UPDATED ON AUGUST 28, 2009
As background, I left the big agency business in 1990 during a downturn similar to this economic slump. I observed the factors impacting that downturn and the implications for future opportunity. What Sorrell reports today about WPP results for first half 2009 suggests an acceleration of what I witnessed in the 1990 downturn.
Sorrells' report issued today is the gloomiest of the three big holding companies, with a 47% drop in 1st half PROFITS on an 8% drop in revenues. But there are also some clues with implications for future opportunity.
Sorrell's discouraging words are not without reason. As the Financial Times Lex report says:
“A further risk is that the recession accelerates the shift in attitudes towards the industry. Big advertisers, such as Procter & Gamble, are using the slump to wring concessions from agencies. In-store promotions are gaining ground over campaigns. Some companies, such as Coca-Cola, are switching from retainers to performance-based compensation. And long before the downturn, the likes of Google and Starbucks built big brands without ad agencies.”
Of course, demanding concessions from agencies during a downturn is to be expected. But the shift to performance-based compensation programs is a new phenomenon. Also for the first time, a major ad-supported media outlet points out that the most successful new mainstream brands launched since 1990 DID NOT USE advertising. In fact, a significant difference between the survivors of the internet boom and failures is use of grass roots, bottom up strategies vs. big awareness building ad campaigns.
Consistent with this trend, Sorrell suggests that traditional advertising will not be the source of new revenues and profits in the future. Specifically, Sorrell reports that over 60% of revenues are from non-traditional sources (ranging from digital, at 25%, to publicity, consumer insights, retail promotion, etc.)
The implications for media revenue opportunities are they should be non-traditional and performance based, such as: promotional, local, interactive (educational, sampling, live and virtual), relationship-building (registrations) , contextually integrated (i.e., earned media, branded entertainment, etc.), consumer insights (analysis of consumer generated content and responses to polls, surveys et al), etc.
One reason digital represents 25% of WPP revenues is probably driven by the emergence of "digital custom publishing." Agencies are helping brands fill the void for contextually relevant community websites, for example beinggirl.com. These interactive communities offer all the deliverables mentioned above: They can be localized, distribute promotional offers, educate, generate registrations, build relationships, and yield consumer insights. Some brands like Del Monte's Snausages Breakfast Snacks have even developed new products in partnership with members of these communities. (both of these cases are presented in Groundswell by Josh Bernoff and Charlene Li).
Business Week reports that Barry Diller is participating in the custom publishing market:
"So how will Diller make money where so many others have failed? He is creating a model where companies don't just sponsor or advertise against online articles and video, but also pay for customized content about their businesses—from three-part series to Web shows built around their products. Eventually, he also hopes to sell subscriptions for content, too."
Alternatively, instead of being another custom publisher, Media should be filling the void for contextually specific in-depth coverage and civilized community of common interest. Media has a competitive advantage in terms of both perceived quality and cost of doing business. Consumers can be convinced that both content and community "governance" are best served by an independent 3rd party whose mission is to be the "medium" rather than a brand with a potential conflict of interest. With its journalistic infrastructure, Media should be able to deliver a better product at a higher margin. And with an existing "mainstream" audience (and data which could reveal interests), media has the resources to accelerate the marketing.
My recommendation to local newspapers is to compete for those custom publishing dollars business with superior contextually oriented "supplements" featuring in-depth content and civilized communities (for paid members only). To preserve the "trusted MEDIUM" competitive edge over agencies and other custom publishers, I would develop a dual paid membership/sponsorship model that is not advertising dependent, allowing the publisher to control the content and maintain transparency.
COMRADITY is committed to helping publishers enter the custom publishing market with solutions positioned to have the highest integrity.
