A turning point in marketing and media history?

Don’t underestimate the seriousness of the current international financial crisis. I am no economic expert,

The Fugitive - Train Wreck 1993 by Jerry Jaynes

but I am convinced that we have yet to see the full extent of the train wreck that is the sub-prime and subsequent liquidity crisis that is beginning to wreak havoc on the World’s financial systems.

Even following the legislative approval of the US $800billion bailout, we are still standing on the precipice of the most serious economic downturn of our generation.

Ian Verrender, financial columnist at the Sydney Morning Herald warns:

There is no understating the seriousness of the situation in which we now find ourselves. This is a historic moment, a pivotal point in global affairs. And no one can really tell where we are headed right now.

As an agency owner, employer and primary source of family income, my focus is on how this financial crisis, and possible world recession will affect the industries in which I operate. It has been playing on my mind for some time now and I have drawn some conclusions that may be worth discussing.

Traditional media

Even prior to the economic crisis there have been serious rumblings around the long term viability and future of traditional media. The new digital reality of the 21st Century is rapidly eroding the value and profitability of press, radio and free-to-air television. Its a topic that has been covered ad nauseum and doesn’t need further explanation here, except to say that the sun is already setting on the golden years of traditional media.

When a once in a lifetime economic crisis is thrown into the mix, the chances are that traditional media’s pain will be even greater, and the transfer of media power more rapid. When times are tough, advertising is one of the first “expenses” that the financial controllers cut. Big budget campaigns and high repetition advertising is seen as wasteful when jobs are on the line. Its already happening, with one of Australia’s largest advertising spenders, Harvey Norman, announcing a significant reduction in their budgets.

The people pulling the purse strings will be demanding measurability and adventurous branding campaigns may be sacrificed for less glamorous results driven initiatives.

Australia has seen a series of overpriced media acquisitions and mergers over the last two years and it is quite likely that some of the highly leveraged vehicles who have acquired many of our biggest traditional media companies will run into serious financial trouble. Macquarie Media and CVC (owners of the Nine Network) are just two obvious ones that come to mind. Any takers on James Packer having an Alan Bond moment like his late father did?

Already this year we have seen Fairfax drastically reduce their workforce and the layoffs haven’t ended. This crisis will merely hasten the rationalisation and reinvention of traditional media.

New media

While many have been declaring the era of traditional media over, new media has been growing rapidly. In fact, an economic downturn is seen as a possible boon for the advancement of the new media troops.

A recent piece by Mark Chenery in Adnews (Australia) trumpeted:

Australia’s online advertising market will benefit from current tight economic conditions as advertisers seek out cost effectiveness in marketing budgets, predicts a report released today by Frost & Sullivan.

Prior to the economic crisis the the predicted call for measurability, new media was making massive inroads into the advertising market.

Marketing giant Kellogs announced in the US that it planned to cut Commercial Filming up to 20% in the Next Year. After taking a long look at where it’s getting the best return on its marketing investment, Kellogg Co. has decided to move more money online and spend less on TV.

Meanwhile a US survey of Chief Marketing Officers revealed that that nearly two-thirds said their interactive/digital marketing budgets have increased in the past year, while 60% have seen their traditional advertising budgets go south.

The speed and measurability on various online opportunities will be extremely attractive to budget conscious marketers in the next few years, and will likely accelerate the shift in power from traditional to new media.

Nonetheless, the new media and tech industries will not be immune to the downturn. Most of these businesses are highly leveraged models relying on the goodwill of angel investors and Silicon Valley venture capitalists. They will be feeling the pinch of the credit crunch.

Two days before the recent startling stock market crash, dotcom veteran and blogger Jason Calacanis wrote:

It’s my believe that the economic downturn will be much worse than it is today, and that 50-80% of the venture-backed startups currently operating will shut down or go on life-support (i.e. 3-4 folks working on them) within the next 18 months.

Make a list of every Web 2.0 startup to raise an A or B round and cross 80% of them off the list, because they will not make it to their next round of funding or profitability.

I tend to agree. Silicon Valley has been going through another tech bubble, much of it around the Web 2.0 phenomenon, and so a fall was probably due. The credit crunch will almost guarantee it.

However, it seems that new media has made enough ground in the last 5 years to ensure that the strong business models will survive and thrive in the downturn.

Advertising

Advertising agencies are always extremely vulnerable during economic downturns, and many ad veterans would be able to still vividly recall the traumatic cut-back of the last recession in the early 90’s. With many economists and government bodies predicting that this crisis could be the most significant since the Great Depression, advertising agencies will be exposed to the greatest threat many of us will ever see.

This coincides with a period of serious debate regarding the future of ad agency models, with argument raging over whether full-service models are still relevant.

One thing is certain though, a recession will result in a rationalisation of the advertising industry and a review of how agencies operate. Older, cumbersome models could find themselves unable to adapt quickly enough to survive in an economy that rewards thrift and speed. Management heavy agencies could find they need to shed weight in order to stay afloat. Some new players will struggle in their first exposure to tough economic times. It happens in every downturn and it will happen this time too.

A movement towards leaner, meaner advertising agency models will result in greater outsourcing of human and technical resources. The new digital reality and global economy allows businesses to source freelance talent from around the globe quickly and cost-effectively. Agencies could become less centralised models. Rather than requiring all the talent under one roof, they may begin outsourcing certain functions to appropriate talent or specialists. Web and graphic design can be done just as well in Madras as Melbourne, and often at a fraction of the cost.

I predict the rise of a new type of agency model, headed by a nucleus of visionaries who outsource key functions to the best and brightest around the world. These agencies will be able to run with less overheads and be more immune to the vagaries and fluctuations of the economy and anxious clients. Many of these new agencies will be concentrating on great ideas for their customers rather than production, and will be looking at alternative compensation models like equity or target bonuses.

The new agency may also be a source of business innovation, creating new revenue streams for themselves rather than for clients. By applying their talents to the web, social media and picking on the bones of traditional media, these agencies may identify new revenue opportunities to support their business instead of existing purely for client service.

However the more substantial change could actually be in the services and products offered by advertising agencies. With a possible transfer of media power from traditional media to new media, agencies will have to reinvent themselves to provide relevant services. Digital media agencies could suddenly find themselves as the new leaders in advertising providing innovative production and media buying options. Purveyors of the old 30 second TVC may find that their customers no longer see that as the ideal option to build their brands.

Social media may well be rising at the perfect time. As consumers grow increasingly weary of broadcast advertising, and have more control than ever over the media and content they wish to consume, social media offers a subtle new direction for marketers to build relationships and brand. Few traditional agencies will grasp the subtleties and nuances of social media, nor will they have the patience required to deliver a successful long-term social media strategy.

In fact, while social media offers a whole new world of marketing opportunities, the big question will be whether there is room for agencies in that world. There is a danger that consumers will be burnt by “social media campaigns” that are clearly delivered by an agency rather than reflecting the true voice of the client. This could undermine the continued growth of social media marketing.

Australia is a few years behind the social media marketing growth of the US and still has a lot to learn, but I am confident that it will make an impact and that the next few years of probable tough economic times will be the perfect environment for social media to emerge as a real marketing force.

Conclusion

We may really be at one of those unique times in history, a turning point that forces change and massive innovation. New economic realities will neccesitate reinvention for old media and marketing businesses to stay relevant, and will result in the rise of new media options and new maketing thinkers.

Look around you, at the media landscape today, the agencies that feed them and the marketers who are their clients. Take it all in. Make a mental snapshot. It may be the last time it ever looks like this.

Posted under Advertising, Advertising Agencies, Media Mix