Analysis: Media Forecast 2010

It would be an interesting, albeit purely academic exercise to imagine how the advertising industry would look right now if we hadn’t been hit with the biggest economic downturn since the 1930s. Perhaps instead of hastening the migration of ads from traditional media to the Internet, the Great Recession actually slowed things down. Imagine if marketers, media firms and advertising agencies hadn’t been in such a cautious frame of mind over the past year or so and unleashed breakthrough ideas that moved us further along on the continuum than we are today. We’ll never know because the ad industry’s running narrative, like most other industries, got hijacked by the economy.

The story now is a continued migration to new media but complicated by what looks to be a fragile economic recovery. Thus, the bottom line looms large over the industry in 2010. In general, it is projected to be a better year than the previous one, but not by much, at least here in the U.S. Still, everyone’s up for some good news at this point. At least you can count on the Winter Olympics and the congressional races for a bit of relief.

As with previous years, we expect that the action will be on the margins. The bulk of media dollars still changes hands the old-fashioned way. The Internet may claim more ad dollars in Great Britain right now, but in the U.S. it’s still not even close. That will no doubt change but not over the next year.

A more likely scenario is that some concepts will undergo a stress test. For instance, in a media landscape with hundreds of channels, what is the value of a broadcast network? What role does salesmanship play in a business as data driven as marketing is today? Does it make sense for magazine and newspaper publishers to continue to give away their content if Web ad revenues still are a fraction of those derived from print? Do those publishers have any choice?

If history is any guide, things won’t play out the way you might guess. Disruptive technologies are, by definition, impossible to predict and immensely powerful for that reason. Nevertheless, here are our best guesses of where things are going, barring any unforeseen and inevitable new developments. —The Editors


FORECAST 2010: CABLE TV

By Anthony Crupi

With apologies to Thomas Friedman, the world may well be flat, but it’s also an inclined plane. Substitute the rigors of economics for physics and 2009 was a year in which the proverbial (and euphemistic) excrement ran downhill at an unnerving rate, so much so that anyone who happened to be camped out at the lower latitudes didn’t exactly come out smelling like a rose.

As it happens, ad-supported cable enjoys an enviable perch near the vertical; as such, the top-tier networks were able to get through the year relatively unsoiled. Along with record ratings and a resilient ad sales marketplace, signs that the tidal murk of recession is beginning to recede have many observers anticipating an even stronger 2010.

One ad sales chief, who spoke on condition of anonymity, says that the last dark cloud on the cable horizon has been dispelled by recent consumer behavior. “We’ve been holding our breath, but it looks like the holidays were a success,” the executive says. “Any momentum we had going into next year would have been wiped out if Christmas had been [lousy].” Holiday retail spending was up 2.3 percent during the week of the 25th, while year-over-year activity for the peak November-December period improved 3.6 percent, per SpendingPulse, a service from MasterCard Advisors.

The health of the scatter market is an area of concern for the cable nets, which were forced to hold onto a sizable chunk of inventory in the 2009-10 upfront. Per the Cabletelevision Advertising Bureau, dollar volume in the summer bazaar was down 13 percent to $6.6 billion, a decline that reflected the irresistible force-meets-immovable-object dynamic of the marketplace.

At the time, ad sales bosses characterized the upfront pullback as a calculated risk; at this juncture, some network execs say they should have held onto even more inventory, such has been the strength of scatter. In any event, leaving money on the table has been a boon to high-end cable nets, which saw fourth-quarter scatter pricing coming in at 20 percent over upfront levels.

Those premiums should continue to roll in throughout Q1, as channels such as USA Network, TNT and FX welcome back their popular original scripted series. First-quarter prime-time inventory is already tightening, as advertisers look to align themselves with some consistent reach vehicles.

“It’s an unprecedented situation in that Q1 cancellations were minimal,” says one ad sales boss. “Nobody took options, and while that made me breathe a little easier back in November, now I’m thinking it would have been nice to have some of that [inventory] to resell at an even higher CPM.”

Networks that specialize in unscripted fare may be less certain about what’s around the corner. “Cable’s higher inventory levels encourage buyers to wait for the best deals, resulting in less visibility,” says Oppenheimer analyst Jason Helfstein.

