How To Offer What Local Advertisers Want

As Borrell Associates CEO Gordon Borrell recently noted, local advertising is the lifeblood for TV stations and other media providers. He also recommends some changes, such as getting into the marketing services business, to keep that lifeblood flowing.

That was one of the takeaways from a recent MFM-BCCA Distance Learning webinar during which Borrell shared the results of his firm’s most recent survey of local business owners (small and medium-size businesses).

In keeping with our associations’ role as the primary source of education for the industry’s finance and credit and collections professionals, I want to pass along some of the insights Borrell shared with the event’s participants.

The Outlook For Local Ad Spending

Total local ad expenditures, which have been climbing at a compound annual growth rate (CAGR) of 6.10% over past five years, are forecast to flatten to a CAGR of only 0.16% for the next five.

There is a brighter outlook when it comes to local ad budgets, which the research firm expects to increase by 5.3% this year. TV stations lead the list of gainers, with Borrell’s projected increase of 14.6% reflecting the impact of political advertising.

With total ad budgets leveling off for the first time since the Great Recession, Borrell warns there will be winners and losers as marketers look to spend more of their budget on digital media, which he believes will increase by 12.7%.

For example, businesses like auto dealerships and real estate agencies are spending 60% or more of their total marketing budget on digital. But change is coming. In keeping with the broader trend for total ad spending, spending on digital ads will flatten out over the next several years.

More Money For Marketing Services

While the growth rate for digital ads is slowing, and is actually forecast to decline beginning in 2021, the money going into promotions and marketing is going in the opposite direction. Last year, in 2017, local advertisers spent $2 on promotions and marketing services for every dollar they spent on advertising.

Borrell forecasts that 2:1 ratio to increase to 2.5:1 by 2022, with $299 billion going toward promotions and marketing compared to $122 billion for advertising. Examples include local realty firms, which spend half as much on advertising as the typical advertiser but nearly twice the average on managing social media (an average $31,000 per year).

Collectively, local businesses spend an average of $17,000 on social media outsourcing. Other top outsourced services include search engine optimization, website development and website design.  

Those numbers may seem small when compared to those for a typical TV ad buy. However, when one adds up the number of small businesses spending those amounts in a market, they can represent a significant revenue growth opportunity.

Media companies such as A.H Belo, which won Borrell Associates’ 2018 Award of Merit, Cox Media Group, Meredith, Nexstar and Sinclair are among the organizations that have acquired or established digital marketing services operations in a quest to add a piece of this pie.

Ventures like these are also the chief reason more than half (57%) of local ad agencies now consider media providers their most formidable threat.

TV Is Integral To Cross-Media Buys

Market analysis also reveals that the majority (74%) of local businesses are using digital and traditional media together. Of the remaining advertisers, 22% are purchasing only traditional media, while just 3% percent purchase only digital, and the outstanding 1% reports using some other method.

It’s for this reason that Borrell warns: “Don’t talk trash about digital.” He notes that concerns like ad bots and click fraud don’t mean much to local advertisers. In fact, as many as 80% of local advertisers “are likely to say yes” to proposals from traditional media providers that incorporate or complement campaigns involving the major social platforms.

Know The Buyer

Designing media sales programs for smaller businesses in the community also requires appreciating how ill-equipped they are for making these purchasing decisions. In rating the marketing experience of media buyers at local businesses, the firm’s latest survey finds 72% of them would be categorized as a novice/apprentice and a similar proportion (70%) of this group reports they make are making marketing decisions without anyone’s help.

“More often than not, the decisions are being made by the owners’ spouse, son-in-law, or Go Daddy,” Borrell said. His company’s conversations with more than 3,000 local business also found that “digital has become a huge time suck,” with the average local business manager spending more than one-and-a-half days a week on marketing activities.

Given this scenario, these businesses are gravitating toward purchasing decisions that are backed up by data. While search engine marketing is cited as the best example of a data-based decision, broadcast TV also fall into the data-driven category, while outdoor and magazine are rated as “gut” buys.

The ‘Trusted Source’ Opportunity

As Gordon Borrell and others have said many times, digital is very confusing to local business owners. They are looking for a trusted source who can help to identify the media choices that will deliver the best return on their investment.

This is true even when it comes to a growth category such as social media, where local advertisers were almost evenly split on whether it represents a smart investment. As one of the survey respondents put it, “We want to see empirical evidence that our digital marketing spend is productive.”

A Potential Resurgence

For Borrell, the data point to the potential “resurgence of use of traditional marketing [advertising].” He sees this as being likeliest for “proven, trusted media like radio and television” and when these broadcast platforms are used “as a foundation for a media mix that includes social and digital.” He also sees the rising “cost to play on social media” as a development that will help drive this resurgence.

The connotation of a “resurgence” may hold truer for newspapers, directories, and other media that have already experienced ad revenue declines. However, the research supports Borrell’s recommendation that TV stations incorporate popular digital platforms, in addition to their own, when offering a cross-platform media mix to SMBs in their markets.

Additional Data And Insights

Attendees at this past week’s NAB Show were offered additional insights about ways digital capabilities enabled by the new ATSC 3.0 broadcast standard can support a broader range of digital advertising and marketing solutions. MFM and BCCA will also be taking a deeper dive into the financial considerations for offering advanced advertising and marketing services at Media Finance Focus 2018, our annual conference.

Confirmed speakers include NAB’s Gordon Smith, who will participate on an industry outlook keynote panel along with NCTA’s James Assey, the News Media Alliance’s David Chavern, and longtime video game developer Guha Bala, president of Velan Ventures, who will provide the perspective of the games community. Media Finance Focus 2018 will be held May 21—23 at the Hyatt Regency Crystal in the Washington area (Arlington, Va.).

With more than 150 industry experts participating in 80-plus educational sessions addressing such topics as business models for ATSC 3.0, managing micro-transactions, monetizing data, digital ad measurement, eSports, and selling programmatic ads, our 58^th annual conference is designed to deliver on this year’s theme of delivering ideas for “Capital Success in the Capitol City.”

We hope you will encourage your station or company’s finance professionals to attend this year’s Media Finance Focus conference. As the local businesses participating in Borrell’s latest survey voiced, emerging business opportunities can be very confusing. Our goal is to replace that confusion with clarity on the best pathways for revenue generation (and recognition) for media companies.

Mary M. Collins is president and CEO of the Media Financial Management Association and its BCCA subsidiary, the media industry’s credit association. She can be reached at [email protected] and via the association’s LinkedIn, Twitter or Facebook sites.