The first decade of the 21st Century seems to have passed in a nano-second, yet this past year moved at a glacial pace as cracked corporate walls came tumbling down and eroding financial foundations collapsed. Ten years ago, the media and advertising businesses appeared to have a prosperous road ahead. Google and eBay were still in their terrible twos. Amazon and Craigslist were in their infancy. YouTube, Hulu, Facebook, My Space, Twitter, Skype and most of today’s hottest media growth properties did not yet exist. A very different reality exists as we enter this second decade of the 21st Century. Wall Street and corporate investor relations groups remain mired in quarterly financial details that often obfuscate the true value of a company – or lack of value. In the context of the speed with which the industry is changing, analyses and forecasts looking forward just one or two years seem irrelevant. As we enter the second decade of the 21st Century a look forward to the state of the industry in 2020 strikes me as far more pertinent. We are in an industry in which “Chicken Little threats-that-the-sky-is-falling” have become a cacophony even though traditional business models survive and often appear to be thriving. But the fact is that for many the sky is actually falling and their infrastructures are truly collapsing. The media industry is at a historic turning point. What will the media world look like in 2020? In my first subscriber-only report of this new decade, I share my Vision of Media and Advertising in the year 2020. Share your comments at Media 2020 Vision
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Media Industry’s 21st Century Economic Realities:
The largest media conglomerates have written down $200 billion from their balance sheets during this past decade. The U.S. Court system announcedthat business bankruptcies overall in the 12 months prior to July 2009 totaled 55,021, up 63 percent from the 33,822 filings reported in June 30, 2008. Chapter 11 business reorganization filings totaled 13,951, up 91 percent from the 7,293 filings during the 12-month period ending June 30, 2008 and up 250% from the 5,586 filings in 2005. The advertising business is directly impacted when business suffers and total annual media company revenues from advertising declined 20% between 2007 and 2009.
Can current business models dependent on advertising and subscriber revenues be reinvented to sustain collapsing media empires for another decade and beyond? It’s not unreasonable to ask if the broadcast television medium is at its peak both as a content producer and as a distribution system. Or is the industry reinventing itself as it has throughout its history? In 2020, thousands of media companies, including many of the largest and most prestigious, will have disappeared from the landscape or undergone radical changes to their core business models. As this new decade begins, there are few major media companies that are not exploring radical restructuring, corporate unbundling of assets, mergers, acquisitions, and management shifts. In ten years, The New York Times, Washington Post, San Francisco ChronicleandChicago Tribune may be free journalistic enterprises funded primarily through private foundations.
In 2010 we are well past the midpoint of a 30-year transformation away from Industrial and Information Age business models built on a foundation of aggregating society into mass homogeneous audiences and customer bases. Since the creation of the Internet and Internet browsers in the early 1990s (Mosaicwas launched in 1993), new media technologies have grown exponentially. We are now two decades into a 30-year transformation away from the mass models of an Industrial Age and on the downward slope accelerating into The Relationship Age® business models built on interpersonal and interactive relationships among discreet groups with common interests. Media and advertising companies and marketers are just beginning to comprehend the dimensions, implications and economics of this shift even though they have been readily apparent since the late 1990s. (Read my commentaries from 1998 at www.classicjackmyers.com).
Media 2010 to 2020:
From 1963 to 2007, advertising and subscription revenues generated by media companies increased at an annual average rate of 5%. In 2008 we began a new cycle that is likely to last for at least two decades during which total advertising and subscription revenues will increase only slightly, if at all. Over this next decade, U.S. media companies’ advertising and subscriber revenues will increase less than gross domestic product – only 2% to 3% annually. There is no reliable model that can make a valid case otherwise. Forecasts based exclusively on cyclical econometrics suggest stronger performance, but they do not take into account the continuing shift of marketers’ budgets away from traditional reach-based advertising and into highly targeted and response-dependent non-advertising marketing programs, including promotions, event marketing, direct marketing, search and social marketing. These models fail to apply the economic realities of consumers’ sophistication in finding the content they want for free.
Mass media is a sustainable business, with marketers still projected to spend an average $230 billion annually during this new decade to communicate ad messages through traditional mass audience channels. But that is less than the $250 billion spent on advertising in 2007, and media buyers will become more aggressive in demands for scale, cost efficiencies and operational ease.
Corporate growth in the mass media sector will be heavily reliant on share increases as both advertising costs-per-thousand and subscription fees erode. Mass media companies will be required to invest heavily in new infrastructure to facilitate electronic transactions, administrative requirements and research metrics.
Only a few of the thousands of companies that are now dependent almost exclusively on ad and subscription revenues will survive intact to 2020 without making substantial changes to their core businesses. In 2020, advertising is projected to command only 18 to 20% of total marketing budgets, compared to 30% in 2007 and 70% in 1963.
Advertising, by definition, is a one-way communications technique for distributing commercial messages to audiences via multiple media options. In 2010, advertising investments in media will total only an estimated $180 billion, according to Jack MyersMedia Business Report. Non-advertising marketing budgets will total nearly $500 billion, yet media companies are projected to capture only $20 billion from this pool. By 2020, marketers will be actively investing 85% to 90% of their projected $1 trillion in communications budgets in a direct consumer activation process -- using coupons, incentives, direct marketing, point-of-purchase, events and other non-advertising marketing tools, much of it in association with media properties. It is a business imperative that traditional media content and distribution companies invest in the human and technological resources to become an active participant in this marketplace.
Growth at most media companies will be dependent on their ability to serve as the emotional and transactional connection point for converting their audiences to customers – customers for both their own products and services and those of their sponsors. Media companies with powerful brands and extendable franchises are the best positioned for growth, provided they can successfully engage with and influence the purchase decisions of their audiences.
