Sunday, September 6, 2009

Media's Collapsing Advertising Rates Everywhere (but the Internet)

Recently, the Wall Street Journal ran a story on the collapsing advertising rates for radio networks prompting the highly leveraged radio nets to ask lenders for renegotiated covenants (since the radio networks are unable to maintain cash levels). Clear Channel, for example, is expected to barely squeak by in meeting its debt covenants.

But buried in the story is an interesting graphic showing how advertising is decisively moving to where audiences and readers are: the internet:


[Click Image to Enlarge]


Radio is down 27% from 2007 numbers, television down 11%, and newspapers down a massive 42% but the internet has seen an increase in 83%.

Part of this shift is cost-based: per viewer, the internet is cheaper than almost any other means of advertising. Part of the shift is based on the advantages internet advertising has: there is no question as to how many viewers/readers the advertising reaches, and often additional information can be gleaned (from IP address information and "User Agent" information). Geographic location, browser and operating system, allow at least rough guesses about demographic information. But much of it is based on the growth of people using the internet to get information.

Radio, other than conservative talk radio, has been hit hard by consumers using Ipods to create their own customized playlist of music versus whatever commercial ridden vanilla offerings commercial radio stations offer. Even Spanish language stations find fewer listeners (with illegal aliens unable to find work returning home) and those that remain economically stressed.

Compared with other slumps, "this decline has been so much greater," says Jeff Smulyan, chief executive of Emmis Communications Corp., an Indianapolis-based company with 22 radio stations. "In a normal recession, if you re down 5%-6%, that's a lot." Emmis recently had to renegotiate agreements with lenders because of declining revenue.


Television, clearly, is under stress from sites such as Hulu.com and other online offerings of time-shifted TV series that draws viewers from the traditional live viewing pattern. Clearly, just as with music/radio, consumers wish to view scripted entertainment on their own terms, on their laptops and computers, on DVDs, and on Ipods and mobile phones.

Newspapers are in free-fall, with respect to advertising revenue. As Ed Driscoll writes, the media and particularly newspapers are in the business of news suppression and propaganda, not actual news reporting. With alternative viewpoints and links to video and text of actual speeches and more of public figures just a click away at Drudge Report or Instapundit, newspapers have dug their own grave.

Of all the media, television, having the least amount of advertising revenue erosion, is best placed to find its own destiny in new media, as I wrote in The Shift in Entertainment. However, all evidence suggests that television executives have no more ideas on this than newspaper executives.

It is quite likely that the economic pressures of a sustained (and perhaps double dipping) recession will force the shift in advertising dollars to the internet at a faster pace. If this does happen, it's likely that all the traditional media will largely collapse, as the bankruptcy filing by Orange County Register Parent Corporation Freedom Communications presages. Expect the Tribune Company, parent to the LA Times and Chicago Tribune, as well as part-owner of KTLA-Los Angeles and WGN-Chicago, to follow suit eventually, along with most of the major newspapers. Clear Channel, one of the largest Radio network with 800 stations, has $20 billion in debt, how long it can keep out of bankruptcy is an open question.

In many ways, the future in entertainment belongs to those who can seize the opportunities inherent in new media, i.e. the internet. Not to provide specialized and limited content, replicating the old "Brandon Tartikoff model" of a few high income yuppies generating premium ad-rates, broken by the recession, but broad based content appealing to men, women, old and young. Such a "re-massification" of culture would be a positive first step in arresting the cultural decay found in the West, a good deal of it caused by a culture built on fragmented and fractured elites who despise the people.

5 comments:

Anonymous said...

"Clear Channel, one of the largest Radio network with 800 stations, has $20 billion in debt, how long it can keep out of bankruptcy is an open question."

Any comment how on the rich, powerful, and successful owe more money than they're worth? This amount of debt indicates that Clear Channel was, charitably, a house of cards; perhaps accurately, a scam.

Whiskey said...

The WSJ article does not make clear when the debt was incurred, but suggests that it was taken on during a leverage buyout last year. Tribune Co. (parent of LAT and Chicago Tribune) is highly leveraged, mostly on the bet that the Times-Mirror media holdings would be worth a lot of money. Clear Channel is planning layoffs.

There is nothing wrong with debt and leverage, and running deficits if you expect to make money. When News Corporation launched Fox Broadcasting in October 1986, it expected to lose about a billion dollars over the next ten years, which it did (and a little over). But Fox in the ten years afterwards (1996-2006) has been quite profitable.

However, when most corporations and mega-investors (Warren Buffett, George Soros) are highly leveraged, they want as a practical matter high inflation, which reduces effectively the amount of their debts. While ordinary people on fixed incomes (wages don't match inflation) prefer low inflation.

This is a direct reversal of the classic American pattern from the founding of the Republic (and arguably before). When say, Andrew Jackson's Western populists favored inflation, and the Bank of the United States and the Clay-Adams Eastern mercantile alliance favored low inflation. Or William Jennings Bryan and the Free Silver movement (essentially, inflationary) and bi-metallism (silver coins alongside Gold ones, again, inflationary). Then, it was ordinary people in debt, in Western ranches and farmlands, and inflation generally favored them by reducing their debts.

Rupert Murdoch has made a habit of highly leveraged bets with News Corp -- to launch very successful businesses, including not just Fox Broadcasting but BSkyB, and other satellite providers in China, India, and Asia, as well as the UK. He's been not very successful (so far) with MySpace.

I would not say Clear Channel was a scam, more along the lines of a bad, bad bet. Unfortunately everyone copied Murdoch (because he was so successful with FOX) and thus you have far too much leverage/debt, and hugely powerful forces besides just Obama/Dems in favor of high inflation. Which helps them wash away their debt load but hurts everyone else.

Jamie Irons said...

...a good deal of [the cultural decay of the west] caused by a culture built on fragmented and fractured elites who despise the people.

In a few words I think you have touched on what appears (to me, at least) to be the central problem we face.

Jamie Irons

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