The New York Times-20080128-Looking for Eyeballs Suddenly on a Budget Rapid Changes Since 2001 Cloud Outlook for Viewers
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Looking for Eyeballs Suddenly on a Budget Rapid Changes Since 2001 Cloud Outlook for Viewers
Full Text (1284 words)A few months ago, media companies were facing declining readership, flat advertising and the prospect of a damaging writers' strike.
Those were the days. Now, after widespread worries about the economy culminating in a worldwide sell-off last week, producers and distributors have another worry: trying to divine what a possible recession means for consumers and advertisers.
For television and film companies, a recession could compound the effects of the Writers Guild of America strike, which has stopped virtually all scripted television production. The strike has already driven cost cuts by some movie and television studios: last week, NBC Universal said it would try to save $50 million by paring back on its pilots for next season.
Further belt-tightening would probably make inexpensive series and sequels look more attractive than big-budget scripted spectacles in the theaters and reality shows more appealing for television. Good for fans of Superbad and American Gladiators, not so good for those who prefer Atonement or Lost.
Already, media investors are bracing themselves. Media company stocks are down roughly 25 to 30 percent in the last year, said Jessica Reif Cohen, the chief media analyst at Merrill Lynch.
I would say we're nearly priced in for a recession, Ms. Cohen said. But that doesn't mean the sector's stocks will outperform. There's probably still some more downside.
Some media company executives have said they were already adjusting their business plans. Jeff Zucker, the chief executive of NBC Universal, said last week that the recession was real and that NBC would have to manage our business accordingly. But Peter F. Chernin, the chief operating officer of the News Corporation, said three weeks ago that he saw no sign of any slowdown in our businesses.
The Walt Disney Company, which, in addition to its movie studios and television networks, operates theme parks, could be especially vulnerable. Its theme park revenue declined after the economic downturns of 1991 and 2001 (some of the latter decline was associated with the decline in travel after Sept. 11). One factor in Disney's favor is the weak American dollar, which has been drawing international visitors to the parks -- Walt Disney World in Florida, for instance, had a 10 percent rise in overseas visitors in the first 10 months of 2007 compared with the same period in 2006, according to Merrill Lynch. Ed Moran, a media analyst for the consulting firm Deloitte, said he thought consumers' appetites for entertainment and information might prove to be immune to the hard times. It's clear that advertising might take a hit during a recession, but there seems to be a lot of evidence that people continue to consume the same amount, he said.
What choices consumers might make is less clear. One axiom that grew out of the Depression was that, in bad times, people go to the movies. Box office data from more recent downturns show conflicting signs on ticket sales: total box office grosses fell in the economic contractions of 1990 and 1991 but rose in the recession in the early 1980s. Ticket prices have soared since then, making the impact of a bear market hard to predict. Still, relative to other venues like sports or concerts, movie theater tickets are much less expensive, said Marla S. Backer, an industry analyst at Soleil Research.
If they avoid movie theaters, consumers may look to other media. When people can no longer afford a vacation or a trip to the movies, TV has always been that last resort, said Robert J. Thompson, a professor of media and popular culture at Syracuse University.
Forecasting is difficult because many viewing alternatives like cable channels, digital video recorders, mail-order movie services and video downloads were not widely available during the most recent downturn in 2001. And historical ratings for television do not show any obvious correlation with economic swings.
Cable networks have historically been seen as relatively recession-proof, partially because they generate revenue from affiliate fees as well as from advertising. Analysts say customers are typically unlikely to cancel their cable service, although they may cut down on premium services like HBO. It may become harder for cable operators to sign up new customers, Ms. Cohen said.
Similarly, the home video market, already a troubled sector, may be one of the most exposed in a recession, both for rental retailers like Blockbuster and for sales outlets like electronics stores. Even though it's a relatively low-cost item, it is often an impulse buy, Ms. Cohen said. Given gas prices, we're starting to hear retailers say that people are taking fewer trips to the store, meaning there are fewer times they can have that impulse purchase.
Wal-Mart Stores recently reported its first annual drop in DVD sales in a decade, said Alan Gould, an analyst for the investment bank Natixis Bleichroeder. Home video is probably the biggest revenue source for the studios right now, and that business is feeling some saturation and some competition, Mr. Gould said. He said he did not expect movie studios to skimp on film production in a recession.
Even if people watch network or cable TV at the same rate, they may watch different shows. Tim Brooks, an author of The Complete Directory to Prime Time Network and Cable TV Shows, said there has historically been a relationship between the mood of the country and the type of shows that are popular.
Amid the mid-1970s recession, shows depicting previous generations and old-fashioned values, like Happy Days and The Waltons, took hold, he noted. The dominant kinds of programming we have, have shifted somewhat from gritty crime shows to reality shows that are in many cases very escapist, Mr. Brooks said, pointing to feel-good shows like American Idol.
Advertising tends to be a lagging indicator of a recession. A number of media analysts have said they expect ad revenue to slow in the spring. While political spending and advertising for the Summer Olympic Games may somewhat mask the expected downturn, at least for TV networks, the short-term gains could mute any economic recovery in 2009 for the companies that benefit from this year's ad spending, Morgan Stanley stated in a report last week.
Some media companies may suffer more than others in a recession. The newspaper industry, which is already reeling from years of flat revenue, could be particularly hard hit. Already this year, the publishers of The Minneapolis Star Tribune and The Philadelphia Inquirer have warned about further job losses, and the editor of The Los Angeles Times resigned rather than make further cuts to his newsroom budget.
A Goldman Sachs forecast this month said the challenges for newspaper owners would be intensified by a cyclical downturn in 2008, particularly affecting the classified categories, resulting in what we believe will be the industry's weakest revenue performance since 2001. The report forecast a 7.9 percent drop in newspaper revenue, a change from the previous estimate of a 2.6 percent decline. That figure could grow worse, particular if the Hollywood studios, already feeling the effects of the strike, cut back on movie advertising.
The same Goldman Sachs report predicted one unlikely winner among media choices: video games. Previous generations of video game consoles have proved popular in recessions, and the sector is growing rapidly: the market research firm NPD estimates that United States video game sales will surpass $10 billion in 2008, partly because of a strong slate of upcoming games.
Video game sales are in the home and, frankly, video games are perhaps one of the cheapest forms of entertainment on a dollar per hour basis there is, wrote Jon C. Ogg, the editor of the blog 24/7 Wall St., two weeks ago.
[Illustration]ILLUSTRATION (ILLUSTRATION BY JAMES C. BEST JR./THE NEW YORK TIMES)