Media's New Normal: Grim

Forbes reports on a study by an equity fund, Catalyst Investors, that says the current downturn in media is nothing temporary.

In fact, this year will be an "annus horribilis" for traditional media, says Catalyst. Get used to it: Mainstream media's advertising meltdown is the "new normal" for the ad business. Plummeting consumer spending and the Web's ability to eat away at the pricing power of traditional media has driven the declines.

The increase in consumer spending in recent decades drove an increase in capacity in media (e.g., new TV channels, new magazines for every demographic sliver and esoteric interest). And then came the internet, which provided unlimited content and unlimited ad capacity – an oversupply that caused the bottom to drop out of media pricing.

[The internet's] unlimited content and ability to measure ad impact broke "the oligopolistic pricing power that traditional media enjoyed in the 1980s and 1990s." A further dip in ad spending as a percent of GDP will occur over the next two to three years, predicts Catalyst.

Unmentioned in the article are the effects of retail consolidation and the decline of many traditional big advertisers. This blog reports that Macy's has cut back its newspaper advertising by over 50% in the past three years (a $600mil hit to the newspaper industry).


Macy's shifted its spending tremendously, giving a bigger share to TV, but even there it's just a bigger share of a smaller pie. The numbers indicate that Macy's total media spend dropped about $700mil in those three years. This was driven, no doubt, by multiple factors: the recession, the secular decline of the department store channel, and not least by the combining of the old Federated and May Company stores and the closure of redundant outlets. Put it all together, and it spells continued gloom for the media – the recession will end, but the decline of traditional advertisers will not. And the media overcapacity created by the internet will not end either.

Channel marketers, of course, will look at those pie charts and note the absence of in-store marketing. What portion of the missing $700mil was spent on in-store promotions of some type? That's an answer we're unlikely to ever get, but I imagine it is not an insignificant number.

(As an aside, I look at the 1% for internet spending and I want to scream: "What the #$%^& are they thinking??!!??" To be fair, it's an improvement over the 0% in 2005. Maybe they're catching on.)