Cable’s ratings story continues to cast a spell, and 2009 marked the ninth straight victory over the broadcast nets. By year’s end, cable accounted for 60.4 percent of the overall TV household share, while its standing among viewers 18-49 was nearly twice that of the big four (50.5 to 27.1).

That said, aggregate ratings growth is expected to taper off, commensurate with penetration. Some 20 cable nets (including TBS, Discovery Channel, Nickelodeon and USA) have surpassed the 100-million sub mark, reaching 87 percent of the nation’s 114.9 million TV households.

If saturation has a dampening effect on dynamic ratings growth, that’s offset by the concomitant revenue gains. Per SNL Kagan data, ad-supported cable nets in 2010 will haul in $27.8 billion in sub fees, up 9.6 percent from the prior-year period.

Naturally, cable ad sales dollars are expected to rise in the new year, although analysts are divided on the rate of improvement. According to PricewaterhouseCoopers projections, spending on network cable in 2010 will grow 3.6 percent to $20.2 billion, while SNL Kagan projects greater year-on-year growth, calling for a 5.6 percent rise, to $18.2 billion.

Already there are indications that 2009 will be remembered as an aberration, says Derek Baine, senior analyst at SNL Kagan. “It’s likely to be just a blip in the long-term growth of an industry that has increased revenue at a CAGR of 12.6 percent over the past decade,” Baine says. “Going forward, we expect the margins won’t be crushed like they have in other media.”

While cable continues to steal share from broadcast, that pattern isn’t reflected in the cost of a spot. Per Kagan, the average cable CPM grew just 2.1 percent in 2008, down from a 2.7 percent increase in the two previous years. (On an average CPM basis, prime-time inventory on cable costs about one-third as much as broadcast.)

The two worlds are about to get much cozier, as Comcast awaits regulatory approval of its $30 billion merger with NBC Universal. The inquest is expected to carry on for the better part of a year. For many, a Comcast-owned NBC marks the zero hour for the broadcast model, which lies well south on the inclined plane from cable and its dual revenue stream.

As Comcast suits up for battle, CEO Brain Roberts has suggested that the flagship network is safe. The day the deal was announced, Roberts said the operator is “committed to trying to see ways to make [NBC] successful,” adding that “broadcast television is an important part of the fabric of America.”

But make no mistake: Roberts is a cable guy, through and through. “The cable programming channels are really the best part of the business,” Roberts said. “NBC and Universal are storied assets…but it comes down to the cable channels.”


FORECAST 2010: PRINT MEDIA

By Lucia Moses

Print publishers are bracing themselves for another tough year in 2010.
Advertising won’t decline as much as it did in 2009, when the luxury category, the lifeblood of many titles, cut back sharply, and for many large advertisers, magazines became a noncore buy.

But the medium will continue to contract as advertisers shift their budgets from traditional to more measurable, digital media. U.S. magazines’ share of the ad pie will slip to 11 percent in 2010 from 11.8 percent the year before as magazines’ projected ad growth, at negative 6.2 percent, trails total U.S. media growth of 0.2 percent, according to Magna Global’s December forecast.

“I’m not naïve,” says Mark Ford, president and group publisher of Time Inc.’s News Group, comprising Time, Fortune and Sports Illustrated, who predicts flat ad revenue for the year ahead. “It’s going to be slow, steady growth. And the whole picture is not going to improve until the economy improves.”

And with fewer dollars floating around, observers predict more magazines will fold. The entertainment, shelter and business categories are seen as particularly vulnerable either because they’re crowded or their endemic ad base is struggling.

While magazines’ problem is more of an advertising than a readership one, negativity surrounding the medium is emboldening clients to push for lower pricing, buyers say. Says one, on condition of anonymity: “They think magazines are dying, so why should they pay an increase?”

Titles that stay in business will try to woo advertisers with integrated or high-impact ads. To that end, Ford’s group, for one, is finalizing partnerships to create TV extensions for Time, Fortune and SI.

“Content integration will continue to be important,” says George Janson, managing partner, director of print, GroupM. “We’ll see more impact units, with advertisers trying to break through the clutter. I think magazines will be a lot more accommodating.”

