Outlook '05

NETWORK TV The broadcast networks are cautiously optimistic about 2005, despite dark clouds on the horizon—among them DVRs, threats of government regulation and continued experimentation with alternates to the 30-second TV spot. Dave Poltrack, evp of research and planning for CBS, points out that spending was up in 19 of the top 20 ad categories in the third quarter—"a very strong foundation going into 2005." NBC, which is shedding 18-49 viewers, could lose big money to CBS and ABC in the upfront. Conversely, CBS's prime time worked pretty much every night in 2004, and ABC got buzz with Desperate Housewives and Lost. ABC's fate in the first and second quarters, and how it's seen in the upfront, will depend on its new and returning midseason shows. Meanwhile, Fox is down 7 percent in adults 18-49 and 13 percent in adults 18-34, but American Idol returns in January, as does 24. But if Fox can't find some drama successes, it could have a big image problem heading into the upfront. The Gilmore Girls and One Tree Hill grew key audience demos dramatically this season, but the WB is having trouble getting people to watch its sitcoms and freshman dramas. UPN is flat across the board in adults 18-34 and 18-49, and in viewers, and that's good, considering the network has Nielsen investigating a mysterious disappearance of black female viewers from its Monday and Tuesday ethnic sitcoms. - JOHN CONSOLICABLE TVComing off a slow-scatter ad market in fourth-quarter 2004 and thousands of dollars in first-quarter 2005 inventory cancellations, many cable sales executives are less optimistic about this year's media economy than they were five months ago. The good news is that cable networks continue to attract healthy-sized audiences, while broadcast networks lose viewers in an increasingly fragmented TV landscape. "We do look at alternatives ... but we don't want to abandon our bread and butter," notes Andy Donchin, director of national broadcast buying for Carat USA. Though the future looks bright for cable in terms of creative output and audience levels, a slowdown in ad spending at the end of 2004 put a dent in many executives' post-upfront optimism. Moreover, Procter & Gamble cancelled 25 percent of the first-quarter inventory it ordered in the upfront, drawing attention to the effect of high oil prices.Cable did lose video customers to satellite earlier last year, but held sub counts relatively steady by rolling out digital set-tops capable of high-def TV and video-on-demand, as well as high-speed Internet. The number of digital cable customers grew to 24 million at the end of the third quarter, and the number of high-speed Internet users hit about 19 million, according to the National Cable & Telecommunications Association. Cable has 61 percent of the 30.9 million broadband users. - MEGAN LARSONMAGAZINESWomen's titles were last year's hot category, with launches like Hearst's Shop Etc., Hachette Filipacchi Media's For Me and American Media Inc. and Wal-Mart's Good Living Now, among others. And they will continue to be the main event in 2005. Fairchild will spin off a women's version of Vitals in February and is testing Cookie, a parenting magazine. Hearst is developing a low-cost service title. And TV Guide is toiling away on the tentatively titled Inside TV, which will be geared to young women. Meanwhile, Rodale will publish five issues of Women's Health after a successful test last year of the Men's Health spinoff. Condé Nast will introduce a home-shopping magazine called Domino. And readers of any gender looking for an edgy pop-culture fix can look forward to the April relaunch of Maer Roshan's Radar.For the first time in several years, many publishers actually experienced optimism in 2004, and the numbers backed it up, with ad sales in key categories like automotive and toiletries/cosmetics up in the high single digits over the previous year, and retail sales ballooning by 18 percent. Next year, many ad categories are expected to remain strong performers. Notably, publishers will be eyeing the booming luxury marketplace. A wealth of advertising is likely to flow thanks to what's now characterized as "masstige"—the blending of mass and prestige brands. Already, magazines such as Condé Nast's Glamour are happily carrying pages from both Hugo Boss and H&M. It's not all rosy: There are still concerns about technology and financial clients, and now—with controversies over pain medication and drugs like Vioxx being pulled from shelves—about pharmaceuticals as well, particularly among older-skewing titles. Finally, the media world is anticipating the return of Martha Stewart, who ends her prison term in March. ABC veteran Susan Lyne has taken the helm of Martha Stewart Living Omnimedia. Expect Stewart's flagging print flagship, Martha Stewart Living, to receive a boost, and by late 2005 or early '06, look for Living to regain its competitive edge against the likes of Time Inc.'s Real Simple and Hearst and Oprah Winfrey's O, The Oprah Magazine. - LISA GRANATSTEINWASHINGTONPast looks to be prologue for telecommunications issues in Washington in 2005, with broadcast indecency, media ownership and the transition to digital TV all unresolved last year.This year legislative and court calendars could set the stage for decisive action. Lawmakers say they will quickly introduce legislation in the new 109th Congress to increase penalties for broadcast indecency. And the U.S. Supreme Court is about to decide whether to review the Federal Communications Commission's 2003 decision to relax broadcast ownership restrictions. Odds for action may be greatest when the new Congress takes up the long-running transition from old-fashioned analog TV service