There are two topics at the front of US commentators’ minds right now: who will be the next President and will there be a recession? Naturally the topic of who will next lead the country and the weak economy have become closely linked – as they should be. Americans want to know how the next President, regardless of the hype of the primaries, will get the US back on track – not in Iraq or Afghanistan, but on Main Street USA.
The incumbent President George Bush has come in for some criticism for not acknowledging how bad things are with the economy at home. But last week he finally publicly recognised that ordinary Americans needed some help and protection from what seems to be an increasingly bleak economic outlook.
The relevance of this economic slowdown to US marketers has never been more important, for the booming US economy over the past few years has been driven by consumers – and so the slowdown will be consumer-led as well.
The signs of harder times are all around: the fast-rising price of oil, which tipped over the $100-a-barrel mark this month; the number of jobless Americans hitting the 5% mark, the crumbling housing market, and the slowing profits of major retail names like Target, Barnes & Noble and even the impervious Wal-Mart.
The Thanksgiving/Christmas holiday season was the worst in five years for retailers, according to the National Retail Federation, as consumers chose to stay home after being hit with increased petrol prices. This is a country where driving long distances for essential journeys such as going shopping is the norm. Even food prices are going up, driven by the rising cost of corn on global markets as the US government subsidises ethanol as an alternative fuel.
In November (MW November 29, 2007) I talked about the possibility of a “latte recession”, which could loosely be defined as consumers foregoing their luxury nice-to-haves as they cut back on discretionary spending. Starbucks, the subject of that column, has realised things are not what they were with the US economy and this month brought back company founder Howard Schultz as chief executive. And top of his strategy changes? Cutting back US store expansion.
The ‘r’ word rears its head
Among US executives from various sectors the R-word is becoming reality and more people are moving away from the idea that we will see a mere slowdown or “soft-landing” and are starting to talk about an out-and-out recession. The stock markets are particularly jittery and any indication by executives that consumers are starting to default on bill payments has sent investors into a selling frenzy.
Advertising chiefs at holding groups WPP and Interpublic have expressed hope the US economy will pull through but are realistic that they may need to readjust their plans for the year.
Also important has been the slowdown in the US housing market, which has done two things: ended the role of the home as the “credit cash machine” as house values fall; and left some homeowners struggling to keep their homes as promotional periods for subprime mortgages came to an end and their monthly payments jumped.
But it’s not completely bad news.
From the advertising fraternity’s perspective the fact that 2008 is an election year is a good thing. In the most open presidential election in recent memory, most admen are expecting plenty of spending from the candidates involved.
Then there’s the small matter of the summer Olympics in Beijing, which is likely to bring in big numbers regardless of what else is going on in the economy. The Television Advertising Bureau predicted back in September that as a result of the Olympics, there would be a 9-10% boost in TV advertising for 2008 – though back in September few understood the extent of the subprime mortgage crisis.
One factor not related to the US economic slowdown but which could hurt TV ad revenue this year is the Hollywood writers’ strike.
The unionised writers of everything from talk shows such as the David Letterman’s Late Show and Jay Leno’s Tonight Show, to dramas and sitcoms, put down their pens on November 5. They’re protesting against what they claim are plans by TV bosses to deprive writers of revenue streams from newer media like the internet and mobile phones. The writers have been here before with DVDs and felt they got short-changed. Not this time they say.
Trouble in TV land
Though Leno and Letterman returned to screens earlier this month after a two-month absence, many shows are being delayed or cancelled as the strike continues. The longer the strike goes on the more likely marketers will turn off the TV and look to other media, like the Web, to reach consumers. The strike has already had an effect: prime-time ratings were down more than 10% during the key fall season. The biggest name casualty of the strike so far is the Golden Globe Awards telecast. Not just important for the film industry, the Globes is also a key TV advertising event. There are growing fears the strike could affect the Academy Awards.
While the approaching recession puts more pressure on mainstream consumer marketers to justify their budgets and on television companies to ensure they don’t lose advertisers after a market downturn, cable operators have started to invest in technology that might help them compete with the interactive cost-effective features of the internet.
A project codenamed Canoe is being worked on by US cable companies to help marketers target their ads more closely at consumers. Talk of targeted advertising on television is the Holy Grail of marketing but, despite advances in technology, it has yet to be delivered. Project Canoe might just change all that in a few short years.
For example, you might be watching the same programme as your next-door neighbours but they would see a different set of ad spots because the cable company’s database might know you have small children while your neighbours are a retired couple. This is the cable industry’s attempt to fight back against some of the strengths of the internet.
Time Warner’s new chief executive, Jeff Bewkes, has been one of the loudest advocates of using the technology – it being the only option on the table to stop the likes of Google runing away with the interactive advertising dollar. And he has a huge stake in all this: his company owns the second largest US cable company as well as numerous cable networks and premium pay-TV channels, including HBO.
Such intelligent interactivity combined with increasingly robust infrastructure allowing cable companies to deliver hundreds of free on-demand TV shows and movies in high-definition could help the cable TV industry and advertisers, in the event of a long-term recession, by offering offer marketers a better return on investment.
Yinka Adegoke is a New York-based business journalist. firstname.lastname@example.org