While their readership has been stable, magazines have been challenged to monetize it in the form of price increases. To the extent circulation is based on ad support and that newsstand sales reflect consumers’ willingness to part with their money, publishers are likely to continue to reduce rate base and frequency.

“2010 is going to be a cautious year,” says David Leckey, executive vp, consumer marketing at American Media Inc. and vice chairman of the Audit Bureau of Circulations. “By and large, people might look at reduction in circulation versus price increases.”

Still, many magazines can count on readers to continue picking them up for their visually rich reading experience. The same can’t be said for newspapers.

Their core daily news offering is easily replaced by free content online, while younger readers’ preference for the Web will challenge newspapers’ ability to find new readers. On the ad front, national papers stand to bounce back when financial advertising recovers, while local newspapers will remain an easy target for cuts by large advertisers. Magna calls for U.S. newspaper advertising to decline 9.2 percent to $23.4 billion following a 25.7 percent drop in 2009, its share slipping to 17.6 percent from 19.6 percent.

Newspaper publishers, facing an uncertain year ahead, are placing top priority on improving their Web sites for readers and advertisers, a recent study by Kubas Consultants found. The study also predicted that newspapers might find the bottom of their decline this year or at least decline less. Meanwhile, one-fourth of newspaper execs said they planned to launch new specialty products in 2010, despite tight operating budgets.

Stephen Gray, former managing director for the American Press Institute’s Newspaper Next project and now an independent consultant working full time for Morris Communications, predicts more newspapers will try micropayments, metered solutions and walling off select content as they try to replace disappearing ad revenue. “We’ll see all kind of experimentation,” he says.

Innovation will be a theme for magazines in the year ahead, although its impact is unclear. Anticipated e-readers that will offer a dynamic platform for magazines and basis for charging readers are generating excitement among buyers, if not actual revenue.

“Having our ads as part of these e-reader experiments is really important,” says Audrey Siegel, co-founder and executive vp of independent media agency TargetCast tcm. “We need to see how they work so when the medium is ready, we’ll be ready as advertisers.”

Meanwhile, new magazine measurement services from MRI and Affinity will deliver ad recall data on an issue-specific basis, and buyers are looking at how they those services can improve how they use the medium.

As research gets better, the bar for magazines also gets higher with clients who are putting greater pressure on magazines to show a link between print ads and sales.

“We’re still going to have to sell the power of magazine brands, but now I think we’ve got more data to do that,” says Brenda White, senior vp, publishing activation director, Starcom USA. “But we’re still going to have to tell the story. And we’re going to have to be driven by results.”


FORECAST 2010: DIGITAL MEDIA

By Mike Shields

The tricky thing about any sort of forecast for 2010 is that even though the recession appears, at least on paper, to be near an end, this was no ordinary recession for the media business.

“It’s difficult to separate what’s cyclical and what’s structural,” says eMarketer CEO Geoff Ramsey. That’s undoubtedly true for media like newspapers and radio, which have felt the earth shake beneath them this year. But it’s also true for a still-maturing medium like digital.
Overall, eMarketer predicts that online advertising spending will increase by 5.5 percent to $23.6 billion in 2010, reversing a 4.6 percent decline last year. But all won’t be well on the Web, which has seen several major issues exposed and exacerbated by the recession. As it turns out, not all traditional brands love banner advertising. There is still far too much display inventory out there. And even the red-hot video segment lacks a sure business model.

Most buyers and sellers at least expect that the ad marketplace should be slightly more organized and predictable than in 2009, when clients released budgets late and then often made frequent cuts. However, the recession may have spurred some brands to permanently change their Web-buying patterns, believes Brad Davis, senior vp, West Coast multimedia leader for Disney Online.

“We’ve really seen a mix, with some clients planning way far out in advance, as far ahead as Q4 [of 2010]. And then we’ve seen a continuation of holding onto the cash until the last minute—and then a quick release of this cash,” says Davis. “With the variety of options [buyers] have in the marketplace, this is going to be part of the new reality.”

That variety of options dynamic isn’t likely going to change this year, regardless of whether the economy bounces back. “The difference between the Internet and traditional media like TV is that there are infinite possibilities” online, says Scott Schiller senior vp of ad sales, Comcast Interactive Media. “Why would that change in 2010?”

