With changes and challenges moving at the speed of the digital developments, budgeting at media companies can no longer be a set it and forget it process. Many are adopting or evaluating a rolling approach that allows them to adapt their revenue and spending forecasts with an eye to disruptions.
With so much debate over tax policy and political ads about universal health care, you can’t even certain about death and taxes anymore.
For the industry’s financial managers, having greater certainty about business expenses such as health care costs and taxes is an important part of developing and updating their operating budgets for the coming year. Public companies have additional concerns regarding the guidance they will need to share with their shareholders.
With a goal of helping to shed some light on these types of issues that will affect not just the operating expense of media companies but also the economic factors that will affect the revenue side of the balance sheet, we asked Andrew Lyon, principal in PwC U.S.’s National Economics and Statistics Group, to deliver the opening Keynote at Media Outlook 2013, an event organized Media Financial Management Association (MFM).
The Economic Outlook for 2013
As Brandchannel Editor Shirley Brady later observed, Lyon’s remarks served as sobering reminder of the challenges facing the U.S. economy. With respect to the employment outlook, he reviewed data from the U.S. Labor Department’s Bureau of Labor Statistics that illustrates the recent “great recession” was not just one of the worst in our country’s history, but its recovery has also lagged all other recent recessions.
In fact, a report by the Hamilton Project finds that the “job gap” left by recession will take years to recover. Even if the country experiences the best average monthly job creation rate from the past 20 years, which it enjoyed in 1994, it would take until at least 2020 before we return to 2008 employment levels.
On a brighter note, the Bureau of Economic Analysis’s September 2012 “Blue Chip Forecast” expects the country’s Gross Domestic Product to continue to improve in 2013, rising from a 1.8% growth in the first quarter of 2013 to a 2.8% by the fourth quarter
Meanwhile, we have two other developments in 2012 that will affect the economic outlook for 2013. The first is the “fiscal cliff’ that will be triggered by the sequestration agreement, which the Congressional Budget Office projects could lower GDP growth by a half a percent and increase the unemployment rate to 9.1%. Second, as Lyon observed, with Democrats and Republicans holding fast to competing proposals addressing U.S. budget deficits, the outcome of 2012 elections will also weigh heavily on the country’s economic outlook.
The Industry’s Perspective
Ad industry executives and industry CFOs participating in subsequent panel discussions agreed that the ad market will be greatly impacted by governmental action on tax and fiscal policy next year.
Media Outlook 2013 attendees sat in on a media industry CFO discussion of the outlook for media businesses in 2013 moderated by Rick Newman, a correspondent for U.S. News & World Report. Participating were the financial leaders from three leading media companies – Mitchell Scherzer, CFO, Hearst Corp.; John Kampfe, EVP/CFO, Turner Broadcasting System, and Laura James, SVP/CFO of Lincoln Financial Media.
When looking at industry trends that will continue to take shape in the coming year, Turner’s John Kampfe believes the push toward digital will continue for all media. Kampfe went on to say new digital products can make sense, depending on how the numbers work out. He added that, while younger demographics are pushing the migration toward mobile applications, the large number of platforms complicate product development and increase the costs.
Coming out of a national election, 2013 will naturally see lowered political sales, said Laura James, CFO of Lincoln Financial Media. She noted this year’s political spending has been significant for stations in swing states, but much softer in other states.
In a panel discussion moderated by Brandchannel’s Brady, attendees heard more on the outlook for advertising sales. Its panelists included TVB President Steve Lanzano; Mark S. Gray, president, Katz Radio Group; Andrew Capone, SVP, marketing and new business development for NCC Media; and John O’Loughlin, president of the Houston Chronicle.
The panelists felt many advertisers are buying later, in an effort to obtain lower media prices and keep purchasing flexibility open. With respect to emerging media, TVB’s Steve Lanzano said mobile media is not hurting traditional television, but rather is helping viewership. He said the real issue is how to accurately measure consumption of mobile TV.
While there is still pent up demand in the auto category, Katz Radio’s Mark Gray feels auto ad sales will not increase significantly next year. Gray explained that the auto sector’s greater use of multiple media and innovative marketing techniques as a way to move merchandise is a big contributor to this moderate growth projection.
Auto marketers aren’t the only ones looking to take advantage of digital media opportunities. Houston Chronicle President John O’Loughlin noted the trend toward integrated, cross-media marketing campaigns is contributing to the blurring definition of national advertising.
In a presentation that served as the capstone for this year’s Media Outlook Seminar, Brian Wieser, senior analyst, Pivotal Research Group, delved into the digital developments that are driving these trends. Wieser, who has been at the forefront of discovering new trends and innovative developments in media since the early 90s, illustrated the link between trends in nominal personal consumption, industrial production growth, and total ad spending.
When adjusted to exclude expenditures on political and Olympics advertising, the three benchmarks are trending pretty much in unison, reflecting only slight increases of a percentage point or so per year over the next several years.
Taking a historical look at ad spending by large companies – those with $2.5 billion or more in assets, Wieser noted that “individual marketers have been holding their budgets flat.” Significantly, this trend dates back for more than a decade, with large corporations spending in the area of $60 million on advertising from 2001to 2008.
A Bright Spot in the Ad Outlook for 2013
Instead, Wieser’s research indicates that it has been the “new marketer categories that are driving growth.” These include such categories as health insurance companies, which he expects to be a $1billion ad market as a result of the new health care rules, online search engines including Bing and Google’s Chrome, and consumer electronics vendors such as Samsung.
With respect to attracting digital media revenues, he said, “Don’t follow eyeballs, follow marketers.” To illustrate his point, he cited the trends for three categories: e-commerce endemics, small- and medium-sized enterprises (SMEs) and “TV-centric” brand marketers.
E-Commerce businesses seek to meet their goal of online sales through placing roughly two-thirds of their online advertising spends on paid search and the remainder on other online media. SME’s, whose primary goal involves offline sales, place virtually all of their online focus on paid search opportunities, with roughly 10% or less going to other online media. In sharp contrast, to SME’s, TV-centric brand marketers, focus only a small portion of their online spending on paid search, concentrating instead on other online media to meet their primary goal of brand-building.
Wieser also did an outstanding job of digging into the drivers for these digital-centric advertisers. He provided so much data that, rather than letting it get buried in this column, I will make it the focus of my next column.
With changes and challenges moving at the speed of the digital developments, budgeting can no longer be a set it and forget it process. Many companies are adopting or evaluating a rolling approach that allows them to adapt their revenue and spending forecasts with an eye to disruptions like those outlined by Dr. Lyon.
This rapid pace makes MFM’s commitment to sharing industry education and leading practices more critical than ever. I encourage you to check out our website for upcoming events and current information.
There’s not much we can do about the uncertainties affecting our industry, which may even be more certain than death and taxes these days. What we can do is share the knowledge and experience of our members and experts to help you evaluate the best approach for your company.
Mary M. Collins is president and CEO of the Media Financial Management Association and its BCCA subsidiary. Her column appears in TVNewsCheck every other week. You can read her earlier columns here.