2009/2010 Upfront Finally Breaks in Last Gasp for Traditional Business Models

With Barry Diller and John Malone absurdly offering opinions on Twitter's business viability at Herb Allen's annual Sun Valley media retreat, the most relevant comment was from American Express CEO Ken Chenault, who suggested he saw no "green shoots" in the nation's economy. The same can be said for the media economy. Although several industry executives and investment analysts believe the media economy will experience positive signs for renewed growth this year, the reverse is the unfortunate reality.

Jack Myers Media Business Report is, unfortunately, continuing to forecast 12.6% declines in total ad spending in 2009 and 5.0% declines in 2010. Other forecasters, all of whom were more optimistic when I first issued my conservative forecasts last summer, have been progressively coming to the same negative conclusions about the ad economy. Broadcast network declines are optimistically projected to decline 6.0% in calendar year 2009 and 5.0% in 2010. The stagnating Upfront market reinforces the argument that there are few, if any, positive signs of growth in the ad business today. In this report, (available in full to subscribers only), I share insights on the media economy, why the Upfront will finally break this week and follow relatively traditional patterns, and why that is not necessarily good news for the networks.

SEE THE FULL 2009/2010 MYERS ADVERTISING SPENDING FORECAST BELOW

Media sellers clearly need to recalibrate their business and ad revenue expectations to reflect new economics. It will be another six years, and perhaps even a decade, before revenues for several media will return to 2007 levels, and they are unlikely to ever return for some traditional media categories and companies. Long term, networks such as CBS that are best positioned to package across multiple low cost media options have the greatest potential to optimize traditional ad revenues --- if they are, in fact, willing to package in the low-cost ways that are acceptable to marketers.

Because procurement/financial executives at client companies have gained increased authority over the media buying process, historic media silos are collapsing. These financial executives, who are concerned primarily with media cost efficiencies, are questioning why broadcast and cable are priced independently. What, they are asking, is the value differential between USA and NBC primetime originals, between FX and Fox and between TNT and CBS? And why is there a CPM difference between Bravo or AMC and Discovery and A&E? They are also challenging the traditional separation of local vs. national buying. Why not, they are asking, buy TV advertising primarily in their brands' top 20 markets, which often represent 60% to 70% of their business? And finally, they are wondering why larger shares of budgets shouldn't move to cheaper media options available in radio and out-of-home media.

As a result of these questions being asked internally at budget-strapped marketers, ad execs have not been able to gain internal approval of budgets for traditional Upfront investments. But finally, this week, budgets will be cleared and the logjam will end. Ultimately, marketing execs at major clients will win the battle and gain approval to invest Upfront budgets following relatively traditional patterns. Unfortunately for both media agencies and networks, this is likely the last Upfront to follow traditional patterns. Perhaps we will experience some traditional patterns next year, but it is extremely unlikely we will witness a traditional Upfront beyond 2010.

Fundamentally, procurement executives at client companies have run out of the time they require to dramatically alter traditional buying models in this year's Upfront. They must approve budgets now or risk preventing their companies from locking in even the basic minimums of high profile network primetime inventory. For these execs, the only thing worse than paying higher-than-necessary prices is the risk of being responsible for a loss of market share. If the market does not break open this week, broadcast networks would be well-served to force the issue by setting arbitrary deadlines for Upfront buying, after which all negotiations would flow into the scatter market.

While marketing execs and agency buyers are winning the short-term battle over Upfront budget decisions, procurement execs have won the war. Over the next 12 months, major marketers will demand greater insights on the core differential among different media buckets. In the 2910 Upfront, it seems inevitable that broadcast network, cable network, syndication, and local major market inventory will be viewed and priced on an integrated basis. Turner Broadcasting's Media at the Millennium argument, now a decade old, will finally become a reality. The 2010 Upfront will be radically different than even this year's version. The Upfront could evolve following several different patterns, but it will most definitely evolve.

In 2010 and beyond, most TV and magazine advertising will be judged in comparison to lower cost radio and outdoor media, the most cost efficient media. Highly valued network TV programming will be available only at a true premium and/or used as a bludgeon for packaging purposes. Those media companies that are best able to integrate across multiple media platforms, packaging positive branding options with high reach/low cost vehicles, will be best positioned for growth. Digital media will be packaged; currently high-priced online video inventory will be forced below cable TV CPMs. Online ad sales networks will become increasingly competitive as inventory availability explodes. With on-demand viewing and DVR usage exploding, proof of exposure will gain exponentially in importance and intrusive media options will gain in value.

As my readers are well aware, I have been an advocate for more than a decade of media companies investing in resources to target and capture "below-the-line" promotional, direct marketing, event and other non-advertising marketing budgets. Those media companies with strong brand equity but minimal cross-media opportunities for cost optimization have to consider alternative options to the current models. They have a short window to implement new selling strategies that refocus away from the cost-focused Upfront selling mentality to a more creative value-based model. They cannot depend on their traditional relationships to serve them next year and beyond unless they can offer truly low-cost options. This is the end, my friends.

Myers Publishing LLC - Contents May be reprinted with source as-www.MyersReport.com - Jack Myers Media Business Report
Myers Publishing LLC, Jack Myers, and employees accept no responsibility for any action(s) taken as a result of this forecast.
References: Veronis Suhler Stevenson Communications Industry Forecast, TvB, Zenith Optimedia, GroupM, Magna Global, Zenith Media, AB, MPA, RAB, CAB, PQ Media Alternative Media Research Series, Wachovia, Barclays Capital, Goldman Sachs, Credit Suisse, Winterberry Group, Morgan Stanley

Jack Myers is a media economist and consults with media companies, agencies and marketers. He can be reached at jm@jackmyers.com.