That likely means that ad networks aren’t going anyplace. And exchanges and demand-side buying platforms are poised to play an even bigger role in 2010. All that suggests that it’s going to continue to be tough for midsized publishers who are committed to traditional, brand-oriented direct selling.

“Advertising cannot support all the content that is out there … so you have this sagging middle,” says Ramsey.

Which is why he and others expect that 2010 will likely be the Year of Experimenting With Pay Models. That’s clearly a priority for newspaper Web sites, and may be for several top video sites like Hulu.

Tracey Scheppach, senior vp, video innovations director, Starcom Worldwide, hopes that sites like Hulu and YouTube don’t prematurely impose restrictive subscription models, though she acknowledges the medium’s major challenge.

“A huge issue in online video is, ‘What is the business model?’ We’re going to make progress, and I wouldn’t bet on what it’s going to be,” says Scheppach. “But every piece of research I’ve seen says that people want free, ad-supported video.” One way the online video model can be improved is by establishing a standard creative unit. That is the goal of The Pool, Starcom’s ongoing research project, which will reveal its first findings in February.

eMarketer predicts that video spending will surge by a healthy 40 percent in 2010 to $1.4 billion. Still, that figure pales in comparison to the $11.4 billion in spending expected to go to search, still the medium’s dominant sector. Yet the steady search space will also see change in 2010 as Microsoft and Yahoo’s partnership finally takes hold, and Microsoft continues to push Bing.

Nicola Smith, supervisor of emerging trends at Moxie Interactive, predicts that the recent deals that both Microsoft and Google made with Twitter will also impact the segment. “The incorporation of social media into search is really going to help filter and optimize the types of content we’ll get as users,” she says. “It’s only going to strengthen [search engines’] appeal.”

Many in the digital media space are hopeful that display advertising can be improved dramatically by becoming a lot more like search through advanced targeting technology and data collection. However, for that to work, the industry must stay ahead of a regulation-minded administration in Washington—something to watch closely in 2010. “We will be going backward several steps if we don’t,” says Ramsey.

Another hot issue for the new year is the same hot issue from the past few years: Just how does social networking fit into the digital media mix? Many contend that while nearly every major advertiser is interested in social media in some fashion, the true value for brands on sites like MySpace and Facebook lies in customer retention and analytics, rather than as vehicles for display ads. “Monetization is still going to be a struggle for these sites,” says Smith.

Of course, no digital forecast is complete without someone extolling mobile’s potential for the coming year, and someone else tempering that prediction. 2010 is no different. Per eMarketer, mobile ad spending should jump by 42 percent this year; yet the medium represents just 3 percent of digital spending.

But at the very least, “in certain categories, mobile will have a definite seat at the table,” says Schiller. “Media buyers like to buy what they know and understand. And every one has a Blackberry and iPhone.”


FORECAST 2010: NETWORK TV

By John Consoli

Despite the struggling economy and predictions of deep advertiser cutbacks in spending, the broadcast television networks cumulatively drew solid ad revenue in Q4 2009, a trend that is expected to continue at least through the first quarter of 2010, sellers and media buyers agree.

Upfront spending cancellation options for Q1 2010 were exercised at extremely low levels, and with demand for scatter inventory high, scatter pricing is running at double-digit increases over the upfront. That, too, is expected to continue at least through March.

Brian Weiser, director of global forecasting for Magna Global, sizes up advertiser demand for network programming this way: “While network television has lost some revenue as a result of audience fragmentation, the highest-rated programs are still on the broadcast networks.

And the relative ease of buying packages of large, broad-reaching audiences leads many of the large advertisers to concentrate their budgets there.”

What’s also fueling the spending is that at least one advertiser in each of the major categories is spending big ad dollars, and  others in those categories, not wanting to see their market share dwindle, are spending as a defense play. As a result, categories that have traditionally been strongest in fourth quarter, like retail, wireless and movies, among others, are going to drop big dollars into first quarter too as this marketshare duel extends beyond the holiday season.

Meanwhile, every major automaker, domestic and foreign, is on broadcast television, where they are attempting to use broadcast’s mass and immediate reach to bring potential customers into the showrooms quickly.

