In Gordon Patterson’s inimitable way, he calls a spade a shovel as he tackles the truth behind media inflation.
There are few topics in our profession that stir debate and fuel the fires of discontent quite like media inflation.
From a client perspective, the subject is often seen as the erosion of value and exposure and the ‘evil’ that motivates for increased advertising investment in order to retain a desired share of voice. From a media owner perspective, it’s the uncomfortable subject that needs to fund the ever-increasing cost of production (salaries and materials etc) of a product that in many instances delivers less than it did the year before.
From a media agency perspective it’s an enigma.
On behalf of our clients however, we’re required to predict media inflation, although:
- there are few trends (if any) that you can bank on;
- few media owners are really in control of it – no matter what they say; and
- price and audience are only two of the many variances that affect media inflation.
From a new client perspective, there seems to be an unhealthy preoccupation with the subject. I’m not sure if this is driven by the new art of procurement and its involvement in selecting a media strategy, planning and buying agency, but make no mistake, the significance is there.
This preoccupation has in recent months spawned a series of rate inflation predictions that can only be rivalled in fantasy by authors such as JK Rowling and others like her. I’m aware of media agencies predicting rate deflation (can you believe it?) through to a two percent increase and all the way through to more realistic +6% to 8% for the year ahead. Marketers seem to believe that agencies with lower predictions are somehow smarter and more efficient than those with more realistic (i.e honest) estimates.
Media agencies predicting the lower estimates either hide, or fail to disclose the obscure and far-fetched assumptions (if any) used to base their estimates on. Often when questioned by colleagues on these estimates, one is told “it’s only a pitch and we’ll worry about it after we get the business!”
Media owners on the other hand are often the last people to be aware of the rate estimates used in pitches and yet are often forced to deliver ‘by hook or by crook’ on these irresponsible actions. This is wrong.
The fact is that all professional agencies look to minimise media inflation.
Ibis Media Services recently released their latest update, year-on-year data for inflation in Quarter one of 2011. Not only do they contradict some of the fantasies currently doing the rounds in the ’pitching’ circles, but they clearly demonstrate the difference in interpretation of media inflation.
As in the past, this study reflects two measures of inflation, namely:
- Rate inflation – the critical factor when considering budgets;
- Media Inflation Watch (MIW) – an indication of efficiency since rate, performance and weighing are collectively considered.
The Ibis Media Inflation product allows for detailed exploration of both the aspect of inflation and detailed analysis, down to individual platform and even by media owners.
Overall we see that rates have increased by 8.81%, while audience delivery has grown by just under 8%, resulting in a MIW (weighted) inflation of +3.56%.
Given these figures, it would be misleading to advise any advertiser that media inflation was less than 4%, since this ‘fact’ would be used to influence future advertising investment.
In terms of platform specific performance, we note the following:
Rates in general have increased, on average by 10.8%; audiences have grown by 18.6%, thus delivering improved efficiency and a MIW performance of -4.17%.
Within this however, we see huge variations between free-to-air and pay television. From a free-to-air perspective, the impressive performance and -6.21% MIW result is largely influenced by a 38% remarkable performance improvement from SABC 2.
e.tv continues, with almost miraculous accuracy, to match their rate inflation with audience delivery. Can it still be a coincidence? If not, who’s the magician? Rates rose a profitable 18% and so did audiences, resulting in an almost zero MIW performance.
From a pay perspective, the aggressive increase in rates has been more than compensated by audience delivery. While this improves efficiency, it does leave the advertiser wondering if the allocated budget for the balance of the fiscal is sufficient to afford the planned number of bursts.
Interestingly, what’s not – and could never be – reflected in this study, is the discount climate. Over the years we’ve all seen the cyclic nature of this factor. In good times, discounts grow and rates climb; whereas in tough times discounts get tighter as rate inflation becomes more conservative. Some semblance of stability seems to be returning to the SABC, although some say it is exhaustion. Either way, we’re beginning to see light at the end of the tunnel.
