2008 is clearly going to present more discomfort in the financial markets – with the leering potential for an ugly recession on the horizon across the broader economic landscape. The credit crunch in the U.S. financial institutions – and the necessary discipline those institutions must exercise with over-extended consumers – is starving out the same spend-happy populations that usually feed corporate profits. This cycle will hit certain sectors harder than others. On the most basic level, any purchase that can be deemed unnecessary will likely suffer first. Examples of this include many product offerings in consumer electronics and technology.
However, should one choose to play the stock market in the 2008 recession, internet media companies might be one area to examine more closely. The curiosity about internet media is that the fragmentation is so extreme that predictive models employed in other sectors have zero value when utilized here. When referencing the internet, people are willing to talk about bubbles bursting again – and that is certainly going to happen with the many start-ups and ill-conceived business models out there – but the right brands with the right characters behind those brands will thrive in a recession.
The general media sector has long needed to go through a correction – and 2008 may provide that correction in the form of a recession. The television business – now in a costly writers strike – has made very little progress in evolving. Speaking to the advertising side of the business, the existence of Tivo alone is a ridiculous factor in the viability of tv networks to grow revenue. Nielsen – the media measurement company responsible for tv ratings – has begun issuing different measurement terms for advertisers to better understand viewership of their commercials. The learnings from the Nielsen change have had huge impact on many big name cable networks. Given this – and the Tivo effect, whereby consumers are bypassing television advertising altogether – the return on investment (ROI) in television is increasingly not there. Throw in a recession, and advertisers are going to have to look elsewhere.
On the print side of the business, material costs are going higher. Inflationary pressures on paper are notable – as more demand for wood products globally takes its toll. These back-end increases in costs are affecting newspapers and magazines alike. It is also becoming more costly to satisfy delivery demand. With oil prices at record levels, the cost to ship a magazine or a newspaper from one location to another is affecting the business model. Circulations are dropping, and subscription costs and advertising costs are rising. And like television, advertisers are asking for more accountability – and this is something that print and television properties cannot provide.
Accountability and interaction are unique to internet advertising – and both are achieved at advertising investments (cost-per-thousand or CPM) that are considerably more reasonable. As the sickle of recession swings its way through the general media environment, more money will shift from the traditional print and tv sources to the more intelligent internet media companies. Consumer trust and recognition of select internet media firms will play an important role as well. As 2008 also represents a presidential election year, those trusted internet media sources will see a greater share of advertising dollars through even the leanest economic cycle.
2008 may remind us of the old Chinese curse: may you live in interesting times. These are interesting times – and if stock picks are of importance, a closer look at the web should be taken.