Thursday, July 12, 2007

The CD biz is even worse than you thought

Analysts have revised estimates on how quickly the bottom is dropping out of the compact disc market.
In a report, industry analysts Richard Greenfield and Mark Smaldon of Pali Research in New York said they now expect U.S. unit sales of CDs to slide 20% in 2008, a bigger decline than the 15% drop they had previously predicted. Moreover, decline would come on the heels of an expected 18% drop in U.S. CD sales in 2007.
If my math is right (and it is) that would mean that 2008 sales will be less than two-thirds of sales in 2006. You can't last long in that kind of market.

The big question, of course, is how long before retailers pull the plug:
A key factor affecting CD sales: how quickly those big-box retailers such as Best Buy shrink the amount of floor space they devote to music to levels more comparable to Wal-Mart. Combined with the growing utility of digital music, it could easily lead to even more rapid decline in CDs in 2008-2010 ....
I've seen no evidence thus far that the music industry has figured out any way to address the new market realities, other than suing everybody in sight.

Wednesday, July 11, 2007

Is Macy's the next private equity play?

There's been some speculation lately that Macy's will be the next retailer to be scooped up by private equity purchasers.
Wall Street sources cited as likely bidders Kohlberg Kravis Roberts, the buyout firm famous for its takeover of RJR Nabisco in the 1980s; and Goldman Sachs Group, Macy's longtime investment banker.

Macy's would be a ripe takeover candidate because its rich cash flows and attractive real estate could be used to pay off debt that leveraged buyouts pile up.

There has even been speculation that Eddie Lampert (of Sears/Kmart fame) might make a play for another big retail name. Although he seems to have his hands full with the continuing bad news from his current possessions.

Some analysts see the whole scenario as unlikely:

"We view a Macy's LBO as possible but not probable," Deborah Weinswig, a New York-based analyst [for Citigroup], wrote in a report Tuesday.

"While there are a few reasons why an LBO might make sense for Macy's, especially given the slow progress of the May turnaround, we believe Macy's past LBO experience makes a transaction unlikely."

Dump that newspaper stock

If you haven't already, that is. Goldman Sachs has issued a statement warning that the next few years could be very ugly for the newspaper biz:
"The magnitude of the recent declines is extraordinary for a non-recession period and provides concrete evidence, in our view, that the share shift from print to online in the publishing industry is accelerating."

Some companies are more at risk than others. Goldman cut its rating on McClatchy from "neutral" to "sell" and reinstated a rating on The New York Times Co. to "sell."
The news got worse for NYT Company a few days later when Standard & Poors lowered their bond rating to BBB, which is perilously close to junk.
S&P said it ``expects revenue declines to continue over the next couple of years'' and that New York Times ratings may be lowered again ``if trends related to print advertising remain in line with what was reported in the past few months.''
Going back to the Goldman Sachs article, there is some good news in it. After noting that things are going to be really, really grim for the next five years as the industry transitions from print to on-line ("the transition period from print to online will be 'painful' and 'extended'"), they are relatively bullish in the long-term:
"Ultimately, we believe newspaper publishers will re-emerge as very healthy and dominant players in the local media marketplace."
So now all the newspapers have to do is figure out how to stay alive for five years.

What’s so great about PRISM?

There has been a lot of talk in the trade press over the past year about Nielsen’s PRISM system – an effort to measure in-store promotion. I don’t get it.

First, in case you’re not familiar with it, here’s a quick description from Nielsen of their “ground-breaking effort to measure the size and composition of the audiences for in-store marketing media”:

“This new phase of research will demonstrate in a larger and more diverse store sample that we can link consumer traffic to specific in-store media and marketing conditions and create an entirely new and powerful opportunity-to-see measure for advertisers, retailers, media companies and media & promotion agencies,” said George Wishart, Global Managing Director, Nielsen In-Store. “Knowing the reach-and-frequency of an end-aisle display will be much more valuable than just knowing the display was there.”

Well, yes, it is more valuable than that, but the more important question is whether this new data is more valuable than the data that already exists – sell-through. In-store promotion has always been the form of marketing most closely tied to the scanner. I don’t see that this new form of research adds much of value to what we already have.

I can see how this new measurement provides to Nielsen’s agency clients numbers in a form that agencies understand – reach and frequency – and therefore allows comparability across platforms. But still, it seems like all the shouting boils down to, “Hey, we’ve got a great new set of numbers. Of course, they aren’t as good as the numbers we’ve already got, but they’re new.”

Trade promo = $450 billion

One of the questions I’m often asked is how much trade spending there is totally. I’m usually wise enough to respond that I honestly don’t know, though this answer is generally deemed unsatisfactory.

One reason I’m asked, I suspect, is because I was foolish enough for a number of years in the nineties and early zeroes to put into writing an annual estimate of trade spending (this was when I was writing/editing newsletters for former employers TradeOne and CoAMS).

When I started out doing this I was reasonably confident that what I was doing was at least close, given the parameters I was working with. Among other limitations, I tried to limit the estimates to only promotional spending intended to create sell-through – eliminating pricing actions and slotting, for example. As time went on, though, I began to see this distinction as artificial, and also to become concerned about the large percentage of spending thus being eliminated.

