Recent media documentaries and biographies have had a common subject: Charles Darwin. 2009 is the bicentenary of Darwin’s birth and the 150th anniversary of the publication of his seminal work, On the Origin of Species.
I was reminded of this at a media conference last week, when one speaker quoted Darwin’s theory on the survival of the fittest to emphasise the need for the media sector to change: “It is not the strongest of our species who survives, or the most intelligent, but the one who is most responsive to change”.
It’s now clear – whatever happens after the current recession (and whenever it ends) – that responsiveness to change will be critical to future success, as things will never be quite the same again. We now know that any key consumer and business certainties for media companies over the past decade are now changing. This is driving fast-paced change in the leadership and direction of major groups – because it’s executive leadership, of course, that will be the lead indicator for who is most responsive to change.
Take TV. Last week alone saw a flurry of leadership stories across the media: Michael Grade to step down a year early at ITV; John Hardie to lead ITN; “crisis talks to rescue Setanta TV”, said The Sunday Times; while the same edition also talked of a leadership battle at Channel 4 between chairman Luke Johnson, CEO Andy Duncan and programming chief Kevin Lygo. Sounds like three’s a crowd. And all that’s before any possible changes at Five or Virgin Media’s proposed sale of its TV assets.
Meanwhile Sky, under the leadership of Jeremy Darroch – while James Murdoch turns his attention to newspapers – gains ground, posting over 9 million subscribers, boosted by additional consumers attracted by its broadband, Sky Plus and Sky HD offers. “Staying in is the new going out”, as Sky trumpets. So, all this is just one sector of the media business readying itself for the upturn or, in Darwinian terms, preparing for change.
What’s true for TV is beginning to be anticipated by those marketing services companies that support the media sector. For example, last week, two different organisations demonstrated the first signs of the recognition of a similar need for change.
First, WPP confirmed it is beginning the critical work to identify possible successors, internally and externally, to Sir Martin Sorrell. This has begun discretely, but is critical for the next stage of evolution for the UK’s leading marketing services company. We all know WPP is a bellwether for the UK’s marketing services sector, so if it has recognised the importance of leadership and succession, others should follow.
Next, Starcom MediaVest outlined its new proposition around “creating space for ideas to live”. In a new presentation to clients and media owners, it emphasised that we need a new book, not a new chapter in how media agencies add value to clients – and put their emphasis on the real value that will come from developing and executing great ideas.
So, some companies are already anticipating change. But for any media company to evolve and survive among the fittest, one immediate adaptation to change will be critical: the ability to fund the business. We all know lots of other things – like compelling content or strong consumer metrics – are necessary for long-term success, but immediate survival will depend on cash.
This will drive two new considerations: first, the era of cheap finance is over. Access to capital is difficult, at best, for media organisations. This will profoundly change how companies organise themselves and grow. It places a premium on cash flow and organic growth not debt and acquisition. Deals funded by paper and shares will fail in a world where cash is king. Expect to see media companies with cash assets gain over those with funding deficits or debt liabilities – that’s why, on the upside, Bauer Media is a candidate to buy radio stations or why, on the downside, Channel 4 is asking government for a helping hand. It also explains why the sector will contract in the next few months.
Second, the recession will cause business failures and hence lead to an anticipated rationalisation of advertising inventory – especially online. This in turn will drive media winners and losers. For example, the last month has seen the latest figures from IAB/PwC on internet advertising. For the first time since the dotcom bust of 2001/2, total spend fell 1% in the second half of 2008, but with display down 9%. This will shake out many of the revenue-weak sites looking for ad monies. Indeed, respected commentator Enders Analysis estimates only 5% of all UK internet spend is in brand building display – with web activity overwhelmingly dominated by search and classified. So, companies that can demonstrate secure and continuing ad revenue (many of them, perhaps ironically, “old” media companies) will be at a premium to those which generate audiences but can’t monetise them.
The survival of the fittest will start with those who have the cash to survive.