In what can best be described as a master class in media economic forecasting, Jack Myers, founder and CEO of MediaVillage and Michael Nathanson, senior research analyst at MoffettNathanson, regrouped for their third Jack Myers' Leadership Conversation since the beginning of the pandemic to discuss how the events and trends of the past six months will impact 2021.
The two renowned forecasters agreed that while the media economics of the past six months could hardly be called good, the third quarter for the advertising sector has been surprisingly strong. Both expressed that the Upfronts had gone off as fairly "normal" with several long-term Upfront marketers wanting to keep their historical positions (rate bases) and a focus on increased flexibility in cancellation options as the biggest change. According to Myers, "Taking out categories like Travel and QSRs that have obviously been hurt, it's only 10% down dollar for dollar vs. the anticipation of being up 5%. It was not the radical decline that the networks initially experienced when the lockdown began. CPMs at the big broadcast and large cable networks were up low- to mid-single digits, which may have been lower than they would have been without the pandemic, but still not in negative territory."
Nathanson does believe that the pandemic has caused a permanent shift in both media consumption and marketer ad spend, due primarily to the dramatic move to e-Commerce. "In two quarters, we just saw four percent of all consumer spending shift to eCommerce," he says. "You just had billions of dollars shift. That's a big deal. eCommerce's share of all retail went up 430 basis points. That's as much share shift in six months as there had been in the previous four years."
Who does Nathanson see benefiting most in advertising from this share shift? The walled gardens Facebook, Google and Amazon. "Nearly 100% of the growth in online advertising that we have seen in this downturn has been Facebook, Google and Amazon," he notes. "What Facebook has achieved in the past few months is remarkable. [Editor's note: This despite a well-publicized, but seemingly impotent advertiser boycott.] We've raised our forecast for digital ad spend, especially Facebook, because these are the companies that are best positioned to take advantage of this massive shift to eCommerce. This will be the narrative for the next three to four years."
Bolstering that position, Nathanson points to the marketplace changes around privacy and data that may negatively impact the open marketplace. "Part of the big 'aha' here is that Amazon, Google and Facebook are walled gardens. As it becomes harder and harder to target us through either the new Apple OS or through the end of cookies by Google, or from privacy law changes, those big three platforms just have better information. They have the data."
According to Nathanson, "We are now seeing cord cutting around six to seven percent. In the next few years, we could be seeing 50-60 million homes that are not in the cable bundle." Crediting his partner Craig Moffett, he says, "There's a second cycle coming."
He explains that the first wave of cord cutting was triggered by non-sports fans who, when given OTT options like Hulu, Netflix and Amazon, realized that the bulk of their cable bill was going to content in which they had no interest. Now, in order to stay competitive with companies that have committed huge production budgets like Netflix and Amazon, traditional media companies such as Disney, CBS, NBCU, WarnerMedia,Discovery and others are going to have to redirect resources into supporting the voracious appetite of consumers for new content on these platforms.
"On programming, they are going to do more to get you excited about their over the top product," Nathanson asserts. "Some of it is non-commercial, and they are going to try to drive people to these new products. It is going to even further weaken the entertainment offerings in the bundle, making the bundle really all about live sports, news, and events. That's the next few years."
To be continued in Part 2 of Myers/Nathanson: Round 3.
To watch the entire video discussion with Jack Myers and Michael Nathanson, you can access the content on MediaVillage here.
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