The Outlook for Media Companies in 2006
Editor's Note: This article was written on Monday, December 19, 2005
2005 didn't scratch the surface when it comes to changes in the media landscape for 2006. Sirius, Viacom, Google, AOL, MSN and Sun (yes...Sun will be back) are just the tip of the iceberg. And it's an iceberg with far reaching ramifications for entertainment and advertising companies. So what should we expect as we head into 2006 and what's the prognosis?
Before I get into what I think is going to happen, let me give a little background. I founded the first interactive division at J. Walter Thompson, digital@jwt in the '90s. My theory was that the media landscape would go through a dramatic change and at its core, technology, as it always had, would lead the charge. Pretty much every media prognostication I have made has come to fruition. This includes the development of the new media landscape and how the delivery and consumption of media changes at an indigestible pace. It's only when the consumer is ready to digest that we find success. And digest they will - the Cable companies will aggressively push into Telco services, the internet behemoths will redefine content distribution, and the creative content developers will start to define strong synergies between media channels as broadband delivery and penetration grows.
Taking a step back into the future, the greatest prognosticator of future trends in our lifetime is arguably Stanley Kubrick. I only wish he were around for the next ten years to see what happens next. As a matter of fact, I would equate Kubrick with Da Vinci. Stanley Kubrick visually brought to life what would happen with technology 30 years before it happened. Whether this was "2001 a Space Odyssey" or "AI," he had a knack for showing what would be. As 2001 (produced in 1968) predicted video phones and voice recognition software, AI predicted robots and computers that think and feel. We're not far off. Hey, today, TiVo records what it thinks we want to watch. (I had a friend who recorded Will and Grace - it took him a year to convince his TiVo that he wasn't gay. Not that there's anything wrong with that.)
So here it goes: AOL will be on top again with the help of Google as the pre-eminent content provider. This will ultimately give Yahoo! a run for its money and it will surely change the face of Microsoft forever. It diversifies the content play (something Google doesn't have) and gives advertisers a better reason to bank on AOL's content. We need to see what NewsCorp and Viacom do next. I wouldn't be surprised to see Barry Diller back in the mix with NewsCorp in a short period of time. The combination of technology and content has yet to manifest but it will. It's not a matter of if, but when.
In looking at the strategies of Google, it in essence has become the gatekeeper to the internet. The next step for Google would be to leverage the Time Warner pipe, coming full circle to the early days of AOL when it was THE premier Internet service provider.
Companies to watch in 2006:
Leading the charge:
- Time Warner (TWX) - The Google/AOL relationship will have impact beyond what we see today.
- Yahoo! (YHOO) - If it can hit stride with some solid, proprietary content, it is the new era of networks - music, movies and more.
- Comcast (CMCSA) - I truly believe this is the company to watch. With the pipes to people's homes, it is the premier gatekeeper and of all the cable companies it has the vision and wherewithal to make it happen.
Finding their way:
- Microsoft (MSFT) - it may have a monopoly on the software world - but is http://(word, excel, powerpoint).google.com far off? Scott McNealy of Sun was way before his time with the utility model of computing. Google is poised to take that baton and carry it forward. Google is going to break the monopoly. It's a little scary, but Google may become the monopoly. (Keep an eye on Sun (SUNW) who has a deep relationship with Google. Remember, Schmidt and McNealy are tight. And take a look at openoffice.org for a sneak peak.)
- The Ad Agency Holding company (WPP, Omnicom, IPG, Publicis) (WPPGY, PUB, OMC, IPG) - Its business is primarily predicated on an antiquated agency service model. In the next few years we'll see a significant shift away from mass advertising to precision marketing. In addition, we're going to continue to see a major shift away from the large agencies to more nimble independent agencies who want to stay independent. Two to look at are Aegis (AGS.L) out of London and Digitas (DTAS) from Boston. The only bright spot in the agency holding company world is the media groups within these companies. Look for media groups like Carat, OMD and Mindshare to start offering creative services. If they do, they may salvage these holding companies, otherwise we're going to continue to see erosion much like what we've seen at IPG for the past two years. And the business is going to go to the independents.
2006 will be an incredible year for the media landscape as many happenings come to fruition and relationships really start to manifest. I think AOL is going to be a big surprise in both ad revenue and general user growth.
Finally from a category standpoint, keep eyes on the social networking area of the marketplace. While 2005 could be called the year of the Blog, 2006 will be the year of the Social Network. Look for the MySpace, Xanga, Facebook.com, Linked In and a host of others to grow in a very big way. I wouldn't be surprised to see some of the social networks become the biggest IPOs of 2006 - if they can manage what will be an onslaught of regulators calling for restraint on the salacious content.
These are extremely exciting times in the media world. Today we are in the midst of a renaissance period. Like the old French and Italian masters of the first Renaissance period, this Digital Renaissance is a reinvention of communications, technology and a spirit of innovation that will not be seen again in our lifetime. The boom and bust of the early 21st Century was simply a precursor to monstrous global economic growth, unencumbered by geographic barriers including shared creativity and distribution of music, video and innovation we have yet to imagine.
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