Retailers like Target and Sears are spending so as not to let the biggest retail ad spender, Walmart, dominate. And a major ad spending battle is taking  place in wireless between Verizon and AT&T. Other active categories include fast-food restaurants and tech, particularly computers and handheld devices.

“The heavy levels of fourth-quarter spending was a bit of a surprise to us,” acknowledges one media buyer, who did not want to speak for attribution. “And now the strong fourth-quarter spending is carrying over into first quarter of 2010. Demand is up in first quarter, and with very low cancellations exercised from upfront holds, inventory is tight and pricing is way up.”

This is good news for the broadcast networks that held back as much as 15 percent of their advertising inventory in last May’s upfront, hoping for the exact scenario that unfolded as the year came to a close.

What has also helped the broadcast networks is they have had some success with new programming that has drawn decent levels of viewing. CBS had winners in new dramas NCIS: Los Angeles and The Good Wife; ABC with freshman drama FlashForward and its new Wednesday night comedy block. Fox has done well with Glee, while The CW enjoyed a solid showing from The Vampire Diaries.

Only NBC has struggled with its new shows this season, including its move to put Jay Leno on five nights a week at 10 p.m. But one buyer, who did not want to speak for attribution, says Leno is performing at about the ratings NBC sold it, so there were no overblown expectations.

“NBC may have hoped that it would do better, but advertisers are getting the ratings they bought,” the  buyer says. “NBC did not sell us a false bill of goods.”

Still, NBC needs to get its content house in order, and quickly. “We have supported NBC, but they do need to come up with better content down the road or else eventually they will start to see our investments in their network decline,” says one buyer.

Another positive for the broadcast networks is that many advertisers are starting to believe that delayed viewing via DVRs is not as disruptive as originally thought. While media buyers won’t acknowledge that publicly, privately they say that unless an advertiser, say a retailer, needs next-day business, delayed viewing is not the ogre that it was originally thought to be.

According to Dave Poltrack, chief research officer at CBS, Nielsen Media Research data shows that DVR playback of broadcast network programs over a seven-day period cumulatively has added 16 percent more total viewers and 25 percent more viewers in the 18-49 demo this season. And cumulative ratings for the broadcast networks in the 18-49 demo for live- plus-three-day viewing (C3), on which upfront buys are based, is down 6 percent this season, not a number that is scaring advertisers away or creating a huge make-good situation for most networks.

The strong advertiser demand for scatter ads in Q4 surprised the networks. “We didn’t expect scatter buying to really take off until second quarter of 2010,” says Poltrack. “But it started almost immediately in fourth quarter of 2009.”

Poltrack believes every quarter of 2010 will get progressively stronger for the networks and will lead to an overall 5 percent increase in prime-time advertising for the entire year.


FORECAST 2010: LOCAL BROADCASTING (TV/RADIO)

By Katy Bachman

For the local broadcast business, there is nowhere to go but up in 2010. Pounded in 2009 by the recession, a 30 percent to 40 percent drop in automotive and the continuing encroachment of new media, radio and TV station executives struggled with double-digit revenue declines as they sought out new business models and worked to hold on to their core businesses.

Forecasts for both radio and TV tend to be positive, though no one believes either business will return to pre-2008 levels for several years. A number of groups will be climbing out of bankruptcy. Others, such as CBS, Cox Media and NBC are looking to leverage local cross-media platforms to gain efficiencies in a tough ad climate. Ad rates were firming as 2010 approached, but all in all it is likely to remain a buyer’s market.

The 2009 drop in TV revenue returned the medium to $15.6 billion, a level not seen since the mid-’90s, according to BIA/Kelsey, which forecasts a 3.2 percent gain in 2010 to $16.1 billion. Local spot TV will grow only 1 percent to 3 percent, while national spot could jump 6 percent to 12 percent, per the Television Bureau of Advertising.

“Our projections may be conservative,” says Steve Lanzano, the new president of the TVB. “Going into next year there are some positive signs. We’ve seen upticks in retail and auto, including some major commitments from auto dealers.”

If anything could help firm up TV rates in 2010, it is political advertising, which could hit $3.3 billion, an 11 percent increase over 2008. More than 60 percent (or $2.2 billion) of the ad spend will go to local TV, fueled by 37 governor races, 38 Senatorial races, the House of Representatives and issue advertising, which could near $1 billion, per Wachovia Securities.

