Over the last two weeks, I have received several e-mails and calls from ad agency people across the country asking for some help in forecasting local media pricing for calendar year 2010. To a person, they say that they have done well for clients so far this year and are now getting hammered by advertisers to drop rates even more for the rest of 2009. Also, some clients are demanding additional rate relief throughout all of 2010. It is a complicated issue with a lot of moving parts. Let us look at it as rationally as possible.
I sent out a few questions on this topic to my panel of experts across the country and received almost a 100% response. Also, I asked some sales executives who are not panel members the same questions. There will be some quotes below but I cannot identify any sales managers or I could compromise their positions. Most people spoke with remarkable candor.
We are in the worst recession since the 1974-1975 debacle which occurrred as Dick Nixon resigned from the White House in disgrace in summer 1974. Jerry Ford, who replaced him, tried a Whip Inflation Now (WIN) campaign which fell flat on its face and the economy continued to tank. Ford narrowly lost to Jimmy Carter but by then the economy was on the mend but people did not fully realize it until months later. Many said Ford lost not to the bad economy but for his courageous and controversial pardoning of former President Nixon.
There are few of us still around who remember that time in media. As the recession ended, media pricing was like a coiled spring. Throughout 1976, local TV and radio prices snapped up dramatically. Some markets saw 40-50% increases in cost per points as car dealers came back from the brink and Americans started buying again. It was a great time to be a broadcaster and a difficult time to be an agency person explaining this dynamic marketplace to your client base. We do not see a replay of 75-76 happening this time around.
While there are some signs of improvement in the economy going on, most would say that they are quite tepid. The key indicators of retail sales, home prices, corporate earnings and jobs do not look good. The glass is half full crowd puts a positive spin on recent corporate earning reports--1st quarter results were down 32% year over year. The positive is that many analysts thought that they would be even worse. With jobs they take a similar tact--if the rate of new unemployment filings is lower than the last month, they consider it a victory even though the unemployment rate keeps inching up. Unemployment usually keeps moving upward until after the recession is over. No matter how you spin it it is clear that MAJOR HURDLES REMAIN.
Just how bad is it? Niall Ferguson is recognized as the greatest living economic historian. He is only 45, teaches in the US and Britain and is a wonderfully lucid writer. In the June 1st issue of BARRON's he was interviewed and I quote "Nobody has the faintest idea what next year is going to look like. It isn't clear yet that this is just a common recession. This is probably a slight depression." Wow! The most prominent economic historian in the world has already dropped the "D" word. If you remember a post from a few months ago (Are We in a Depression? February 23, 2009) we defined it in two time honored ways:
1) a depression was official after 36 months of continuous decline in GNP. That would put us at January, 2011 so we have a long way to go.
2) an official unemployment rate of 11.0% or more. Again, we have that in a few states but nationally we have a way to go yet.
Some local broadcasters may be in a depression (Ohio, Michigan top the list) but the national economy clearly is not at present.
What do our panel members and guest commentors say about media prices? A fellow in Ohio says things are desperate. He has to fire more staff and New York just does not understand. An uber-experienced sales executive says "Agencies smell the blood of a depressed media economy and have slashed their cost per points for the rest of the year." A very thoughtful media executive says "I would be ecstatic if the back half of 2009 came back but I do not see it happening. The loss of the big three auto spending is too devastating and the German and the Japanese maufacturers are feeling it too. I just don't know how any category boost in ad spending can compensate."
Three people mentioned a scary thought. They said that network affiliates are under such pressure that they have played "Let's Make a Deal" with everyone. Some are already sold out for third quarter. This violates the old saw that a good sales manager is never out of inventory. If you are sold out this early, you priced your product too low. Headquarters is happy that billing is on the books but a) will it run or get cancelled mid-stream? and b) if you have no inventory how do you take care of big advertisers with make good weight when buys do not deliver? It is a recipe for disaster that stations have not had to deal with much over the years.
A buying chief that I have known forever tells me "1st quarter was a dream. But, we were actually pre-empted a few times in May. I do not think that things are so dire. Rates next year will be tied 100% to the economy at that time." A few others echoed that sentiment.
So what happens in 2010? The honest answer is a bit unclear. I will bet that with automotive still on the ropes we will definitely not see a replay of the 40-50% increases of 1976. But another 25-30% drop is equally unrealistic. It is clear to many of us that this will not be a V shaped recession but one where we scrape along the bottom for an uncomfortably long time.
What of other media? Outdoor looks like a great opportunity right now. Radio the same with great value available in many markets and good people standing on their heads with promotions. Newspapers? They may be dying but many still don't get it. Magazines? They will provide good deals if you push a little. Digital? They appear to be still growing but the rate of growth is way down. If you don't ask, you don't get so for 2010 be sure to ask for rate relief with all online buys.
This is a tough issue. Clients keep pounding the table because they are nervous and CNBC, Fox News, and CNN do not help with their incessant reports on the struggles of the media. Stay aggressive but, above all, stay cordial. Most of us can survive this once in a lifetime horror show if we keep our heads. And, if you are an advertiser reading this, remember that with the big drop in TV and Radio this year, you are starting from a lower base. So another double digit decline in media prices for 2010 is remote unless the economy really gets horrible.
If you would like to contact Don Cole directly, you may do so at firstname.lastname@example.org