What a big year 2002 turned out to be. A lot of things happened that will affect our lives for a long time to come.
Economy and War
Ad revenue bounced back in the third quarter just as we predicted a year ago. Not a big deal to call that one, considering how depressed we all were then, and the assurance of political ads.
More than anything else the economy's slow renovation will dominate much of ‘03.
The war against what Thomas Friedman of the New York Times called the super-empowered angry young (Islamic fundamentalist) man. In fact, this war will bog down the economy for much of the next decade.
It will also spawn the biggest youth movement since the '60s (but that's still a few years away). War with Iraq is not a foregone conclusion, but it is likely. And should it come, it simply won't be as easy to end as it was 12 years ago.
A war will send "consumer confidence" into the ditch. But as all wars do, it will help many sectors of our bruised economy, especially entertainment.
During the first quarter you'll read (if you haven't already) how we might be like Japan: In big trouble for a long time. Entrepreneurs, despite Washington's best efforts against them, will be the new heroes as we pull ourselves out of a very shallow second dip.
Watch business media gush over the pioneers' reclamation and gentrification of the wasteland that was Internet and telecom technology.
The RIAA will not let go of their litigation in 2003, despite their numerous failings. The old business model won't work any more. It's not anybody's fault—certainly not the Internet's.
In a year where sales were down profoundly, few noted the Dixie Chick's record first week. While hands wrung over MP3 sharing, few noticed that Island Def Jam stamped unique identifiers on Bon Jovi's latest release providing fans special access and unique content mere file-sharers couldn't get close to.
Further, while RIAA President Hillary Rosen testified about the criminal intent of the music-buying public, few stood up to speak about the embarrassing lack of new releases, the crushing expense associated with radio promotion, and the abandonment of artist development.
Until the web is leveraged correctly, and pay for play gets under control the music business will continue its decline. The newly scrubbed Eminem can't save it, System of a Down can't save it, even the Dixie Chicks can't. If it's left up to the Feds, we're doomed, if it's left to the courts, many more will suffocate.
Even with "pro-business" Republicans leading both legislative and executive branches of the federal government "locking down technology,” we'll spend most of the next two years deciding how to dismantle the current structure while keeping it in the hands of big corporations.
Of course the music business may leave the hands of the multi-nationals because of margin evaporation, but that won't happen in '03 and it won't happen without things getting ugly first.
We'll Save That Drama for Next Year
Speaking of the Dixie Chicks, we see Country coming on strong in 2003 and with it, delayed by about eight months, a renewed demand for Rock. American Idol finished the pop cycle this year. We'll see numerous copycats American Idol clones in ‘03—just enough to make sure the pop star trend is dead by '04—in fact, it's already over.
Look at Christina Aguilera's make-over and the Brittany implosion. None of these "star search" shows will generate any enduring talent, but a number of these shows (2 at most) will deliver some great ratings in the near term. Mr. Combs "Making the Band 2" is particularly fascinating.
Hip-hop continues its influence in Rock and its roll into the suburbs, while R&B takes another shot at renewal. We see new R&B actually taking hold in ‘03 in a way it has failed to in the past. Artists like Erykah Badu, India Arie and Alicia Keys have assured its legitimacy even though programmers will struggle with it like their Country brethren have struggled with Country's roots movement.
Our advice—as always—serve your target market(s), not your "format," and leverage their success.
Radio revenue continues to hold strong in ‘03 and leads the recovery just like in the last two recessions. There is a reason for this leadership role. Time to deployment for advertisers is shorter in radio than in any other medium. The big story for radio in ‘03 is database monetization driven by ratings compression—making money from all those listener names collected for the past two years. Advertisers will start to demand value-add in the form of a direct marketing component to help compensate for the lack of clarity in Arbitron ratings.
Smart broadcasters will embrace this trend, as it will allow a demonstrable return on investment for the advertiser as well as a lower clutter level that comes from typical sales promotions. Other broadcasters will fight the database trend and wonder how that "lower-rated" station across the street got on the buy.
The Cineplex is a great place to hide from elevated terror alerts and the movie business made us proud this year. We see another good year for Hollywood in '03. The Blockbuster formula worked well this time around and now it's all about franchise. Spider Man and Harry Potter are what the big content companies will do best, and what the audiences will eat up next year.
