MAGNA: New Forecast Methodology

FOR IMMEDIATE RELEASE:

MAGNA: New Forecast Methodology

WHAT: MAGNA has reinvented the traditional advertising forecast model. The numbers that will be released on Monday, July 13th will no longer be calculated based on advertising expenditures, but rather on the media supplier advertising revenues. MAGNA is refocusing efforts to provide clients, and the industry-at-large, critical insights about the underlying business trends which impact media suppliers.

WHY: By providing publicly-issued MAGNA insights, we can better assist our clients’ understanding of the key strategic issues impacting the media supplier community.  At the same time, we can also help media suppliers understand the structural factors causing shifts across various sectors.  By fostering an improved understanding of mutual interests we aim to help our clients build stronger and more value-enhancing business relationships with the media supplier community.

Importantly, MAGNA’s approach avoids sources relying on the use of “rate cards” or similar estimates for the historical size of a given media type.  Our general approach to estimating historical sizes of different media involves data from trade associations which use third parties to collect real advertising revenue estimates, the US Census Bureau and our own financial analysis of media suppliers and their industries.  

NEW DEFINITIONS OF MEDIA:

The question “what is media” is one which requires continuous evaluation, as there is a wide continuum of activities which could potentially be included.  MAGNA is focused on the economic activity generated by the primary intermediaries between brands and consumers – what we typically refer to as media suppliers.  MAGNA has accounted for the following in our definition:

• A sub-set of marketing which supports sales of products or ideas
• Requires an intermediary between advertiser/agency and consumer
• Can use payments to pair commercial messages with media content
• Can use payments to distribute commercial messages as content
• Must be quantifiable through an historically consistent, measureable data-set

But even this definition requires some arbitrary choices.  MAGNA has excluded media which is prone to double-counting (for example, trade promotion can involve exchanges between manufactures and retailers which results in a traditional media activity – the use of funds by one marketer becomes the source of funds for another), media which is ambiguous because of accounting reasons (for example, one marketer may use coupons – which in accounting terms is a reduction of revenue – while a competitor may choose to consistently sell at lower prices without the use of coupons), and costs associated with professional services, which reflect a blur between outsourcing to agencies or managing activities within a corporate marketing department

NEW ORGANIZATION OF DATA:

The organization of our forecast is also new.  At the broadest level, we have grouped media into direct, national and local media types.  Although lines may blur between these groupings (for example there are direct media which are targeted to local communities and local advertisers which buy on national media outlets), we have allocated media types into the categories which broadly reflects the way in which media is today transacted, assessed and organized at a corporate level.

NEW INDUSTRY MODEL:

Finally, MAGNA is making available a detailed model which makes transparent our approach to forecasting.  Like previous models, MAGNA’s model includes a significant amount of historical information – back to 1980 on an annual basis, and from 1990 on a quarterly basis.  But our forecast is not informed by a conventional growth in price-per-unit multiplied by growth in number-of-units approach.  Instead, reflecting the way in which we observe most media budgets are set, our forecast first estimates growth for the market as a whole (based on established relationships between the economy and media supplier advertising revenues) and then studies the historical share of the total “pie” that each media type accounted for in order to assess how shares will shift over the next five years. 

Although our model remains informed by a detailed understanding of the secular trends which are driving growth or decline, we have observed that pricing information provides little guidance to revenue trends, as the mix of advertisers with differing price bases and fluid nature of inventory for many  media types renders such bottoms-up approaches as limited.
Our detailed model will be available upon request, and we look forward to your comments and questions.

Press Contacts:
Joe Benarroch                                      Alisa Monnier
Joe.benarroch@mediabrandsww.com       alisa.monnier@mediabrandsww.com
1 212 313 5803                                     1 347 522 0563