The current crisis clouding the economic world is bound to change the way media responds and behaves, believe professionals from the industry, conveyed in an international report compiled by Booz & Company.
The recently prepared special report states that the global financial crisis has compounded the problems the media and entertainment industry is already facing from the shrinking of media audiences and digital revenue not growing fast enough to make up the difference, especially for those dependent on advertising and consumer spending.
Big spenders on advertising such as financial services, automotive companies and real estate in the local market are fighting for survival, while others re-examine their media budgets amidst consumer confidence at its lowest level in decades.
"Lack of liquidity and declines in consumer spending will eventually be rectified, but if the recession is as long as economists predict, it will leave behind profound changes in media consumption and shopping behaviours," said Gabriel Chahine, a partner at Booz & Co.
There are clear priorities for media companies hoping to establish a winning position in media beyond the downturn. They must rise to the structural challenges facing them and reinvent their business models. Media sales must be more targeted, data-driven, and marketer-oriented. Costs must be reduced – not only by cutting staff – and resulting savings must be invested in capabilities and assets that will drive the next generation of growth.
Facing the harsh reality, a number of local, regional and international companies have cut their staff from 10 per cent to as much 50 per cent. Some of the small- and medium-sized firms have even closed shop, adding to the industry gloom.
"We had three big-spending clients but all from real estate. As a result, when their projects came to a halt, so did their ad spend. So there was very little we could do and had to close the agency," said an executive of a Dubai Media City-based ad agency, who declined to give the name of the company.
Many real estate companies had started their in-house creative agencies, and they also had to close them down and wait till "good times come again".
Media companies have not, as yet, dealt with the structural pressures confronting them. Despite digital media being the dominant growth opportunity as marketers seek advertising that is more targeted, accountable, and interactive, many media firms have yet to profit from it. It will become more popular during the downturn and its share of advertising spend will increase in 2009.
Online advertising, with just a six per cent share of measured media spending among the top 25 US national advertisers will grow the most, as marketers looking to cut costs will most likely trim TV and print ads spend.
Consumers now spend more time online, devoting time and attention to online news and video entertainment, blogs, search engines, online games, social networking, and e-commerce. Demographically, reports suggest that members of Generation Y spend 30 per cent more time online than watching TV.
"As pressures grow for media to be more surgical and precise, the right marketing model remains elusive," said Chahine.
Booz & Co's recent Marketing & Media Ecosystem study found that approximately 90 per cent of marketers are focused on campaigns that are cross-platform and inclusive of digital media, and that about 80 per cent believe insights into consumers' digital behaviour will become more important to their brands. However, only about 25 per cent of marketers consider themselves savvy enough to capitalise on the opportunities in online advertising.
"Key concerns include the efficacy of digital metrics, the need for greater education in the C-suite on the value of digital advertising, and new models so they can build a more effective advertising presence online," Chahine said.
NEXT GENERATION OF SALES
Today, media sales teams need to change their relationship with clients from being media vendors to higher-value marketing partners. They must have more precise consumer behaviour insights and articulate who their consumers and audiences are, and then combat the commoditisation of their advertising inventory.
In addition, sales teams no longer simply sell; they consult, by leveraging data on audiences' interests and behaviours across touch points. The analysis of media audiences and brands with specific data better addresses marketer objectives around engagement, purchase intent, loyalty, and advocacy.
"This will require stronger consumer research, deeper data management skills, a more strategic, client-focused marketing orientation, and new external partnerships," said Chahine.
Media sales management must also be adapted. Sales structures must be designed to sell premium inventory and less differentiated offerings cost-effectively. For premium inventory, they need to provide a consultative solution, focused on ideas, integration, and results; work alongside agencies to form direct partnerships with major marketers; and take full advantage of their own data and insight capabilities. For commodity inventory, they need to find channels at a much lower cost that can expand their reach at more attractive economics than traditional sales forces.
BASIC COST TRANSFORMATION
Leading companies that did not limit their efforts to quick fixes and instead undertook efforts to reshape their cost structures fundamentally, found themselves stronger following previous downturns. Media companies should do the same by directing money and attention to digital assets and related capabilities that are key to growth following the downturn, and by shedding struggling analog businesses that have a limited upside in the future. "Every expense must be justified, and costs rationalised to the lowest possible level during the downturn," said Chahine.
Outsourcing and off-shoring will be extended by leading players beyond the obvious areas while concentrating resources on more brand-defining areas.
They will institute shared-services operations that span business units and will scour the organisation for best practices to capture greater consistency, and immediate operational benefits will be instituted. In an industry where sourcing influences as much as 40 to 50 per cent of the cost base, they will closely review their procurement practices and pursue aggressive vendor-restructuring efforts.
FOCUSED ACQUISITION AGENDA
Cash and liquidity provide significant advantages in the media and entertainment world today, with more opportunities for players with strong balance sheets to pursue acquisitions. In addition to the inevitable consolidation that will occur in some maturing media (such as cable), a key target will be digital media and related technology startups that are no longer flush with financing. Most of these agreements will be modest in size, designed to help media companies extend geographic reach or add critical new capabilities such as online gaming, agency services, social networking, and advertising-related technology.
"The best companies recognise that a harsh economic climate does not mean the end of innovation," said Chahine.
Today, marketers will pay for media environments that deliver an engaging experience to a targeted audience and move consumers closer to a purchase, and they will pay for the opportunity to create a consumer relationship. Online newsletters, video games, online video, and mobile phone content represent target-rich areas that are ripe for advertising-oriented innovation.
Media innovation should not be limited to digital environments but must include participation in below-the line; the other 75 per cent of the marketer's spending mix. Marketers should shift their spending to below-the-line during a downturn because of its accountability and proximity to sales.
To capture additional growth in the field, media companies need to extend their brands and expertise into relationship marketing, event marketing, public relations, word-of-mouth marketing, shopper marketing, and in-store media, with greater focus.
"Savvy advertisers will use the current downturn to make significant, lasting changes to their marketing mix," concluded Chahine.
Media and entertainment companies that target such spending need to adapt faster and stay ahead of demand. This current economic downturn will accelerate a shift in consumer behaviour and advertising toward more digital media, with intensity and permanency.