level sales and administrative jobs. To the degree the economy expands and companies need staff, most managers won’t have time to sort through 43 million resumes. They are going to put their ads in the local newspaper, where qualified, local people know to look for them. In an age of marginal literacy, employers ought to be impressed by candidates who read the newspaper.
As the real estate market comes back to earth, homes are beginning to sit longer, sellers are getting antsy and agents are going to have to appease them. One way, short of selling their house, is by buying ads. Real estate’s fizzle may be advertising’s sizzle.
Auto sales already are in a slump, because zero-interest and employee-discount promotions encouraged many consumers to accelerate planned purchases and trained holdouts to hold out for better deals. The way to get buyers to the lots is by advertising. Lots.
In a perfect world of peace and prosperity, each of the above circumstances would lift the spirits of the mainstream media more than a year’s supply of Xanax. If everything goes sideways, of course, the perfect world will turn perfectly ghastly.
My guess is that most media executives are hoping for the best but carefully orchestrating expectations to keep them as modest as possible. Let’s hope they can manage their businesses as well as they manage our expectations.