Dornbusch's Law and Media

The late Rudiger Dornbusch was a long time economics professor at MIT. He was generally considered a global expect on monetary theory and, to economic theory junkies such as I, he was something of a rockstar. He became well known outside of the arcane world of academic economics during the Tequila Crisis of 1994-95 when the Mexican peso collapsed and it impacted markets for quite a while. The good professor articulated what became known as Dornbusch’s Law. It goes like this—“Crises take a much longer time coming than you think, and then it happens much faster than you would have thought.”

He died in 2002 just as the media world was finally seeing sweeping and long anticipated changes. I kept thinking of Dornbusch’s Law as I saw things evolve and double back to it even to this day. A few examples:

1) Newspaper—as the internet grew, many people began forecasting the death of daily newspapers. Yet, newspaper ad spending stubbornly hung on a decade longer than many of us thought possible. Suddenly, with the Great Recession hitting hard in 2008, newspaper billing collapsed by double digits in back to back years and has never recovered. The industry was way too slow to move to digital and did not know how to monetize it. Millennials have no interest in waiting for a hard copy of a newspaper today as they want news instantly. Sadly, many depend on Facebook for much of their information.

2) Radio—the argument for radio’s durability has often been “it will always be there.” True so far but time spent listening especially among upwardly mobile young adults is in sharp decline. Tech improvements have propped up stations nicely in terms of staffing and sales expense but there are too many musical options giving listeners total control which should block any strong comeback in the medium.

3) Cable TV—back in the 80’s, many would say that all cable had to offer was HBO, some Gomer Pyle reruns, and Braves Baseball games. Over the air networks did not react fast enough and suddenly saw their audience shrink significantly. Later, the big players purchased cable networks and that hedged their revenue picture nicely. Now cable and the major over the air networks are reeling from streaming services such as Netflix, Amazon Prime Video, Hulu, and the upcoming Disney +. Yet, as late as 2011, people were telling me that Hulu would be gone in a year and never get traction.

4) Magazine—very few titles are thriving these days and survivors seem struggling. Today, I subscribe to a few publications and I am amused how after a subscription lapses, they often add another six months to a year. It appears that they are protecting their advertising rate base.

5) Ad Agencies—as retail shifted via Amazon et al, agencies often talked about doing better commercials. Some pivoted in time, embraced the digital world, and became more focused on consulting, forecasting, new video options and analysis.

The next recession, whenever it hits, will take down a number of properties and, similar to Dornbusch’ Law, they will fall quickly in my opinion.

What about now? Well, think about it. Big Data is the rage right now and certainly helps marketers. Yet, if the Blockchain catches on with consumers quickly, will Big Data dry up to a certain degree as more transactions become private thanks to the new technology? Perhaps 10 years from now, the Cloud will be a relatively minor player.

It always has surprised me how people do not act on the obvious. The Internet was not a “flash in the pan” as some forecast but after the dot.com crash of early 2000’s many marketers did not embrace it for a few years. Streaming services spread like a prairie fire, people saw the danger in other video disciplines, but did not do much of anything to evade the herd of charging buffalo coming right at them.

As an aside, this ignoring the obvious is not limited to media. As I type, Congress is raising the debt ceiling and guaranteeing trillion dollars deficits for years to come. Despite snarky comments about politicians, I am confident that most can do simple arithmetic. Yet, talk to people about the dangers of the huge national debt and their eyes glaze or they tell you that you are way too gloomy. How about the global water crisis? Capetown is in trouble again as is Mexico City. Parts of Africa are no longer viable for agriculture and millions have no choice but to move. How will countries handle this? Our infrastructure is in terrible shape. Bridges and roads are unsafe and our airports are antiquated. People and politicians shrug and kick the can down the road knowing that it will bite and bite hard and expensively some day. Finally, the big one—climate change. The world gets hotter and hotter, air gets dirtier, the oceans keep rising. If not now, when?

Dornbusch’s Law is alive and well. As a young adult, I followed closely a small northern New England town and their need for a new water system. They issued bonds and established a “sinking fund” to redeem the bonds in 25 years. Money was added to the sinking fund each year and earned market interest. At the end of the term, the bonds could be redeemed in full with no increase in taxes to cover the large bill. A few newcomers at the town meeting suggested not creating the sinking fund. The flinty old Yankee running the meeting was having none of it and neither were the long standing residents. They were not Wharton MBA’s but saw a clear problem down the road and dealt with it immediately accepting minor pain but avoided a larger problem years in to the future.

Yes, it is human nature to procrastinate. Yet, hurricanes of all kinds are coming. We need to board up the doors even if it is a few years early.

If you would like to contact Don Cole directly, you may reach him at doncolemedia@gmail.com