Friday, June 03, 2011

Can "old media" survive a double-dip recession?

Last Friday, the U.S. Labor Department announced that national unemployment unexpectedly rose in May to 9.1%. 54,000 people found jobs last month, but that was more than 100,000 less than what most economists expected. That follows news that the Conference Board's Consumer Confidence Index dropped to 60.8 in May from 66 in April, and more than 100 before the start of the Great Recession. The Standard & Poor's/Case-Schiller Index of housing prices in the 20 largest U.S. markets fell in March to its lowest level since 2003.

I don't usually dabble in economic forecasts, but it's increasingly looking like we're entering a double-dip recession. In the current issue of Business Week Magazine, writer Peter Coy refers to the situation as the economy's "You First" problem: Unemployed people don't have money to spend, and people who are employed don't want to spend money, because they're still afraid that they might lose their jobs. Businesses are unwilling to start hiring again because consumer spending is so low. Both sides are waiting for the other to go first, and the Federal Government is in gridlock, so the economy has no option but to fall back into recession.

The Great Recession did no favors for incumbent media companies. The decline of newspapers, which had begun years before the start of the recession, took on a fatal momentum. Magazines' advertising dropped precipitously, and many magazines either shrank their page counts or folded completely. Radio and television advertising revenues also dropped dramatically; in the case of television, the drop in advertising made local stations much more dependent on retransmission fees from cable, satellite and IPTV operators in order to stay in business.

While there seems to be no hope for the recovery of the newspaper industry, advertising revenues for other media have improved, although they're still far below their pre-recession levels. However, a double dip recession would likely drive revenues back down to where they were two years ago. It's hard to overestimate what impact that would have on incumbent media companies. Internet companies will likely hold their own, but a lot of media companies that barely got through the Great Recession won't survive a second one.

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