Media Freight Train Rumbles Along

The media and advertising communities are undergoing a subtle transformation and a handful of shifts. The single most notable change is the universal acceptance that the business models no longer work. There are, surprisingly, still a few executives who believe the economic fundamentals of the media industry as a whole are sound. Wall Street certainly doesn't believe this, and efforts to convince them are going unheeded. Yesterday I was the keynote speaker at the America East Newspaper Conference in Hershey, PA. More than 400 executives from local newspapers from Maine to Florida are attending – and they are looking for solutions. The challenge newspaper publishers face in embracing and investing in new revenue streams is twofold:

1. They can't identify businesses that might actually make money from either subscriptions or advertising, and mini-payments are certainly not a real answer.

2. Even those newspapers that are not in heavy debt and/or are family owned and reasonably secure, are under extremely stringent financial guidelines and are cutting back on revenue-generation because, for the most part, both subscription and ad sales revenues are declining – and the decline is accelerating. It's a zero-sum game with no solution.

There is some good news, though, which I share below. But first, some more bad news that you already know. Newspapers are just the first and most visible major medium to collapse – losing more than 30 percent in ad revenues in a short three year period, with another revenue drop of more than 30 percent forecast again in the next two years. Newspapers are the oldest and were the largest medium – by far. Other media are quickly following newspapers down the funnel.

The good news is that more and more media executives are seeing a positive path toward the light. They are seeing the beacon pointing at them from the end of the tunnel. Entrepreneurial spirit is alive in many media companies today, but it is threatened by the inertia that still permeates the industry.

The image that comes to mind is the freight train. Mass media has become a freight distribution business – moving advertising messages to their destinations across the globe using a variety of distribution vehicles. All the marketers care about is safe and assured delivery to marginally targeted audiences at the cheapest possible cost. That's why media placement firms are so valuable. They take over that responsibility and they do a good job. But they are limited in their scope not by their skills or imagination -- but by the clients themselves.

Marketers are asking the advertising industry to stay in the basic mass distribution business. "Continue to deliver the same services as you do today," they say. "But lower your costs. Sure we encourage clever enhancements that improve the targeting, value and measurement of advertising, but we're not going to pay any meaningful premiums for them. And try not to get our top management involved. They're pretty busy these days."

In 1963, advertising captured 70% of marketers' total communications spending, a total of $12 billion out of $17 billion in total marketing investments. Between 1963 and 2007, advertising grew at a robust 5.3% annually. Non-advertising marketing budgets outpaced advertising, growing at an amazing 17.0% annually. Today, advertising represents a paltry 32% of the total marketing communication spend. In 2011, Myers forecasts that advertising's share will drop to 28%.

The answer for media companies lies in that reality. The work I am doing with several media companies prevents me from speaking about specific initiatives. But trust me when I tell you there are executives within major media and advertising companies who are waking up and developing sustainable responses to the economic and systemic crisis. Wall Street would be impressed – but investors aren't paying much attention to advertising and media right now.

It will take 36 to 60 months for the media industry to renew itself through transformative business models. Media companies have a struggle ahead. Those that fail to identify and develop sustainable growth businesses will continue to be defined and controlled by dying paradigms.

Jack Myers has been developing and implementing transformative business models for media companies, agencies and marketers for more than 30 years. He can be reached at jm@jackmyers.com and (212) 875-8002.