Big Changes at AOL Time Warner May Impact Cross-Media Opportunities

The cross-media industry's biggest missed opportunity may soon be rebounding if the right executives get back in charge. The resignation of Steve Case this past weekend, on the third anniversary of the AOL/Time-Warner deal, culminates one of the saddest stories in America's media business.

In a cross-media sense, the deal had everything going for it: broadcast, motion pictures, entertainment properties, and some of the most revered publishing content in the world. It looked like the fulfillment of the Internet dream of making content available to everyone at any time.

Instead, the closest AOL/T-W got to true leverage of the cross-media opportunity was in promoting content as part of a bundle of advertising media. Whenever someone mentioned cross-media, out rolled an advertising plan that included spots on AOL, and not anything that resembled the hopes for true interrelated multiple channel content.

Will cross-media become a serious deployment strategy for AOL/T-W content under a new management team? Probably not. It is more likely that the company will be broken up. There were serious cultural problems in the reorganization of the company after the merger, caused by the usual greed and hubris of managers who have more respect for their salaries and perks than for the needs of their shareholders. Additionally, digital rights issues emerged as a core conflict area, leaving AOL/T-W business units less than enthusiastic about freely sharing content with each other for the common good of the AOL customer, with the music side of the T-W empire being especially reluctant.

Why is this important to the print community? T-W magazine properties account for 20-25% of magazine ad revenue. Watching how T-W performs under new leadership in its print media properties will be a key indicator of the value of print in the post-Internet era. Keep an eye on them. The drama is still on stage.


"It’s All Inside" Goes Virtual for J. C. Penney

I found it interesting that in the midst of J. C. Penney’s major restructuring efforts, Catalog Age reports that the retailer now obtains a whopping 40% of its direct orders online and NOT through its call center. Once the company has customers on the site (the equivalent of "once we have them in the store"), JCP is free to engage in upselling and promotions, and also get customers to opt in to regular and rapid-response e-mail promotions, many of which will displace print promotions. As I have noted many times in the past, the real personalization story is on the Internet, not in print media.

I know that JCP’s overall business is sick compared to other retailers, but it looks like this restructuring may save them lots of costs, especially print and mailing, and in 5-7 years their online efforts at marketing (not just order admin) might be quite significant. Even if these efforts don't fully displace print promotions, they can reduce print quantities.


Dr. Joe on the Economy, Retail Sales

In its report on Tuesday, the Department of Commerce described retail sales as sluggish reporting an increase of 3.4%, "the smallest annual gain" since they began compiling the data in its current format in 1993.

Here’s my take. First of all, it was a gain. Consumer spending has held up quite well for the past year, balancing significant problems in the business investment sector, which is only recently showing some faint signs of life, but it’s clearly not enough.

Remember Dr. Joe's two creepy thoughts for the year:

1) consumer spending is holding up despite cutbacks in ad budgets
2) productivity is growing despite cutbacks and flatness in capital spending

Unusually low prices are another factor in the retail sales data, with discounters performing the best of the retailers in the Holiday season. This has been driven partly by people shopping for prices on the Internet first, and then going out into the marketplace as much more educated buyers. Wal-Mart’s legendary low-cost warehouse logistics and negotiation skills are augmented by their strong low-price marketing message. That message is so strongly communicated, that they can be among the lowest spenders for print advertising. Let's hope other retailers don't get the same idea.

I still expect 2003 to be a sluggish year, but the sooner the incentives of the proposed growth plan are passed by Congress, the better. There is no question there are problems with the plan as proposed. I don't feel it's aggressive enough and would prefer that corporations pay no taxes at all, since their taxes are passed along in the prices we pay anyway. Besides, corporate taxes can so easily be avoided or minimized, especially by small businesses, as owners avoid double taxation issues by taking greater compensation. I'd prefer dividends to be expensed at the corporate level with taxes paid at the individual level. But that's another story for another time, and I’m on the wrong side of this issue anyway for right now.

There’s been a lot of silly grousing that Bush’s plan doesn’t take effect fast enough. Under the proposed plan, withholding tables would be immediately adjusted for child tax credits and cuts in federal tax rates, with the results showing up in paychecks in a matter of days after passage -- retroactive to January 1. That sounds pretty fast to me!

Until the so-called growth stimulus package is passed, 2003 will continue to be sluggish, and if the tax policy negotiations take time, look for another Federal Reserve easing as they try to keep the economy moving.

And On the Manufacturing Front . . .

Wednesday's Producer Price Index data showed continuing declines in prices manufacturers are getting for the goods they produce, indicating a still slow manufacturing economy, with a lack of pricing power for manufacturers.

Specifically of interest to members of WTT, there was great variability in the data. Raw price changes (unadjusted for seasonality) for November 2001 to November 2002 were as follows:

Newspaper prices: +1.3%
Periodical (magazine) prices: +5.7%
Book publishing prices: +4.1%
(note that these are total prices charged by publishers, not the costs of printing)

Printing equipment prices: +1%
Paper prices: -0.4%
Paperboard prices: +0.4%
Paper boxes and containers prices: +0.3%
Commercial printing prices: 0% (no change)

Except for increasing prices publishers are charging, all of the other prices are changing at a rate less than inflation. It is likely that the publishing prices increasing are due to generally higher costs that are not being covered by declining or stagnant advertising revenues. Even though their prices are increasing, they are not really helping their overall revenues.

What does all this mean? Don't expect pricing to get better. Pressure to keep prices down will still exist due to overall slack demand in the B2B markets. Manufacturing’s rough ride is likely to continue through 2003.


Ask Dr. Joe: Questions from WTT’s members.

“Is paper consumption with printed images on it increasing or decreasing?”

Dr. Joe: Gee, do you see any paper companies making real money? With magazine advertising down, and virtually no growth in newspaper advertising, that side of the business is decreasing.

More importantly, a large amount of print volume has shifted to inexpensive office papers as people download information electronically and print more locally, at the expense of what would have been sheetfed offset grades and fine papers.

So there is some decline in paper consumption, but more importantly, the way people print and the substrates they use has changed in ways that are unfavorable overall for the paper business.