to digital TV, a change that Congress decided should happen by 2007, or when 85 percent of homes can receive digital TV. Once the switch is complete, TV stations are supposed to relinquish the wavelengths they've used for decades. The digital battle will play out as cable and broadcast interests alike hope to avoid turbulence from another source. Prompted mainly by turmoil in the fast-changing telephone market, Senate Commerce committee leaders have said they may change provisions of the 1996 Telecommunications Act, which brought deregulation to telephone and broadcast services. Once the act is reopened, many interests could pile on. For instance, a majority of senators has voted several times to tighten media ownership rules and could form a block demanding such language in any broad telecom legislation. Others may call for re-regulation of cable subscription rates, which annually outstrip inflation. Cable companies hope the Senate Commerce committee will leave them alone. "We believe it's important to maintain the regulatory stability that's existed," said Robert Sachs, president and CEO of the National Cable & Telecommunications Association, at a year-end briefing. - TODD SHIELDSINTERACTIVEThere's no shortage of upside in the world of interactive media in 2005, as several new offshoots of the industry have opened up new avenues of revenue. Analysts are bullish on interactive spending in 2005, with forecasts of 20-40 percent growth in online media. Jupiter Research says that spending on Internet advertising will more than double over the next five years, growing from $6.6 billion in 2003 to $16.1 billion in 2009. After several years of allocating only experimental ad dollars, most major national advertisers are now shifting budgets from research and development, Web site development and IT infrastructure to marketing budgets targeted to such online media extensions as search engines and behavioral targeting.Confidence in interactive media is so high that some analysts are even predicting that much-maligned banners and pop-up ads will experience 20-25 percent increases. The categories with the most room to grow—video ads and content sponsorships—will expand by as much as 40 percent, thanks to increasing broadband penetration.Jeff Lanctot, Avenue A/Razorfish vp of media, predicts that "2004 will be seen as the year that consumers really started to consume video online; 2005 will be the year we see advertisers begin to use it online."However, a significant amount of this upside is not flowing through interactive media agencies. It's expected that the white-hot search-engine marketing sector will probably chill slightly to red-hot, expanding 25-30 percent. But those dollars, whether from optimization of Web sites, pay-per-click ads on search results or contextual ads, have tended to be handled by agencies that specialize in search and often provide their own technology. "For so long, a lot of traditional agencies hoped that online media and advertising would be managed in the same way as traditional media and advertising," says Lanctot. "We've learned that it is a very different approach that agencies need to take."If those spending projections are in the ballpark, that new approach will pay off in 2005. - SUSAN KUCHINSKASRESEARCH"We cannot continue to apply traditional thinking to the new world of technology and marketing channels available to us today," Jim Stengel, global marketing officer of Procter & Gamble, told the Association of National Advertisers in October. That challenge will be the major driver influencing the direction of media research in 2005. Whether it's DVRs that allow people to watch TV when they want to (and not watch ads when they don't), or alternatives like the Internet, iPods and satellite radio, predicting the consumer's media behavior will be no small feat this year. "We have to figure out a day in the life of the consumer," said Brad Adgate, svp and director of corporate research for Horizon Media. "We're seeing all sorts of advertising in many more media—mall and cinema advertising, satellite radio, product placement in videogames and TV, the Internet. They're all consumer touch points." In 2004, Nielsen Media Research and Arbitron, separately and together, began to lay the groundwork to deliver in 2005 the new measures required in a media world where the user not only controls the media, but also creates content. The most direct answer to P&G's challenge is a joint effort unveiled at the ANA by Arbitron and Adweek parent VNU to create a single-source research service that marries Arbitron's portable people-meter (which measures consumer usage of radio, TV and cable using a single device) to AC Nielsen's in-home consumer panel, providing measures of both media consumption and product purchase. P&G plans to be the first client of the service, which could be up and running by the closing months of the year. Nielsen Media Research will also begin to introduce the industry's first measures of time-shifted TV viewing, using new meters and new diaries. The ratings firm estimated that DVRs are currently in 4-5 percent of TV homes and could hit 10 percent this year. Yet while many efforts are under way to provide measures for all the individual media (including some, like out-of-home, that have never been measured before), there's scant research about how the media interact to impact consumers. And that, predicts Richard Fielding, vp and director of insights and analytics at Starcom, may mean looking for new answers outside the two big research firms: "It's going to be a new model." - KATY BACKMAN

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Outlook '05

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