Media Industry is in an Unprecedented State of Economic Disarray. JackMyers Think Tank

What a week last week was -- and what a week this is already shaping up to be! The Eliot Spitzer affair was beyond comprehension. The John Malone/Barry Diller soap opera played out in a Delaware courtroom. But for long-term impact, the Bear Stearns debacle was the major story, with the economy taking a turn that could have significant impact on this year's advertising marketplace. Plus NBC and News Corp. launched video website Hulu last week. Debbie Richman left OMDto join Lifetime. Curt Viebranz was unceremoniously dumped by AOL and replaced by insider Lydia Clarizio. Joanne Bradford departed MSN, where she was GM, to join Spot Runner, a company that is gaining increased recognition and that former MTV and IPG executive Mark Rosenthal recently joined as Vice Chairman. There were multiple acquisitions and far more major personnel announcements than in an average week. The rate of industry change is accelerating.

While I am not yet prepared to revise my relatively bullish ad spending forecast and I continue to believe most media other than newspapers will experience revenue increases in 2008, the economy is clearly heading into a recession. And while our analysis of the historic impact of a recession on ad spending supports our bullish forecasts, the combination of a severe economic downturn with the dramatic erosion of broadcast network audiences resulting from the recent writers' strike could cause advertisers to finally resist the cost-per-thousand (CPM) increases the networks will undoubtedly be seeking. Although, for reasons I point out below, I expect the Upfront market will once again be a good one for the networks.

Broadcast networks, buoyed by their success in generating higher than expected CPM increases last year, expect buyers to once again pay mid-to-high single digit CPM gains in this year's Upfront marketplace. These increases are anticipated although strike-related ratings declines were dramatic and the ratings recovery has been slow. Leading cable networks are projecting double digit CPM increases. But agency executives are quietly expressing concern that the network run of year-after-year CPM increases may be at an end due to marketers' economic concerns.

Compounding marketers’ concerns, the writers' strike has caused unprecedented disarray at the networks and studios. With the launch of Hulu, with investors financing alternative programming studios like Next New Networks ($15 million more invested last week), with accelerating audience fragmentation, and with networks struggling to bring viewers back into the fold, agency media departments and media sales executives are facing unprecedented demands.

Yahoo!, AOL, Google and MSNshould be well positioned to benefit. But, except for Google, these companies are also in a state of unprecedented disarray. Microsoft’s focus is on its battle to acquire Yahoo!, and Yahoo!'s focus is obviously on its response. Both should be concentrating on maximizing brand advertising revenues. But who at either company is leading the charge? While they both have competent executives, the lead dogs at both companies have virtually no experience in the traditional media marketplace.

In recent months Yahoo! lost Greg Coleman, Wenda Millard, Jackie Kelley and others who had Madison Avenue experience. At Microsoft, while the aQuantive acquisition brought several executives experienced in the digital ad market, only Bradford was well known in traditional ad circles. AOL should capitalize on the brain drain at Microsoft and Yahoo! but it has suffered its own executive departures. Neither Viebranz nor Clarizio have traditional ad industry sales and marketing credentials.

Google's acquisition of DoubleClick finally gained EU approval last week, but Google’s most active executives in the ad community also lack experience in the traditional media marketplace. While Microsoft, AOL and Google have been actively acquiring companies and recruiting talent to bolster their bona fides in the digital ad marketplace, none can field a team with experience and credibility in the network TV departments of traditional media agencies and among the senior brand and advertising executives at top 200 marketers.

Attention is being paid to vertical ad sales networks, behavioral targeting, administrative backbone companies like Rapt(acquired last week by Microsoft), and social networking, but very little attention is being paid to brand advertisers' needs and opportunities. Nor is attention being paid to developing quality content to offer a trusted environment for brand advertising. The focus instead, it seems, is on advertising as a commodity rather than advertising as a tool for building brand awareness and sales.

This is an industry in disarray. In chaos. In a chaotic marketplace, advertisers and agency buyers will, like consumers, turn to those brands they know best. And that means that for one more year at least, the TV network Upfront marketplace should be a strong one.

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