I give this background only to warn you that I’m going to try again, and that there is a good chance I’m still way off.

The methodology I’m using is to take the US Census Bureau’s retail sales figures by channel for 2006 and apply to each channel percentages of typical mark-up and trade promo spend in order to get to manufacturer spend in each channel. I then applied the US figure to other countries based on the relative size of their economies, with factors thrown in to account for regional differences (e.g., average trade promo spend in Europe averages about 85% of US levels, according to a study by Hand Promotion Management a few years ago). Some of the less-advanced economies I adjusted based on the percentage of retail trade that moves through modern outlets versus the share sold by traditional mom & pop stores, who presumably receive little if any funding.

So, taking this mix of some actual research and real math, combined with a bunch of tosses at the dartboard, what’s the result?

Worldwide trade promotion spending in 2006 was $456,210,968,840.29.

Well, okay …. Let’s just say that it’s somewhere in the general vicinity of $400-500 billion. Or so.

The Case of the Disappearing Coupons

The number of coupons redeemed annually in the US has declined dramatically -- from seven billion in 1992 to only 2.6 billion last year.

The reasons are multiple -- changing demographics and changing media usage leading the way:
Latinos, especially immigrants, are less likely to use them because coupons are not known in Central or South America, Tilley said.

And younger shoppers, already less likely to read newspapers in print form (if at all) are also less likely to go through inserts in the Sunday paper with scissors to clip coupons, he said.

The article details some of the ways manufacturers and retailers are responding -- mostly by handing out coupons in the store. I don't know how typical I am of shoppers, but I never use those coupons I'm handed at the check-out counter for my next visit (I sometimes intend to, but I always forget).

Interesting factoid in the article -- something I never knew:
The first coupon was created by drugstore owner Asa Candler, who in 1894 had just purchased the formula for a new beverage called Coca-Cola. He gave out tickets good for a free drink at his soda fountains.

A year later, Post Cereal issued a coupon good for 1 cent off of a box of Grape-Nuts. And the rest was discount history.

Slightly OT: Soccer is scoring big

Obviously there are some marketing connections that I can create, but the fact is that I'm a soccer fan, and it's great to point out that there are some very clear signs in the past several weeks that, even pre-Beckham, soccer is starting to make some very big inroads in the sports (and therefore media and marketing) scene.

At the end of June, the final match of the Gold Cup tournament (USA-Mexico) on Univision drew an audience 40% larger than hockey's Stanley Cup final had drawn a few weeks previous on NBC.
The United States' 2-1 come-from-behind victory over Mexico on Sunday received a 2.5 fast national rating on Univision, the network said Tuesday. That translates to 2.83 million households, nearly double the 1.48 million homes that watched the 2005 Gold Cup final between the United States and Panama.


Anaheim's series-ending 6-2 victory over Ottawa in the Stanley Cup on June 6 received a 1.8 rating on NBC, which comes to 2,005,000 households.
This despite the fact that the match was also shown (in English) on the Fox Soccer Channel, where there were probably almost as many viewers (I wasn't one of them, since I was at the game).

Clearly, soccer has displaced hockey for the #4 spot among American team sports (assisted by what seems a death wish on the part of the NHL).

To show it was no fluke, a week later the USA-Argentina match in the Copa America drew an audience big enough to make Telefutura #1 in New York in key demographics:
Think of it as Telefutura's David Beckham moment. Last Thursday night, Telefutura's New York stations, WFUT Channel 68 and WFTY Channel 67, were No. 1 in prime time in the key male demos -- 18-34, 18-49 and 25-54 -- a first since the network's debut in January 2002.
It wasn't even close -- Telefutura beat the network stations by wide margins (alas, it wasn't close on the field either -- Argentina pounded us). And, again, the match was available in English on pay cable.

And this is, as noted, pre-Beckham. He'll presumably help spike things a bit more -- he's already attracting attention with Adidas's clever Futbol vs. Football spots where he co-stars with Reggie Bush of the New Orleans Saints.
In an unscripted series of spots to appear online and on broadcast TV, the athletes compare notes on their two sports. In "NFL Goalie," Bush attempts to tackle a new position—much to the amusement of the soccer icon. Beckham gives him some tips, such as, "The goalkeeper can actually move around." Kick after kick, Bush fails to stop Beckham from scoring. He cracks, "If I get at least one, I think I'll be successful."
Actually, the best line comes when Bush is trying to teach Beckham to throw a pass. After several tries Bush asks, "Are you sure you're right-handed?"

To finish with an actual marketing spin -- if your company isn't on the soccer bandwagon yet, you'd better jump on quick.

TPMA meeting in Chicago -- October

The next TPMA meeting will be in Chicago on October 7-10. Mark your calendar now.

This is the main TPMA annual conference, and should be a good one. The conference theme is An Integrated Channel Management Approach to Excellence. I'll have more info on it as things develop, but for now check out this for early information.