Andrew Harrison: Looks at opportunities to arise out of the storm

It’s clear we are in the eye of the current economic storm: media industry revenues are down in double digits for the first quarter of 2009; leading companies such as ITV, Bauer and Guardian Media Group have introduced pay freezes; and TV pricing is as cheap as it’s been for a decade. So the size of the industry is changing fast.

At the same time, the media sector is responding to Lord Carter’s Digital Britain report, which outlines fundamental change. For telcoms companies, there’s the aspiration to deliver 2Mbps (megabits per second) universal broadband access by 2012. For broadcasters, there’s possible collaboration between ITV and the BBC for regional news and, possibly, BBC Worldwide and Channel 4 to create a second major public service provider alongside the BBC. This new partnership between the Beeb and private media companies also extends to radio, where there’s an aspiration to extend digital radio coverage and share thinking on platforms and standards for a new digital age. So the shape of the industry is changing too.

Yet, ironically, for most media companies, 2009 is about survival. While we all acknowledge the fundamental changes to the size and shape of the sector which I’ve just touched on, we’re all finding it difficult to plan beyond the next quarter. However, for those that do survive, it will be a very different sector with different expectations in 2010. Somehow, we have to simultaneously answer the long-term questions about the business model of the future, while in the short term ensuring we have a long-term to worry about.

No doubt about it, the business model for all three sectors – media owners, advertisers and agencies – of the communications industry will change, and here are the three questions that are exercising each of us right now.

First, for media owners, what’s the revenue model for 2010? Last year’s revenue models will never return. It would be naive to assume that 2009 is a one-off blip and cost per thousand will return to previous levels once this crisis is over. Why should they? Advertisers – egged on by consolidated media buying groups – are enjoying unprecedented low rates, as media owners, within and across sectors, drop their drawers.

When media was scarce, you could be confident those low rates would disappear once demand rebuilds after a recession. But media opportunities are now cheap and plentiful. There’s a huge excess of inventory seeking advertisers. So the big buck rates of old will never return.

Worse still, young, digital consumers don’t instinctively embrace subscription models. For each successful exception (BSkyB in television or Future in specialist magazines spring to mind), there are more instances of consumers downloading, ripping, burning and consuming music or video content for nothing. So, while survival this year demands low rates today to secure tomorrow, next year demands new models to secure a sustainable future.

The second question relates to the first but is for advertisers: what’s the advertising model for 2010? Before the recession, we were seeing the emergence of some nascent new models, like Phorm, that were exploring the link between user information or demographics and targeted ads.

In turn, leading advertisers were beginning to see the possibility of a much more sophisticated approach to ad placement. Imagine, for instance, if you were the brand manager of Pantène or Olay and you could place ads in programmes with the right product to match the viewer’s hair colour or skin type. Sounds enticing – and probably worth paying more for. But no one has yet cracked how to move to this next generation of sophistication, while overcoming the privacy concerns of a new, more empowered generation. And, anyway, will this degree of narrowcast targeting facilitate the increase in revenue for media owners that justifies a move away from broadcast ad models?

Finally, for agencies, what’s the revenue model for 2010? The commission-based model is dying. The recession, with lower absolute spend levels, will finally kill it off. So, the future will be about fees for hours worked. This is the model of all other professional services businesses – from lawyers to accountants and consultants. The more adventurous among us will start to see the emergence of bonus schemes based on achieving the end of clients’ objectives (outcomes) not for merely delivering on intermediary measures, such as media pricing or copy output.