Every year we see the same ritual : forecast, charts, predictions about the growth of the advertising market. For those who like charts and figures, go directly to the table below.
For right-sided brains, let's have a look at the underlying forces in play. They are quite interesting to watch, and they will have a direct impact on the bottom line...
The possibility of a recession in the United States.
They are not through with the repercussions of the subprime crisis yet. It will still reverberate in many components of the credit system : adjustable mortgages securities which will, well, adjust, obviously upward, putting another squeeze on the consumers ; the looming crisis of the revolving credit card that outstanding is growing an a panicking rate ; the auto loans inventory that might see its default rates going up sharply. Each of theses pieces pilling up on the other. This will create an immense evaporation of wealth, cascading to consumption, trust in the economy... and could affect all media -- worldwide.
Not surprisingly, newspaper industry will take the first hit. For two reasons :
1. display ad carried by papers, are always the first to be cut when budget restrictions occur. Always. For a brand, it's easy to do, without immediate effect on the sales ;
2. papers will suffer not only from the competition with others media, but from the antique way they sell ads : a kind of "mano-a-la-mano" negotiation, at the era of the yield management and pay-per-performance that has emerged with the internet. But for most of the publishing companies, this is the worst time to invest in the massive modernization of their advertising practices.Don't worry folks, Google will take care of that by foraging right into to your business. Serious. Look at the news, there is not a month without the announcement of a deal between Google and a publishing outlet.
Data will be key. In a era of parsimonious spending, being able to target consumers will prove essential. Data acquisition capabilities and treatment to a grand scale will be in the hand of few. And in this business, size matters. Once again, search engines and related businesses are well positioned. They have the cash, the technology, and the corporate drive. In that respect, the European Union's position about the acquisition of Double-Click by Google will be a landmark case.
Google might drop it if it doesn't get EU clearance - and Microsoft could pick up the pieces, decisively reorienting its guns toward advertising. Otherwise, Google will fly further away from the pack.
One of the unintended consequences of this is the upcoming squeeze of the media buying agencies - the kind of middle-man the advertising food-chain has produced with little reason (the value-added of taking a cut for buying TV spots or ad space in papers for a food or car brand is highly questionable). They, of course, will keep their chunk of the big media spending (display ad, mostly), but a growing share of investment will be captured by the search-ads industry able to target precisely the user for medium-size brands and products.
New territories will emerge, like the social networks. Soon enough, they will hold most of the news absorbed by the young generation. Then, ad will flow in. Once again the usual intermediaries who have ruled the market for decades will suffer.
In a conversation with the New Yorker media editor Ken Auletta, Mark Read, WPP's director of strategy is complaining about the aggressiveness of Google : "[It] makes our people nervous. They tend to talk to our clients directly. Traditional media has been much more respectful of the client-agency relationship", read : respectful of the regularity of our income. Such a naïveté is really touching.
Global Ad Spending Growth in %, by Region
2006 2007f 2008f
World 6.5 6.0 6.8
USA 4.9 2.8 3.7
Lat America 18.8 15.3 16.3
Western Europe 4.8 4.8 4.3
Emerging Europe 22.5 20.2 17.8
Asia Pac (all) 6.0 7.0 10.0
North Asia 12.3 13.0 18.7
ASEAN 7.9 9.0 9.4
MidEast/Africa 14.8 14.0 13.1
Source : GroupM "This year, next year" report, 2007
> see the story in The New Yorker on how Google might eat the lunch of the advertising industry, with unconvincing denials by Larry and Sergey (G founders).
> in the Financial Times, on how the subprime is impacting newspapers ; figures shows a complete crash on classified for companies like Tribune Co, Gannett, McClatchy.
> and at McGraw-Hill, the big US magazine publisher, a massive 600 jobs cut (10% of the staff) is linked directly to the effects of the subprime crisis.
Story in Folio Magazine