Media engine gathers head of steam

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Imagine if, at the beginning of the 20th century, Henry Ford's Motor Co. had acquired John D. Rockefeller's Standard Oil: two of the most powerful economic forces of the century joining to produce automobiles and the gasoline to drive them.

Today, we have a similar situation: the combination of America Online with Time Warner merges the distribution engines of AOL with the content fuel of Time Warner's branded assets.

When Myers Group published "Media Spending Forecasts" for 2000 through 2005, several observers suggested our forecasts for online spending were far too aggressive.

The forecast called for online ad revenues to grow from $2.5 billion in 1999 to $32.5 billion in 2005, excluding e-commerce related revenues. We also forecast that interactive TV total revenues would reach $28 billion in 2005, far outpacing Forrester Research's projections of $19.3 billion in 2004.

Achieving these seemingly unreachable revenue levels would require a market catalyst.

MOORES LAW TIMES TWO

But the consultancy also understood the pace of technological advances has been progressing for the last year at Moores Law -- which says that computer power will continue to double every 18 months -- times two. It is only logical that the marketplace will find its way toward exponential growth of consumer acceptance of interactive technologies, and that advertising revenues will follow.

There are three primary trends affecting media and advertising: interactivity, integrated marketing and return on investment. Individually, they represent a radical alteration of the industry. Together, they make everything we know outdated and irrelevant. Those who ignore these trends will be doomed to exist in a commoditized media world of eroding audiences and shrinking margins.

INTERACTIVITY

In just three years, most people will experience TV in a completely new way. We will be watching our favorite programs on demand through personal video recorder technology. The Internet will be delivered in a dual model directly to the TV and over the computer, with different functionality in each. Content will be available on the Internet in real-time streaming video and audio.

As witnessed by the combination of Time Warner and AOL, branded media assets such as Time, Fortune, Sport Illustrated, CNN, People, "Gone with the Wind" and the Cartoon Channel are as valuable and, in some instances, more valuable than their traditional formats.

Visit several magazine Web sites and it becomes obvious that it would take just a small leap to add streaming video and audio and suddenly have a convergent medium that, for those in a traditional media mindset, might be the equivalent of a mind-altering drug.

The impact of digital broadband, which Myers projects will be in 42% of U.S. homes by 2003, will assure that consumers will have not only an expanded universe of available TV programming, but that it will also be increasingly difficult to differentiate between the Internet and TV.

INTEGRATED MARKETING

For years, Myers Group has reported on research showing brand and marketing executives were looking to media companies to provide more marketing ideas and innovation. Yet, media buyers continued to emphasize lower costs per thousand as their primary determinant of media value.

Myers Group has projected media advertising revenues will grow from $185.5 billion in 1999 to $264.3 billion in 2005. This growth depends on a shift of money from direct, consumer and trade promotion budgets to advertising.

Interactivity is the enabling engine that drives this shift. But the fragmentation of audiences and new technologies that empower audiences to control which commercials they watch will change the 100-year-old concept of advertising as an intrusive interruption in a captive environment.

Marketers will narrow their media choices two ways. One media choice will be those that make a connection to their viewers and readers, such as the connection the History Channel has with history buffs or that ESPN has with sports fans.

Just a few weeks ago, Myers issued a new report based on research among 6,500 TV viewers showing that AOL ranked seventh among 66 broadcast and cable networks and four online media brands for overall brand equity. AOL already is a stronger network, as perceived by TV viewers, than ABC, CBS and Fox.

The other choice are those marketers that give permission to advertisers to interact with consumers about their product or service. An example of this is Walt Disney Co. distributing its "Toy Story 2" merchandise through McDonald's Corp. franchises. In other words, it's about the brands working together.

BRAND CONVERGENCE

The examples of convergence of media brands with marketer brands are numerous. Turner Broadcasting, ESPN/ABC Sports and others have dedicated significant resources to building their marketing resources and competencies.

Interactive set-top devices and new research technologies are creating a dual media research competence. Traditional measures of exposure such as Nielsen Media Research will be enhanced and more detailed.

But the important change is the development of research products that enable marketers to evaluate their media relationships in the same context as they measure direct marketing and sales promotion -- return on investment.

The consolidation of companies provides a hidden benefit to marketers. Media companies with significant multimedia assets that offer convergent media opportunities will invest significantly in new research products. These products will enable marketers to evaluate their media investments based on actual sales results -- return on investment.

Are media buyers responding? Of all the changes taking place in marketing and media, none is more influential than those taking place in the media buying world.

Advertising agency media departments of Young & Rubicam, J. Walter Thompson, Ogilvy & Mather, Leo Burnett, Grey Advertising and DMB&B have morphed into undifferentiated companies named Media Edge, Mindshare, Starcom, MediaCom and MediaVest.

New competitors like Carat North America operate at brand parity with these unbundled media specialists. In the next few years, media sales organizations will witness a dramatic shift in these companies' strategies away from being the lowest media cost commodity negotiator for their clients to being investment strategists and full-service communications consultants.

MARKET CATALYST

We anticipated a market catalyst. Who could have expected it to come so early in the new millennium or for it to be such an extraordinary deal, as is the AOL Time Warner deal? It will trigger more deals and will speed up the development of digital and interactive TV.

More importantly, it will accelerate the shift of marketing budgets from direct marketing and sales promotion to brand advertising. Media companies like AOL Time Warner and media specialists that adapt most rapidly to this new interactive, integrated world will be the big market winners.

Jack Myers is CEO and chief economist of Myers Group.

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