Monday, September 22, 2008

"Luck is an accident that happens to the competent." Albert M. Greenfield

"No man will be found in whose mind airy notions do not sometimes tyrannize him and thus force him to hope or fear beyond the limits of sober probability." Samuel Johnson

"True effort, in fact, as of a captive struggling to free himself: That is thought." Thomas Carlyle

Today's image: Surfacing by Catherine Jamieson. Beautiful. Thank you for sharing.

Are we "overretailed"?
2008 ending soft, nobody is making their numbers
2009 looking tougher

Nancy Lazar, chairwoman and economist at Manhattan's ISI Group tells Barron's "It's the consumer's turn to go through a restructuring." [9/22 Bailout or Not, Credit Will Be Crunched by Sandra Ward]. Ms Lazar suggests the US is "overretailed" and "internationally oversupplied." To put this into perspective, consumer spending represents two-thirds of the US economy. In our experience retail sales is a key indicator in forecasting ad spend. While imperfectly correlated, ad spend exhibits a tendency to chase retail sales. Recent events in the financial markets suggest we are witness to the beginning of a deleveraging process. Larry Jeddeloh, founder and chief investment officer of TIS Group is also quoted in the same Barron's piece, "This is not the end of the credit crunch -- the credit crunch is just beginning." He goes on to say "Saving, and reducing debt and value shopping are the new trends." Kudos to Sandra Ward on a well written overview. Our thoughts this morning...

  1. Deal flow will remain stagnant until sellers of media properties embrace the new reality of single digit multiples. Moreover, creative financing including seller paper will likely be needed to drive and close deals for cash/credit short buyers. Supply clearly exceeds demand.
  2. Characterizing the US economy as one in recession, or not, has become an academic exercise. No matter the term of art used there is an abundance of evidence suggesting a slowdown in consumer spending. When retail gets a cold, ad-supported measured media goes into the hospital.
  3. Competition for ad dollars will remain intense, increasingly an extreme sport. Failure to develop new business, at levels sufficient to be material, will exacerbate the consequences of an accelerated attrition in key account categories (e.g., durable goods, automotive).
  4. Pricing of broadcast inventories, especially those subject to traditions common in the transactional bid-ask, must reflect a new, more coherent value proposition. As a practical matter, broadcast operators need to be more mindful of what the dead tree guys are doing. Fighting for their survival print media are attempting to re-order how the ad-supported media game is played. [Hint: PPM provides radio with a robust reach story]
  5. Discretionary purchasing power will decline. As households tighten spending, accounts in the discretionary space will revisit and in the majority of cases will pull back on ad spend.
  6. Those with the courage and audacity to shift focus from market share to market creation will gain competitive and strategic advantage in the days ahead.
Congrats & cheers: Legendary radio star Fred Winston sounded great on WGN this past Saturday. WSUM, UW Madison student radio, continues to surprise and entertain. Station chief Dave Black and team are doing a simply exceptional job. The Isthmus and Rich Albertoni on a well done piece about WSUM, School of rock, here. MTVN on backchannel, very nice.

Pig on the runway: A scarcity of bank capital combined with a continuing poor state of economy seems likely to keep the pay radio pig from getting off the ground. The Mel Karmazin led XM/Sirius combo faced serious multiple challenges before last week's series of problems in the financial markets and now faces what may prove to be the most challenging task of all: Raising the capital needed to manage/refinance debt obligations while keeping the doors open long enough to reinvent the venture. The big issue appears to be the current pay radio business model. Will it support and sustain the enterprise following the realization of Mel's proposed $400+ mil in economies? My sense is the odds are 6 to 5 against the pay radio pig taking flight in 2009. The question being heard around midtown and downtown is will Mel attempt a reorg under protection of bankruptcy? [Related - Robert Holmes provides a very good review of the bidding @, Sirius XM Up to Its Ears in Debt, here]

Bonus: Chumby adds Pandora. Very cool. More info here.

Have an amazing week. Make something happen.

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