Collins | Rising Above A Pandemic

“The sky is falling.” “The sky is falling.”

Consider the story of Henny Penny, also known as Chicken Little. When something landed on her head, she became frenzied and convinced the other barnyard animals that it was time to run. The coronavirus pandemic seems to have affected some media companies and their advertisers in much the same way. They have been running in circles.

Others, both advertisers and media companies, are more like the phoenix. They see that it is time to acknowledge this change and rise from the ashes.

Borrell Associates CEO Gordon Borrell believes the current situation is the natural outcome of change that began with the Great Recession. This “perfect storm” will clear to reveal a new business landscape. It’s a change that while coming for some time, was slowed by the then-existing market forces. In an article for the May/June 2020 issue of MFM’s member magazine, The Financial Manager, Borrell traces the roots of this change and outlines what he thinks are the characteristics of a successful media company going forward.

Before the recession that began in 2008, “traditional forms of print, broadcast, cable and outdoor media controlled 75% of advertising expenditures.” Today’s social media juggernauts were still in startup mode and had yet to sell “their first dime of advertising.” Digital media, he says, “was viewed as an optional snap-on marketing tool.”

The Great Recession brought a “quick reversal of fortunes,” Borrell says. Digital’s share of advertising had grown an average of two percentage points annually in the 10 years prior, yet after the recession the growth rate increased to 3.5 points. Most devasting to old norms, traditional media’s share of that advertising pie shrank to 40%. However, these trends, while exacerbated by the pandemic, were already in process.

The same is true for the current situation, what Borrell calls “the next trigger.” However, this one will not help feed digital’s market share. In fact, growth is slowing. It fell into the single digits for the first time in 2019. The fallout, he predicts, is a differentiation between those companies who have been clinging to digital as the silver bullet for advertising, and those that have evolved to meet their customers’ needs by offering them a multimedia marketing mix.

Local Businesses’ Deep Marketing Flaw

Borrell’s focus is local business, which he says provides 60% to 100% of a media company’s revenue. He believes that the virus exposed a “deep marketing flaw” that has been forming since the last recession.

Since that time, many local businesses have been shunning traditional forms of advertising and bringing responsibility for marketing in-house. They are creating and managing their own Google profiles and social media sites — Facebook, Instagram and Twitter. Some are even shooting videos and posting them on their own YouTube channel. The results, according to Borrell Associates’ research, do not seem to be achieving standard marketing objectives. To wit:

• Companies are spending increasing amounts on marketing by handling the tasks internally. Borrell research from 2019 shows that, when internal costs are added to the calculation, the average small business spent $120,000 on marketing and they had no idea they were spending that much.
• Companies put marketing in the hands of employees without marketing training. Borrell says that administrative assistants, technical staff and sales representatives are being tasked with creating ads and posting on social media. The 2019 Borrell survey found that 70% of those making local business marketing decisions “were considered novices.”
• Companies had no idea whether they were spending enough or too much. “Remarkably, nearly all of them had no formula — whether it was a percentage of gross revenue or percentage of sales — to set their ad budgets.”
• The research identified an over-reliance on companies’ own channels, resulting in what Borrell terms an “echo chamber” for their marketing efforts. They are continually reaching their current customers and missing potential customers.

Unfortunately, the end of the pandemic will not mean that small and local businesses will see the error of their ways and embrace local media advertising. Instead, Borrell expects that most will be so weakened that they will not survive. He predicts that the loss of this potential ad revenue will mean the end of some media companies, particularly “the smaller, less capitalized ones.” To support this prediction, he points out that, “before this year’s second quarter began, we saw some radio stations and weekly newspapers quietly shut down.”

The Survivors

So, who does he see as the “media survivors of new, condensed marketplace”? The answer comes in looking at their likely advertising base, healthy local companies “that will continue to support media.” Borrell believes that they are defined by their advertising response “as the coronavirus crisis took root.”

A Borrell survey conducted March 15-29 shows, while most businesses reduced or completely stopped advertising, 44% of companies maintained their spending or spent more. These, he says, are likely to be the survivors.

Most importantly, he believes that they are marketing experts who will look for a strong mix of targeted mass media and digital. The survey identifies no particular industry sector for those that continued to spend on marketing, the businesses include clothing stores, dog kennels, food trucks, real estate agents and jewelry stores. What does set them apart is that each has a management group with significantly more marketing expertise than those who were cutting ad budgets.

“Savvy marketers shine during a crisis,” Borrell says. To support this, he cites the oft-repeated story of how Kellogg stole market share by increasing its ad budget when its larger competitor, Post, reined in advertising during the Great Depression. Kellogg knew that people were turning to radio for news and entertainment and they followed the audience.

The same, he writes is happening during the coronavirus pandemic: “Media audiences have ballooned; advertising clutter has shrunk; and savvy marketers are seizing the opportunity.” Borrell’s data show that 52% of advertisers planned to cut or reduce spending, precipitating a 30% to 40% decline in local ad spending in the March-April period.

Conversely, Nielsen reported as much as a 60% jump in media usage, a decided disconnect. Shrewd marketers, he notes, tend to have a greater mix of advertising elements in their campaigns. These include broadcast TV, cable, outdoor, print, radio and direct mail.

Just as Kellogg did during the Depression, Borrell predicts that those rising local businesses will be looking for “equally savvy media companies” that can provide both core media products along with broader exposure for marketing messages via today’s emerging services like over-the-top, podcasting, geofencing, branded content and retargeted banners.

It’s worth noting that, depending on which version of the story you read, Henny Penny was eaten by the fox, or narrowly escaped as she went out to proclaim doom. Media companies willing to embrace the new realities are the ones that will rise and soar.

Gordon Borrell’s article is called “Survival of the Savvy.” A digital copy of the May/June 2020 issue of TFM, in which it appears, is now available on the MFM website: www.mediafinance.org.

The changing face of advertising is sure to part of the conversation during the opening session for what is now a virtual event, Media Finance Focus 2020, the 60^th annual conference for MFM and its BCCA subsidiary, the media industry’s credit association. The session, “A View From the Top,” includes Darrell Brown, president, Bonneville International Corp.;, Jeff Krolik, CEO, Sinclair Sports; and Randy Pitchford, founder, Gearbox Entertainment Co. We will explore their thoughts about the current state of the industry, disruption, and which of the industry’s numerous new initiatives and developments they find most exciting. Registered attendees will see them streamed live on Tuesday, June 16, at 1 p.m. ET.

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, Facebook, Instagram, and Twitter accounts.