Internet, cellphone: 'the new essentials'
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Today, we bring you an article that is in keeping with the present belt-tightening trend. We plucked this article from a very good and reliable source.
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Internet, cellphone: ‘the new essentials’
Belt-tightening consumers more likely to cut back on movie tickets, DVDs and
top-tier cable, study finds
Globe and Mail, Oct. 23, 2008
Amid the threat of tough economic times, Internet and cellphones have become
Almost like heat and water for consumers – they are among the last monthly
expenses That households are willing to cut from their budgets during a recession.
A survey conducted last week in Canada and the U.S. suggests that if
consumers are forced to reduce spending, they will look almost everywhere
else in their Household budgets before they unplug their computer or switch off their
“Many consumers, with minor exceptions, view these as essential utilities,
like water or electricity,” says the report, which was compiled from
interviews with 800 consumers last week, and is expected to be released today.
“People were saying, ‘It’s not going to happen – you would have to pry it
out of my hands,’ that kind of language,” said Kaan Yigit, head of Solutions
Research Group, the Toronto firm that produced the report.
The acknowledgment of these so-called “new essentials” plays into the hands
of the cable and telecom companies, since they rely heavily on monthly
subscribers for revenue and can bundle the services together.
However, those same companies have been eyeing this downturn with trepidation, since it will be the first to really test whether
budget-conscious consumers think Web access and cellphones are a luxury or a necessity – unlike the downturn
that Followed the dot-com crash in 2001, when those products were still in far fewer
This time, the casualties of belt-tightening will come elsewhere, with the
most likely victims expected to be concert tickets and sporting events,
according to the report. Such purchases would be downgraded to cheaper seats, or eliminated
Movie tickets were the second most-mentioned target for cuts, with DVD
Purchases third. Though Hollywood famously weathered the Great Depression of
the 1930s, with films like King Kong and Gone With the Wind
producing huge box office returns despite the hard times, theatres today
must compete with cheaper alternatives, including rentals, the Internet and
Subscriptions to magazines and newspapers were fourth on the list, while Premium cable packages were fifth. Though cable cancellations were unlikely,
nearly a third of Canadians surveyed said their cable bill was a key place to find
potential cost cuts by eliminating higher tiers of channels. That poses some
risks for the Cable distributors, who make a bigger margin selling the extras.
“If you’re marketing new or extra services, your job is now somewhat harder
in that category,” Mr. Yigit said. “You have to justify why it’s worth it.”
The report suggests a 6- to 9-per-cent contraction in spending on entertainment and communications in Canada. U.S. consumers indicate they
would look to trim their budgets by about 11 to 15 per cent.
Video game buying was sixth on the list. Interestingly, consumers said they Would probably cut their home phone service, which ranked seventh, before
they would cancel their wireless plan, which was eighth. And even though DVD
purchases ranked High as a potential cost cutting item, DVD rentals were ninth on the list,
between cellphones and the Internet, as an item that consumers would hold
onto as a cheaper alternative.
Video footage collected during the focus groups, which accompanies the report, shows how entrenched the Internet and cellphones have become,
particularly with Younger consumers. “I feel like without the Internet, I’ve lost contact with
everything – the world, with everyone. I can not do without it,” said a
woman in her 20s who was part of the report.
Media stocks have been hit hard in the recent economic turmoil since revenues are dependent on consumer spending choices and decisions made by
advertisers on Where to place their marketing dollars.
RBC analyst Drew McReynolds said in a recent research note that the investment community so far appears to be viewing the present economic
turmoil as similar to the Economic slowdown that occurred after the dot-com crash. That period saw a
sharp drop in advertising spending, but did not last as long as other slumps.
“We believe the media sector is pricing in a 2001-2003 style economic
slowdown. Should Canada enter a recession however, we see another leg down
for the group,”
Mr. McReynolds said. “In our view the main catalyst for the media sector –
evidence of a Bottoming of the advertising cycle – is at minimum two to three quarters
On the chopping block Ranking consumer targets for cuts:
1. Big-ticket events (eg. concerts, sports)
3. DVD buying
4. Magazine subscription renewals/newsstand
5. Cable/satellite TV extras
6. Video game buying
7. Home phone
8. Mobile/wireless phone
9. DVD Rentals
10. Home Internet
Solutions Research Group
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