Thursday, August 11, 2005

View from the caboose

Legacy media companies are living on borrowed time, but they don’t know it, because they are riding in the caboose, which provides a superb view of where you have been – but not much perspective on where you are going.

Notwithstanding the usual ups and downs of the marketplace, traditional publishing and broadcasting companies to date largely have sustained sales at historic levels, even as they battle to achieve the steady revenue and profit growth demanded of such vast and valuable enterprises.

As previously discussed, however, average newspaper ad revenues were desultory in the first half of the year and the broadcast networks were at pains to get upfront sales this fall to match those of last year. Much as executives might like to attribute the softness to the vagaries of an admittedly vague market, something far more profound is happening.

Advertisers are getting ready to shift ever-larger percentages of their budgets into the interactive media that enable them to efficiently target their messages to well segmented audiences. An added attraction for advertisers, of course, is the fact that the results of interactive media campaigns can be closely monitored, objectively measured and rapidly tweaked to improve results.

After wondering why media companies can’t seem to grasp this looming challenge to their long-comfortable way of life, the answer came to me while playing with a 2½-year-old friend and his new wooden train. And it is this:

The legacy print and broadcast companies ride so far back in the train of commerce that they not only are isolated from consumer sentiment but also from the alternative media strategies that savvy marketers are devising to reach their customers. Take a look and you will see what I mean:Viewing the above illustration from left to right, the consumer is the engine that drives all commerce, whether the item in question is a skateboard, a refrigerator or the CBS Evening News. If she’s not buying, you’re dying.

The consumer product brands are the closest to the customer. As the foremost students of human behavior, they thoughtfully use that knowledge to satisfy and shape consumer demand. One consumer-products company possessed sufficient insight into human nature to know, even before we ourselves were aware, that we needed air fresheners that could be activated by plugging them into an electric outlet.

Retailers are the vital middlepersons connecting customers and the brands. To some extent, merchants take their cues from the consumer, but the economics of retailing are influenced greatly by the incentives the brands pay merchants to sell their products. Supermarkets demand slotting fees to assign shelf space for ketchup and freezer space for Popsicles. Car dealers get sales incentives from the automakers and home centers collect co-operative advertising dollars from tool and paint companies.

Bringing up the rear are the media companies, whose customers are not the consumers themselves, but rather the brands and the retailers who buy the ads. The media business is based on satisfying the here-and-now needs of consumer brands and retailers, who buy advertising by the week, the month and the quarter. The primary job of media executives is to ensure that they get their fair share – or, ideally, better than their fair share – of the available dollars in a given period.

Media companies would be fools to not take the money and run. But they would be even greater fools to believe that the advertising marketplace of the future will resemble the one of the past.

The legacy media companies need to remember what happened to cabooses. They were sidetracked permanently by railroads 20 years ago when new technology made them unnecessary. Any remaining cabooses are strictly museum pieces.


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