Thursday, May 14, 2009

OnlineSpin: Nationalizing Ad Budgets

Last week Dave wrote "Jeff, Use Kindle To Own The Daily Habit."

Monica Bower wrote in response, "Demanding 70% is tantamount to screaming 'I don't think the Kindle is going to last, and I need all my money upfront.' Charge papers and magazines a rate that's about half or even a third of paper printing costs based on total distribution, and the media will storm to their door. Printing costs are extortionist, and the real but mostly unexamined reason why print media is dying - their real estate costs much more than they can reasonably expect advertisers to pay to cover the cost of printing, whether internal or via an actual printing company.

If I manage a prestige press magazine and I want to limit it to 25,000 subscriptions to reduce my digital 'printing' costs, so be it. I still charge advertisers to advertise in the traditional way, with added internet marketing bells and whistles, but in any case the advertisers never work with Amazon, they work with me. I have limitless realtime data about readership to feed to agencies considering my real estate; they make a more informed decision and have better results because of it..."

Thursday, May 14, 2009
Nationalizing Ad Budgets
By Dave Morgan

Yes, I think that we are going to see a number of substantial ad budgets "nationalized" over the next two years. No. I'm not referring to a new TARP program, though I do find it quite interesting that the U.S. government is pushing back on Chrysler's desire to spend more than $100 million on brand advertising during its anticipated bankruptcy, to reassure customers and prospective auto buyers. It seems that the government is not so sure that brand-building expenditures are "absolutely necessary" to a healthy Chrysler.

Actually, I am referring to another story reported this week: that a number of Burger King store owners are suing Burger King and Coca-Cola to prevent them from reallocating their syrup rebate funds from local promotion efforts, and instead use them to support a national advertising push for the Burger King brand. While this story may seem a bit esoteric to some, I think it's actually big news. We are going to see a lot more of the national ad trend, which could ultimately have some very significant consequences on the market structure of the media industry. Here's why:

·         Limited budgets. We're in a severe recession. Everyone is being asked to do more with less, and it's natural to expect business partners to fight for control over scarce resources. National brands want to grab industry market share and see their ads on national television. Local store owners want foot traffic, sales and their ads on local radio and in local newspapers. Unfortunately, there's not enough money to do both at the moment.

·         Natural tension between franchisors and franchisees. If you want to experience some true "frenemy" markets, just talk to some auto dealers or quick service restaurant franchisees. There is a lot of natural love-hate tension in those relationships. I know, because in a previous life I was a litigator and helped represent Ford Manufacturing in its disputes with Ford dealers in Pennsylvania. When one has leverage over the other -- and, arguably, some of that leverage is shifting to national at the moment -- you can expect them to use it to reset some of their important contractual issues in their favor if they can.

·         National brands' shrinking distributor networks. You can't read an interview with U.S.  auto industry executives without reading about one of their biggest problems: way too many distributors (dealers) relative to the number of potential customers. Auto companies all plan to dramatically shrink their dealer networks. So too are other distributor-focused industries, like restaurants, luxury retail, consumer appliances, etc. Fewer local distributors mean less competition for local consumers and less "price and location" advertising for local media.

·         Shift to more centralized marketing. Finally, what's a stake is more control and more accountability over marketing expenditures. No longer are large national brands as comfortable with spray and pray advertising. Right or wrong, they want more control over how budgets are spent, with much more accountability about the results and the return on investment from those expenditures. Whether or not local control over media and promotion produces the best results is ultimately less important to many companies today than the ability to actually measure those results. In these times, CFOs are exercising more control, and that means more centralization.

The shift from local to national budgets has been going on for years. It's been a big factor in the growth of television advertising, particularly cable TV advertising. But I do think that we are going to see it accelerate over the next couple of years, which could have some profound consequences on local media. What do you think?

Dave Morgan is the CEO of Simulmedia. Previously, he founded and ran both TACODA and Real Media.

Online Spin for Thursday, May 14, 2009:

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