Media Industry’s Failures:
The media industry should have begun making this transformation decades ago rather than relying on outdated supply-demand economics that have remained essentially unchanged since the 1960s. Even today, the solutions being advanced by the media industry are tied to the sale of advertising and content rather than the building of connections and commerce. The media industry’s greatest failures over the past two decades have been:
- an inability to effectively monetize “media brands;”
- a blindness to the power of interactivity as a tool for marketers;
- a mind-boggling adherence to a business model that has focused almost exclusively on investments in expanded media supply even though this invariably results in pricing erosion;
- economic models that assume advertiser demand will continue to grow and that advertisers will blindly embrace technological “bells and whistles” with no true measures of value or return-on-investment;
- a refusal to acknowledge that the trend toward free news, information and entertainment is inexorable;
- a failure to connect the dots between the Internet, cheap content creation and distribution tools, and an erosion of consumers’ need for and interest in traditional media.
Media Futures:
While these truths are more generally accepted today than they were a decade ago, few media and advertising companies are proactively responding to them. The sad truth is many will continue to ignore these realities -- and as a result their business models will erode and collapse in the near future. In this second decade of the 21st Century, successful media companies will progressively organize their business models around:
1. Branded Media Assets
In this decade, media companies and agencies will identify, organize and package audiences based on matching these audiences’ interests, needs and loyalties to marketers’ offerings. They will require the tools and resources to effectively convert audiences into customers for both their own extended properties and their sponsors’/partners’ products and services.
2. Free vs. Funded Content
Media companies with commoditized content will be forced to offer it free and depend either on scale or relevant brand equity, and ideally both. Low-priced direct-to-consumer subscriptions for media content will be obsolescent as consumers narrow their funding choices to a few full-service suppliers. Consumers will prefer to pay one monthly all encompassing fee for total on-demand access to their favorite media as distribution windows converge. Only special events and special content will command premium stand-alone pricing. You Tube and other online video producers will inevitably package low-cost and user generated content in ways acceptable for advertising and they will quickly capture a sizable chunk of ad budgets currently targeted to TV.
Solutions for Media:
The solution for The Wall Street Journal is neither micro-payments nor an annual $150 subscription. It’s the Bloomberg model of distributing basic content for free while charging seven figure fees for corporate subscriptions to exclusive insights, data and competitive information.
Only a handful of television networks will sustain themselves to 2020 with the current mass reach based business model. The solution for most television networks will be to focus on producing extendable vertically integrated content brands that build powerful and sustainable audience loyalty and to monetize that loyalty through sponsorships across multiple (on screen and off screen) platforms, merchandising, licensing, events, social networks and retail initiatives.
The solution for magazines is to become a creative showcase for marketers in specific product and service categories. The concept of a magazine must be extended to embrace both print and video, plus well-organized, editorially curated and easily accessible online intelligence, insights and information about specific categories of interest. Magazines that are dependent on mass circulation will need to grow their rate base and reduce their ad rates – an unsustainable model for all but a few.
The solution for the newspaper industry is to completely reinvent their businesses to capitalize on their local brand equity and adapt to local consumers’ need for information, access and commerce. They must make a quick and dramatic overhaul of their distribution models and business focus.
The solution for radio is to aggregate audiences across national channels, focus even more on talk, build online social networks and sponsorships around talk show hosts, invest in custom campaign-by-campaign effectiveness research, and become a low-cost option for traditional advertising budgets.
The solution for local television stations is perhaps the most difficult to design. There is too much redundancy in the current local TV marketplace yet there is little demand for differentiation. In an on-demand content world, the over-the-air licensed TV station becomes the least relevant cog in a globally networked universe. Stations need to essentially destroy their current dependence on network content and commoditized local newscasts and design a new programming architecture. Regulatory controls must be eased to allow for cross-media ownership and to empower local TV stations to merge with/acquire/partner with local radio, newspapers and cable operators to reinvent the local media marketplace.
Historical Context:
In the last decade of the 19th Century and the first decade of the 20th Century, Thomas Alva Edison created electricity and the first battery; the first "pay" phone was installed in Hartford Connecticut; the Wright Brothers completed the first airplane flight; the first projection film with a plot was played when the 10-minute movie The Great Train Robbery was released; Henry Ford’s Model T automobile made its debut; the International Copyright Act of 1891 was passed; the General Electric Company was formed; the Chicago World Columbian Exposition of 1893 hosted 50 countries and 26 colonies; the first professional football game was played; the first modern Olympics Games were held; the New York Stock Exchange collapsed leading to four years of depression from 1893 to 1897; the United States fought wars in Hawaii, Puerto Rico, Cuba, the Philippines and South Dakota (the last battle against an Indian tribe); and three companies merged to become C-T-R (Computing- Tabulating- Recording Company), the forefather of IBM. Businesses and business models were responding to a societal transformation as the nation uprooted itself and moved from rural towns to massive cities; as mass production changed the fundamental concept of commerce; and as mass merchandising, mass marketing and mass media began to evolve. In 1910, society and business were two decades into a radical 30-year transformation that impacted every segment of society, culture and business.
As we enter the year 2010, we are again 20-years into a strikingly parallel three decade period of transformation that will make the media world of 1990 virtually unrecognizable one decade from now. These next ten years will be the most critical in the 100-year history of the modern media industry. For many companies, their very survival is at stake.
Jack Myersadvises media companies, agencies and marketers on business strategies. He can be contacted at Jack@mediadvisorygroup.com.