Has the City really lost its marbles over media?
Well, perhaps not. Despite these ever so eloquent musings of Stephen Glover last Monday, it is looking increasingly gloomy, at least in the short-term, for an industry that relies so heavily on the health of the advertisment sector (which is a bit like becoming financially dependent on someone with a serious bipolar disorder, oscillating between extravagant shopping sprees and shutting the door to the world in periods of bottomless depression).
Just this evening (8pm), this ticked in to my newsreader from Financial Times: Marketing budgets over the next 18 months are facing their sharpest falls since the terrorist attacks of September 11 2001, according to a survey widely regarded as a confidence barometer for the broader economy as well as the advertising industry. The Institute of Practitioners in Advertising’s Bellwether Report, released on Monday, says budgets for the current year have been revised down for the third quarter in succession. The rate of decline “was gathering to a pace not seen since the immediate aftermath of the 9/11 terrorist attacks”, it said.
For today’s Independent, Keith McGregor, restructuring partner at Ernst & Young, told the paper: "Mistrust and trepidation have spread. Raising capital is perilous and equity markets are demanding unprecedented reassurance, especially from the leveraged and those exposed to home construction or the consumer."
Exposed to the consumer? Yes, in every possible way. Leveraged, or highly geared, yes, that applies to many media companies as well, especially a company such as Mecom, of course, which is financed by debts and has suffered a terrible beating on the stock market recently. Besides, how strategical are its investors, and how patient if the advertisement slump drags on? However, the European markets it operates in aren’t necessarily as badly hit by the downturn as the UK is, but this - that many of the companies on my beat operate in several markets - is why I’ve been watching and waiting for the ghost of recession to spread through Europe, and I have to admit I expected to see it effect advertisement spend and financial results much sooner.
Still, Nils Pratley wrote in The Guardian recently: “Buy when there is blood on the streets, advised Sir John Templeton, the celebrated investor and philanthropist... It is excellent advice, as Templeton proved time and again, and a few market shrewdies are asking whether current conditions are sufficiently bloody to be tempting.”
Not all media companies are equally immune to raiders: in desperate times such as these ownership structures could shift – both through raids and consolidation - as could the advertisers’ favour. The Guardian recently quoted Sir Martin Sorrell, chief executive of the advertising group WPP, saying: "The pressure on the newspaper industry in western European markets is both structural, because of disintermediation by the web, and cyclical because of slowing growth rates. The cyclical part will return, the structural one will not. The simple fact is that more people are reading newspapers or newspaper content online, rather than offline."
This reminded me of an interview I did with Norwegian media researcher Arne Krumsvik a while back, where he speculated that should we see a serious advertisement slump in Norway, it might be the death knell for the print editions of tabloids like VG and Dagbladet, the famous last straw that finally made advertisers seek shelter online (already the online profits of these papers much surpass their print profits). Against this backdrop, this line from Peter Preston’s column, is, well, richly imbued with meanings: “This is a voyage of discovery, not simple despair: and we shall all understand the future rather better when it's over.” Mercifully, bear markets tend not to last very long, as one media analyst I talked to recently was keen to emphasis, but there are of course those, who, given the volatility of the market, would put more faith in the words of say Jonathan Cainer…
