Monday, April 20, 2009

The Sounds of Swirling

What happens after the toilet flushes?

Somebody pulled the handle and we're all wondering what happens next. A spate of articles and posts recently have discussed the newspaper industry, advertising budgets, social/digital media and the economy. It is clear that they are all spiraling around trying to figure themselves out. So, what happens when its all said and done? Will the bowl fill back up?

Starting at the macro level, many industry firms are suggesting a decline in global ad spending from 5 to 10%; that translates to somewhere around $15b to $25b in the US alone. These are relatively easy cuts to justify since they are external spends and don't involve operations or staff. Note that from the vendor point of view this equates to 20,000 jobs in ad agencies using traditional rules of thumbs.

Advertising spend equates directly to pages of magazines and newspapers. Pages are dropping faster than spending - down 26% in first quarter. The old corollary was to track pages of advertising to find trends - fat mags are hot topics; but now skinny is the new black. If there is less spending then the container is much smaller. If the container is smaller there is less revenue to pay for the creation of content. While it is correct to think about the separation of editorial and advertising, the amount of the former is dependent solely on the latter.

Newspapers, and analog distribution methods in general, run the risk that their content and revenue models might someday be separated like Siamese twins. It happened in music with the melting of the jewel case, its now happening in words. Here's a list of where 'newspaper' content has gone along with some thoughts on the rest of the product attributes. It once again proves that categories don't converge, they diverge - just look at all the niche options (Craig's List, Flickr, Yelp, etc.) that have sprung up to satisfy individual aspects of what was once the newspaper.

Social media is a relevant tool for marketing; but that doesn't mean it is a replacement for advertising. It works for recommendations but possibly not so well for other purposes of messaging. And even online marketing, one area where spending is up slightly, is not as cost effective to run as broadcast. Both forms of digital are labor intense and have scalability concerns. In addition there is a false sense of performance - just because we can show engagement, it does not always mean sales.

The general economy discussion focuses on resetting consumption patterns -- we simply use too much stuff. The credit crisis, debt load, uncertainty about the future, layoffs and pay cuts all are ratcheting incomes and spending back and saving up. This double-barreled blast drastically changes one's view of 'disposable income.' If the human mind is reset, then it is quite possible that consumer spending will not return to previous levels once confidence is regained.

All this leads to the question: What does the toilet bowl of the future look like?
  • Advertising will not completely recover because it will be socially irresponsible to create artificial demand.
  • Analog containers will not reappear in their former state of being since there is no digital equivalent to a fixed form factor.
  • Content will move to a variety of smaller, niche online and offline channels making it much more expensive to place, monitor, and measure media.
  • Paying for reach or impressions will continue to be threatened as 'performance' becomes king.
  • Finders, or personal aggregators, will fill in the void to deliver the highlights.

No comments: