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What the Future Brings for Media and Advertising


"New Media" is aging fast and we are in the throws of one of the biggest transformation periods of our lifetime.

Welcome to the aging of new media and the age of short attention span theater.

"New Media" is aging fast and we are in the throws of one of the biggest transformation periods of our lifetime. For anyone in the advertising, media or marketing business, this is both an exciting and daunting time where change can no longer be pushed off. I sit on the Board of the Art Directors Club which is dedicated World Wide to fostering creativity and advertising. I heard very interesting perspectives from a number of different people – all voicing a sense of frustration and concern, yet with a sense of inevitability and optimism for creative innovation.

For advertisers and marketers, we have certainly entered an age of trepidation and frustration. For advertising agencies and their holding companies; it's the age of desperation. And for the media companies, it's the age of innovation. Marry the three and we have a true Age of Media Maturation. (How's that for a little Don King bloviation!)

In my daily routine, I focus on absorbing information from all sides of the business. I look at the media giants like Viacom (VIA), NewsCorp (NWS) and Time Warner (TWX). I look at the distributors like Comcast (CMCSA), Verizon (VZ) and Cablevision (CVC). I look at the advertising holding companies like WPP (WPPGY), Interpublic Group (IPG), Omnicom (OMC) and MDC Partners (MDCA). And finally I look at the emerging media behemoths like Apple (AAPL), Google (GOOG) and Yahoo! (YHOO). I look at this equation because it's these four business segments that will provide the guideposts to how the media market will perform in the months and years ahead.

Here's what I'm seeing:

The Future of Advertising

The Wall Street Journal started advertising on the cover with a unit that looks vaguely similar to the square banner units we see on all web sites today. This is the beginning of a mass convergence of channels and channel formats. Ad revenues continue to climb for Google and Yahoo and will for some time until they taper off when advertisers stop panicking and start analyzing quality versus quantity. In the meantime, main stream media channels will come up with new and innovative ways to capture new ad dollars within old media channels. Take video online. We will see a very strong push in the short term for this format. Across the board, the major pubs are running out of inventory for this format.

Advertising spending has continued to increase, but the overall trajectory is pointing towards a flat lining of overall spending longer term, if not an erosion on a macro scale. This is bad for old-stream media, good short term for marketers. The flattening of Ad spending is not the result of inflation, or the potential of an economic recession, ad spending WILL decrease for years to come. The fact is, advertisers can do more with much less and most ad agencies aren't geared to accommodate their needs. If you look at companies in general categories like Automotive and Retail and Consumer Goods, advertising spending between '04 and '05 was relatively flat. There have been reported decreases for the first half of '06 save Internet.

Why Media Spending Will Decrease

Stick with me – here's the grand hypothesis: As technology and targeting become more sophisticated, the need to spend millions of dollars to reach 100% of a company's audience in the hopes of catching the 20% that account for the majority of their revenues will no longer be necessary. This is the classic 80/20 rule.

With the technologies of today and tomorrow, you can simply go after the 20% and lose the waste. Companies like Aquantive (AQNT), which have bounced around for the past few years, are poised for growth as advertisers look to better target and measure their marketing. It will also be interesting to see what happens with companies like Doubleclick who essentially pioneered central media serving.

Ad budgets will shrink which will hurt the big players who continue to sell bulk; while the value of 'good' media channels will rise. This means we will see a rapid growth of smaller niche media companies. Short term, I believe cable and internet (especially companies deep in both areas (Comcast and Verizon) will certainly benefit from this shift.

Short Attention Span Theater

Finally we have entered the age of "short attention span theater." Media companies forgot how to produce media! This is a short term issue. The rumors are abounding that Sumner Redstone pushed Tom Freston out of Viacom because he 'missed the internet.' Come on! What Freston missed was potentially how to produce media in a multi platform environment, but more importantly how to turn it into a significant revenue stream.

I believe longer term a guy like Tom Freston, who didn't bite on the big acquisition (if rumors are to be believed), was smarter for not biting on buying MySpace or YouTube. There's a lot of bandwagon acquisition going on with these channels, and there will be for some time. However, in the long term, we will look back on billion dollar acquisitions and say, "Man, they could have built it for a couple of zeros less."

So What Do The Tea Leaves Tell Us?

I for one am recalibrating and focusing on the following: slimming down on advertising companies, even if analysts believe companies like IPG have bottomed. The long term upside isn't that up. I'm going to bulk up on distribution companies because there's certainly room for growth – think Apple's iTunes. I'm holding at the moment on the big media players like TWX and will keep an eye peeled towards smaller niche media companies with solid technology who may be targets for a big acquisition. It's a five year perspective that sounds simple but I'll give it a try.
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Positions in TWX, AAPL
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