Borrell Associates, Inc

The new media is just that. It has new dynamics, new metrics, new economics. So what can decision makers from these brand new businesses learn from the prehistoric media that preceded them? A good deal, perhaps.

The people who ran legacy media — newspapers, radio, TV, direct mail, and directories — all had two things in common:

1. They looked at growth as a year-over-year phenomenon.
2. They weren’t very interested in share.

As a result, as long as the national economy hummed along, business was great. Sales increased just about every year. Year-over-year, increases looked fat. It wasn’t until the economy tightened that loss of share became obvious. By then, corrective measures didn’t matter. Gone was (and is), well, gone.  It’s hard to see any return path for directory advertising or classified advertising, or even all those local automotive and homes magazines.

Some of the reason behind these losses starts with the way sales budgets were developed. Take newspapers, for example. The big metro dailies started budgeting for the coming year around July. The famous “7 and 5″ — seven months of actual ad sales results projected to year-end using last year’s percentages — started the ball rolling. Next, the ad director polled the sales force for their best guess at how next year would turn out. Sales people are typically conservative to the extreme when making such prognostications. Their results typically show growth … but not too much growth. Why stick your neck out for no purpose, after all?

The ad director compiled the sales force estimates and sent them to the publisher as his or her best effort, perhaps after jawboning some additional increases from the troops. The publisher then sent them to corporate, along with the best guesses from the rest of the organization on what spending was to be, as the newspaper’s best guess at next year’s result. By this time, September would have come and gone.

Corporate’s answer was quick and predictable. Spending was too high and sales were too low. The “number,” the margin that had to be met, was presented to the publisher, who dutifully passed it along to the staff. Everybody moaned and gnashed their teeth. Then they set to work to meet the new target:

• The ad director pushed the ad sales force to provide “more accurate” numbers. At this point, some creative effort often emerged. First and second quarter forecasts remained much as they had been before, but third and fourth quarter projections grew to new, higher levels. “We always hoped for a new store in town and a great Christmas,” one senior ad sales veteran explained to me.
• Everybody tried to find ways to cut expenses. Programs and purchases were curtailed. Where possible, staffs were diminished. Newspaper managers became expert at managing their “FTEs” (full time equivalent employee counts) creatively.

By now, the leaves on the trees had long since dropped, and often “the number” could still not be met. Only one solution was left: an ad price increase. But where to increase? Obviously, increases were put on the most popular products. During the 1990s, that meant classified. Classified rates soared during the last decade of the 20th century, and rate cards became almost unintelligible. As one corporate VP explained, “If they can understand the rate card, then it’s not a good rate card.”

Sometime late in the year, or early in the next, a letter explaining the ad price increase and the reasons for it (“… the rising price of paper,” for example) was sent to each advertiser. Immediately afterward, the ad sales reps, with the aid of the ad director and the publisher, visited each of the paper’s biggest advertisers. Their goal: to mitigate the increase so that these large advertisers would not feel its full effect.

As a result, three things happened:

1. Smaller advertisers (not visited) were alienated.
2. The profit margins for ads from larger advertisers diminished.
3. Barring some influx of new business, the ad sales budget could not be met.

What’s important here is that the whole process was done without looking outside the building. Share was never a consideration, nor were the laws of Economics 101. So, while it’s certainly true that the new media gorged itself on what had been sinecures for newspaper advertising, they were aided and abetted by the shortsighted, inward looking management practices of their legacy media victims.

The moral to the story: look outside when you plan. Estimate share and take the activities of your competitors into consideration. Don’t assume next year will behave like last year …  except maybe a little better. Learn from the mistakes of others, or be prepared for similar consequences.