But that may be small comfort to the TV business, which is facing some real threats.

TV networks want affiliates to cough up a share of TV stations’ hard-earned retransmission revenue, as much as 50 percent, causing a number of TV execs to dig in their heels. Unless networks can demonstrate a better return from retransmission than TV groups have on their own, it could get messy.  

Less than a year into the digital TV transition, after broadcasters gave up analog—a quarter of their spectrum—the Federal Communications Commission is floating a proposal to take some of the digital spectrum back. The proposal comes at a time when broadcasters have barely begun to monetize the digital spectrum via side channels and mobile digital broadcast.

Stations are cultivating online and mobile revenue in the effort to build new business models. According to BIA/Kelsey, TV stations can expect to ring up about $600 million in online ad revenue in 2010, versus $463 million in ’09. As part of those initiatives, stations are partnering with other local stations to create video news pools and going hyperlocal both online and on-air, trying to find solutions to expensive syndicated programming.

“We’re all going to be focused on those other revenue streams,” says Paul Karpowicz, president of Meredith Broadcasting. “You’ll see a lot more emphasis on local programming.

In an environment where ratings are scarce, if you can create a format that has sponsorship, product integration elements, that becomes attractive.” In total, all of TV’s additional revenue, including Internet, mobile, digital subchannels and retransmission could account for as much as 13 percent of TV stations’ revenue, with online and retrans representing more than 5 percent each, according to TVB.

Radio, coming off the longest slump in its history and its worst year ever, began to pull out of the recession earlier than other local media. Jim Boyle of Gilford Securities, who says the medium was down 7 percent on average over the past three years, forecasts it will grow 6 percent.

A less optimistic forecast from BIA/Kelsey puts radio up only 2 percent to $13.7 billion. Magna Global is pessimistic, putting radio down 4.4 percent in 2010 and 0.2 percent in 2011. Prospects look good for national spot radio, up 13.2 percent in December and pacing up 17.4 percent in January, according to Katz Media. Of radio’s top 10 categories, eight are up, including auto, telecom and consumer products, retail, finance/insurance, and fast food.

Network radio is also pacing ahead, driven by retailers such as Walmart, Macy’s Kohls, Home Depot and Lowe’s. “Comparisons remain soft, but real dollar growth, improved demand, improved pricing and broad category recovery clearly indicates we are moving in the right direction,” says Stu Olds, president of Katz Media.

Like local TV, radio is serious about growing a more robust online revenue stream, currently only about 2 percent of radio revenue, per Borrell Associates. Forecasts vary widely about growth in 2010 with BIA/Kelsey calling for 43 percent growth to $426 million and Borrell forecasting 18 percent growth to $272 million. “Potentially over the next few years, it could become 10 percent of the industry,” says Dan Mason, president and CEO of CBS Radio.

Radio’s biggest problem is not the medium, but the business. While the number of listeners holds steady at 235 million weekly listeners, per Arbitron, the business has lacked buzz with advertisers and listeners.

“Management continues to cut to the bone. There’s no rate card discipline,” says Boyle. “It’s very hard when account executives are trying to grab budgets.”

While some groups have seen programming and talent as costs to be cut, others are looking to programming to help the medium regain its luster. At the end of the year, CBS began to put money back into high-profile programming, signing Carson Daly in Los Angeles and Nick Cannon in New York.

“Radio has such a great opportunity to prove the power of local radio,” Mason says. “With iPod and satellite radio fatigue, personalities on popular local radio stations make them relevant.”


FORECAST 2010: MEDIA REGULATION

By Katy Bachman

Government regulation, a necessary part of the business for any company owning a broadcast license, has never been so active, nor so uncertain, thanks to a media landscape beset by innumerable challenges.

TV stations and newspapers are hungry for regulatory relief to own more outlets in local markets as the Federal Communications Commission takes up its ongoing quadrennial review of media ownership rules. Radio stations are once again battling record labels and music artists over proposed performance royalties on music airplay. And wireless companies are itching for more spectrum. Thrown into the mix is the recently announced $30 billion Comcast-NBC Universal merger, which will need regulatory approval from several governmental authorities.

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