Dave’s Take

As someone who has worked in the ad biz for more than 20 years, I can honestly say that I’ve never seen the industry in as bad a shape as it is right now. Every advertising and marketing person I know is singing the blues, wondering if the outlook on our profession is as dismal as our imagination has led us to believe. Now we have factual proof that our fears are indeed based upon truth. In the recently released, “Advertising Age’s Agency Report – 2010″, the dismal state of affairs in which our industry currently wallows is spelled out in detail. While it documents how bad things truly are, it also gives us hope in reporting the corner has been turned and perhaps recovery is on its way.

The severity of the national decline in ad revenue is astounding. According to the report, 2009 witnessed the greatest decline in industry revenue in the 66 years Advertising Age has tracked it. Statistics reveal that total revenue for the American businesses of advertising, marketing, public relations and media services dropped 7.5% to a total of $28.4 billion spent last year. Not surprising, this rate just happens to exactly match the 7.8% drop in advertising/marketing/PR jobs in 2009. Even the ever-growing health care advertising market witnessed a decline of 1.6%. And despite the lowest cable and network broadcast rates in years, media placement agencies reported their net income fell over 10%. Event marketing took its medicine as well, with promotion-based agencies suffering through a 13% decline in revenue for 2009.

The final shot of bad news documented within the report is found in the number of registered agencies in the United States. Between 2008 and 2009, the total number of ad agencies dropped from 912 to 883. In regards to specific positions, U.S. agencies laid off a collective 58,400 jobs during that same time. A depressing 107,700 ad jobs have been lost since the recession began in 2007, with January of this year topping out with the lowest level of advertising employment since 1994.

But before we all jump off the nearest bridge we need to contemplate the good news the AA report has contained within its pages. It seems (hopefully) the worst has passed and the future is beginning to look brighter. Optimists point to all the major accounts in play as a sign the ad biz is gearing up for its rise from the ashes. There are even signs some of the major agencies are either preparing to or are actually hiring new employees. I sure hope that’s true, as even the most optimistic advertising professional has had their world turned upside down for the past three years. I think we all deserve a change of fortune and here’s to wishing 2010 is the year it happens.

According to the latest Arbitron/Edison Research report, a full 48% of all Americans aged 12 and older are currently members of at least one social network. This rate of social membership is a dramatic jump from their 2008 study, which revealed a social network acceptance of just 24%. The doubling of social connectivity proves once and for all that social networking has gone mainstream and will only continue to grow in the future.

Even more surprising, it’s not just the young who are socializing online. While a full 78% of all teenagers and nearly 77% of people aged 18 to 24 have at least one personal profile page, almost two thirds of those Americans aged 25 to 34 do so as well. However, the real surprising numbers are found in the 35 to 44 age group, where over half now have personal profile pages online. “The use of social networking sites has expanded beyond the younger consumers, with substantial numbers of Americans over the age of 35 now using social media,” summarizes Bill Rose, SVP of marketing at Arbitron.

Along with the increased use of social networking is the growing perception of Internet importance among all age groups. For the first time since Arbitron began polling, more US citizens believe the Internet was the “most essential” among information channels, including television, radio and newspapers. The order of importance to individual users has the Internet at 42%, followed by TV at 37%, radio with 14% and not surprisingly bringing up the rear, newspapers with just 5%. Underlining these newly arranged priorities, the study revealed that now six out of ten households currently have Wi-Fi capabilities.

In addition to the dramatic increase in social networking, the study also disclosed the growing importance mobile texting plays. A full 45% of all mobile phone owners text message on a daily basis. Broken down by age groups, they discovered that 75% of all teens text, followed by 76% of 18 to 24 year olds, 63% of 25 to 34 year olds, 42% of those aged 35 to 44 and a growing 37% of 45 to 54 year olds text daily.

If nothing else, this report disproves the old adage of not being able to teach old dogs new tricks. Regardless of age, Americans are always ready for the next adventure and with social networking, they’ve adapted quickly. I wonder if the same will hold true when the 3-D revolution hits next year.

Like landlines, rotary-dial phones and 8-tracks, the neighborhood video store is going the way of the buggy whip. Once a cutting edge service, the video rental process has now evolved past mere brick and mortar to join other on demand services in cyberspace. Like nature, those who have adapted, like Netflix are booming; while those who cling to ancient business models, like Blockbuster are folding up their tents and turning out the lights.

Since their widespread proliferation in the 80’s, the video rental store has enjoyed a great run, but a run that is now drawing to a predictable conclusion. With Hollywood Video already in bankruptcy and Blockbuster preparing to file, the days of driving to the store for a movie are coming to an end. Services like Redbox and On-Demand are forcing the closure of thousands of video rental storefronts, nationwide. Hollywood Video has already closed over 800 of its stores and now Blockbuster has announced it will close 500 of its 3,500 stores this quarter. As for the rest of their locations, industry experts know it’s simply a matter of when and not if they are all going to close.

In retrospect, do the honchos of Blockbuster and Hollywood wonder where it all went wrong? Do they ponder the possibilities of “what if” in regards to their failure to adapt to the technological evolution sweeping the industry? Who knows, but what is obvious is that their hubris has resulted in a one-way trip to death row. After all, who wants to drive a mile to a store to rent a single movie for a week? Not many, as evidenced by recent industry stats that show store front video shops add up nationally to a mere 45% of the video rental market. Subscription services like Netflix control 36%, with kiosk-based systems like Redbox holding on to the final 19% of rentals.

Desperately trying to delay the inevitable, Blockbuster has announced its intention to remain in the game by installing as many as 10,000 Blockbuster Express kiosks this year alone. They are also trying to update their business model by starting a streaming on-demand service like Netflix. In addition, they are cutting deals with the studios to get DVD titles like “Sherlock Holmes” and “The Blind Side” 28 days before Redbox or Netflix gets them. While a step in the right direction, I find it doubtful they will succeed. The movie rental boat has sailed and Blockbuster is still sitting on the dock. They seem to have forgotten the most basic of business principles – adapt or die.