GM's Bankruptcy is Bad News for Media

Detroit's continuing problems, along with government involvement, is going to continue to hurt the media business.

The auto companies are huge advertisers. GM spent $2 billion last year alone, according to TMS Media Intelligence (as cited by the Wall St. Journal).

But it won't reach that level this year.

GM sold Hummer to an obscure China truck manufacturer, and may close or sell other brands, and is shutting down dealerships -- all that will have an impact on national and local media.

Same is true for Chrsyler, which will scale back its ad buy this year.

According to the Wall St. Journal, "GM's Bankruptcy Adds to Pressure on Prices in TV-Ad Bazaar," which put the most interesting aspect of the story -- at least for media junkies -- at the end of the article, the cutbacks in ad buys will result in national networks having to "cut staff and budgets for new and existing TV series. Local stations, which rely heavily on auto ads, have slashed spending on syndicated series, cut staff and, in some cases, filed for bankruptcy.

"Local media, TV stations and newspapers will likely continue to take the brunt of GM's cuts, say people familiar with the matter. But national media will also be hit. Ad executives close to the company say more dollars will be put into digital ads to move unsold inventory, and fewer into big-ticket TV spots for big branding efforts."

This is something we've been telling clients since news of the dealership closings hit.

What this article does not say, but what we've told clients, is that even when the recovery occurs, you can't expect ad spending to return to pre-recession levels. This is the new normal; get used to it. Marketers will spend less on advertising, and try new ways to reach a more fragmented audience.

For Bailed-out Companies, PR is More Important Than Ever

After the example the chiefs of GM, Ford & Chrysler flying on separate private jets to attend a Congressional hearing to discuss bailout plans, AIG has raised scorn for paying out millions in bonuses -- including to those in the Financial Products unit responsible for "credit default swaps" -- which generated the huge loses.

It's clear that the Big 3 auto makers and AIG, Merrill Lynch (now part of Bank of America), and other financial services firms receiving billions of taxpayer dollars in bailouts made huge mistakes in running their businesses.

But what's also becoming apparent is that these companies are failing to understand the new operating culture.

It's no longer business as usual for them. For financial services firms, the time has past when they could justify huge bonuses as a way "to keep its talented executives." Where else can these people go? There aren't enough banks or jobs left.

In the new operating culture, bailed-out companies must be more accountable but also must understand how their actions play on Main Street.

On Main St., people don't fly private jets to meetings. They also have plans to present when they're asking for a loan -- something the Big 3 chiefs lacked the first time they met with Congress.

On Main St., people don't get million-dollar bonuses when the performance of their business unit cratered. Those so-called bonuses do not provide an incentive to actually produce positive results.

On Main St., bankrupt companies do not hold multimillion dollar golf retreats just because that's how things were done.

In the new operating culture, bailed-out companies need to think carefully about their public's perception of them. If they don't, you get nasty headlines like, "The real scandal of AIG: We're helpless" in Salon, where you might expect it. But you also get headlines like "Political Heat Sears AIG" or an editorial "The Real AIG Outrage" in the Wall St. Journal, where you wouldn't expect it.

These PR fumbles may be more significant than before because taxpayers are even more cranky than shareholders, and they complain to politicians much more -- much more often and much more loudly. And it's going to be much more difficult for AIG to make a case that it needs to receive more TARP money (now at $70 billion, not including another $100 billion in other government aid it has received). And I have no doubt that AIG will need additional infusions of capital.

Interestingly, a good high-level PR consultant or agency costs far less than what AIG is going to pay in terms of angry politicians, increased and tighter oversight by the government.

There might even be a sub-specialty practice in crisis communications to help these companies get with the new program. They certainly are demonstrating they need the help.

More Bad News about Advertising

According to BusinessWeek (via Advertising Age), some of the biggest blue-chip companies are cutting back their ad budgets. Anheuser-Busch, Coke, GM, Nissan and Procter & Gamble have all announced plans to cut back or to impose tighter financial discipline on their marketing strategies.

This will have implications for PR teams, which are likely to see decreased budgets, too, or increased demands for ROI and metrics -- unfortunately, it often requires additional investment to establish and track metrics.

I'd be interested in suggestions to address that.