Wednesday, January 10, 2007

If you spinoff damaged goods when you did the damage, cui bono?

by Ken Houghton

Most interesting note (to me) from Paul Kedrosky's Infectious Greed: Top Tens of 2006: Advertising, Movies, Television, Stories, etc.:

Only three firms in the top ten show a decline in their 2006 non-web advertising (Kedrosky uses "offline," which strikes me as counterintuitive, especially as he notes that P&G/Gillette's non-web advertising budget is greater than the "total spending of the top online advertisers"):
  1. General Motors,
  2. Altria (nee Philip Morris), and
  3. Time-Warner.

The first makes perfect sense. When your sales are sinking faster than the Titanic, you cut your advertising spend. Also, you probably boosted ads last year to try to staunch the bleeding. Either way, a decline is not unreasonable.

The second (which is a change of notably less than 1%) can be rationalized rather easily as well; when your primary product is addictive, the two goals are (1) raise brand awareness and (2) expand customer base/strengthen customer loyalty. Absent a major new campaign, a delta that is probably not statistically different from zero is understandable.

It's the third that is most interesting, of course. It will be interesting to see if the decline was from a decision to reduce AOL advertising, damaging the brand for possible resale, some of the failed and declining magazines (e.g., Teen People), some of the movies that became tax-loss carryforwards, or a cutback of advertising cable services and offerings.

I cannot imagine it being the latter, and am failing to think of a true TWX bomb. So if I'm holding TWX because I was an AOL shareholder, I'm checking out the annual report carefully.
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