Research will drive the success of this content and the process will still alienate creatives. This formula will work for as long as franchises can be sustained.
We are still fonder of what was once called the "indie" segment, now known as the "specialty" segment. Better films get made for higher profit margins. Jackass—the movie—delivered four times its production cost in the first week of its release.
Spider Man didn't ROI that fast. My Big Fat Greek Wedding cost $5 million to make, has grossed 37x that, and is still playing in theaters almost a year after its release. These are the kinds of movies that make moguls. More marquee names will use the "specialty" business model to rejuvenate slowing careers.
Jackass's success will also drive some TV and web content in ‘03. Semi-pro, guerrilla-style content will be everywhere. Think (and thank) Allen Funt, creator of Candid Camera, on acid—everywhere. It's cheap, creative (relatively) and perfectly suited to short attention spans and 500 empty channels.This is no fad—it's a full-blown trend.
Cable and Broadband
TV will stay in its stupor this year. Broadcast will bleed audience. Cable programming share will grow. NBC purchased Bravo and repurposed programming much like Viacom has. Formula dominates here too. One prediction we failed on in ‘02 was our call on the DirecTV merger.
"The FCC hasn't denied any business mergers in 30 years," we told ourselves. We failed to accurately take into account how much influence Rupert Murdoch's lobbying money might have.
Still, satellite will continue to build on cable's failures, as satellite radio will continue to add subscribers. In fact, few will pay attention to the seemingly "insignificant" numbers as the irony and significance of aggressive technology adoption in rural areas stumps analysts.
Cable operators will continue to stumble through ‘03. Blame greed and sloth. While cable focused on digital boxes, they failed miserably to deploy high-speed Internet broadband. They blamed the market for their hesitancy, even though they refused to offer any consumer web services that would stimulate demand growth.
All the while, Xboxes sold like hotcakes and plug right into the home network. Nothing's changed now, except that Adelphia went belly-up. Of course, that will ultimately serve to make cable accounting more transparent and that is a very good thing.
Cable's broadband foot-dragging is good for broadcasters, by the way, because it's slowing the onslaught that's coming from ISP's (like AOL and Earthlink) to aggregate the audience, circumventing the broadcaster. AOL's First Listen program is only the beginning of a suite of consumer web services that will aggregate audience in an immediately measurable way.
Watch the AOL/Comcast deal to see just what kind of mass this kind of thing can take on. While you're at it, check in and see what kind of plans your local power company has for your audience.
Given the competition from DVDs, cell phones, PDA's, MP3 players, and PVR's, broadband adoption is impressive. It will continue to grow but miss its full potential in ‘03 from the lack of consumer web services so critical to the expansion of the channel. We'll watch providers try and search to find "a killer app."
That's an excuse. There are three killer apps for broadband: music, gaming, and home learning. They all make sense for the big ISPs and bandwidth providers.
The biggest announcement this year in our opinion was the Listen deals struck with DirecTV and Charter. This will begin the battle over services in '03 as the competition to grow share of wallet increases.
Gaming continues as the hot ticket next year, and in fact for the foreseeable future. It seems that guys don't give up gaming as they age. Every year a larger percentage of the adult population is a gamer. Last year we reminded you that games generate more revenue than theater tickets. This year we're telling you it's the hottest marketing platform since television.
If you don't believe us, ask the US Army or even Sony/Epic, who's using Grand Theft Auto: Vice City (follow up to one of the best selling gaming titles ever) to market their music with eight compilation releases to come from this game version alone. You can even hear KUFO's Own Porkchop as you rampage through the city.
Games will continue to generate the next generation of film franchises. Forget Angelina Jolie as Laura Croft. As avatars become easier to render and animate realistically, films will incorporate the real game characters instead of actor simulations. Bottom line for you is finding a business development path that makes sense in a game environment.
In the late '90s, when Paxon owned Zeta (WZTA) in Miami, very few media people knew the Zeta logo passed by on every lap in a Microsoft racing simulation. It's almost 2003. Do you know where your logo is?
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