Within pay television, we see huge fluctuations and I’m guessing here that many of the aggressive rate increases have been driven by demand, fuelled by a lack of awareness of other channels.
- Rates increased: + 8.6%
- Performance: +69.8%
- MIW Inflation: -36%
- Rate increased: + 33.9%
- Performance: +13.3%
- MIW Inflation: + 18%
Obviously content and programme environment is important and should carry a premium, but how much?
I still remain puzzled by the ongoing segmentation based on race, i.e. black stations versus WCI, (as Ibis term it – Coloured, Indian and white). Why? Surely in 2011, we should be grouping by language? Just a thought.
We see CIW station rates are increasing faster than the ‘black’ stations despite more competition. That said, from a MIW perspective, the platform has contained costs and grown audiences to deliver almost no inflation.
As with television however, the details reflect the true cut and thrust of activity within the platform. Some stations are commanding premium pricing well ahead of their performance, i.e: they’re leveraging their brands and testing their ’price points’. The content and emotional connection that listeners have with the stations concerned could justify this, but maybe they’re just taking advantage of our familiarity and past performance? Stations are businesses driven by profit, so I guess it’s their right to charge what we’re prepared to pay, but perhaps we need to revisit the numbers?
Jacaranda 94.2 stood out in my opinion. Rates rose by 7.8% (less than the average), yet their audience numbers leaped to 32.6%, resulting in a rewarding -18.7% MIW inflation. What a win!
In terms of the ‘black’ stations, I’m not sure if they have enough of a business focus.
Phalaphala FM’s rates grew by 1% yet audiences rocketed 67.7%. Why? What drove this? Are the rates now realistic and if they are, then were they too high historically? Relatively speaking, a -39% MIW inflation should prompt some revert from SABC.
Similarly, Capricorn FM hiked rates by 18% yet experienced a -33% loss in audience!
And what about Ukhosi – a giant of a station? Rates grew by 2.4% and audience rose 7.5%!
Consistently media owner sales representatives visit agencies and clients and yet, most say that there is nothing new to tell. Marketing services teams must wake up! Stimulate your sales teams by giving them content to share, it’s the best way to change the status quo and grow your income.
This platform is heavily affected by input costs, salaries, printing, paper and distribution costs. Factor in a declining economy, growing consumer price index inflation and it’s easy to understand that print is a very fragile media segment.
Looking at the performance shifts, I must say that I’m pleasantly surprised at the moderate -4.5% decline. Rate wise, most publishers have been conservative and many have cut back staff and rationalised to become more efficient.
Interestingly, the largest segment circulation declines show in the most frequent segment, i.e. daily newspapers, followed by weekly consumer magazines and business-to- business.
The figures say it all.
That said, it is a platform full of contradictions, huge success and poor performance. It would be easy to discount it as a medium of the past, overtaken by technology, growing access to entertainment, global economic collapse etc, but that would not be fair.
Each movie is a new product launch and as a platform, it does not really build on its past successes, but rather starts fresh for every release. Smart strategists do not select the platform but rather exploit a relevant release and package it holistically to create an experience.
As a result, any single measure of this medium (more so than any other, in my opinion), represents a non-representative average.
Out of Home (OOH)
Ibis MIW measures this platform, but the analysis is based on published rate cards from the OOH segment. In my experience, these are akin to a unicorn – a mythical beast living in one’s imagination.
OOH remains a medium where creativity, personal relationships and honed negotiation skills rule, and produce results. It’s certainly no place for the faint-hearted. Attempts to measure media inflation here in my opinion are futile.
So there you have it, the devil is in the detail. Subscribe to the data and start your own analysis. Remember that inflation can be predicted, but can only be measured after the fact, like the benefit of a negotiation.
Anticipating and making educated decisions remains the best way to manage and reduce inflation. And to clients – remember that if you’re being quoted ‘silly’ low rate inflation data, don’t be naive. Ask yourself if you really want to start a business relationship on a Harry Potter fantasy?
Gordon Patterson is Group MD of The Starcom MediaVest Group (SMG).