Advertising and the Economic Mess We're In

Corporate America should be responding proactively and forcefully to the chaos in Washington. In a whirlwind, it's impossible to find safe haven anywhere but in the center. Unfortunately, the center is the most dangerous place in times that require clear and focused advocacy on behalf of the consumer and the economy.

In last week's Jack Myers Video Media Business Report, I anticipated that economic uncertainty would cause investors across the board to scale back. Even with the positive second quarter results for most media companies, overall market forces are washing out shareholder value for the bright lights along with fading and folding companies. (See Jack Myers Weekly Wall St. Report 8-5-11) Institutional investors are shifting funds away from companies that depend on a strong consumer economy. Publicly traded media and advertising corporations are right at the top of their watch list. No matter how positive the reports of Wall St. analysts, the current self-destructive partisan debates in Washington are trumping them among investors. The destructive forces in Washington today are pushing both domestic and global economies toward the eve of destruction. Partisan politics are raging. Confidence has been destroyed. It's almost as if we need to go back to feudal times and the Crusades to find comparable patterns of destructive intensity.

While there are fair and reasonable debates about the causes of the debt ceiling debacle, there can be little debate about the death grip that the Tea Party has on the nation. The companion Republican focus on paralyzing the short-term economy in hopes of capturing the White House in 2012 may pull down the vibrant and vital advertising business with it. Whatever your political beliefs, it's clear that the luxury market is thriving while the mass market economy is holding on by a thread. Advertising is a mass market business. It seems almost inevitable that global economic realities and Washington partisanship will cut that thread between now and November, and the danger to multiple sectors of the advertising economy is very real.

According to a new STRATA  quarterly survey of major advertising agencies, ad spending decreased during the second quarter, which made it sorely stick out from the positive growth seen earlier this year. STRATA CEO and President John Shelton felt that most ad agencies won't return to a strong period of growth until after 2012.

Compounding the general economic issues for media and advertising is digital disruption. Legacy media models are holding strong, so far. But they're eroding. As I mentioned in my Video Report last week, large media companies should double down on their investments in digital while protecting their legacy asset portfolios. But with economic uncertainty and as investors across the board scale back, significant commitment to not-yet-profitable digital businesses are unlikely to be well received by Wall Street.

Unless economic news turns positive in the next quarterly reports, advertisers are likely to pull back. Television, radio, out-of-home and magazines, along with the most stable digital media buys, will be safe havens for marketers. But the thousands of VC funded companies that are not yet profitable will be hard pressed to generate the increases they have forecast and on which they depend. Consolidation will follow.

Corporate America should be responding proactively and forcefully to the chaos in Washington. In a whirlwind, it's impossible to find safe haven anywhere but in the center. Unfortunately, the center is the most dangerous place in times that require clear and focused advocacy on behalf of the consumer and the economy.

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