It's a world in which Canadian trees are left standing and broadcast towers aren't. It's a world in which consumer engagement occurs without consumer interruption, in which listening trumps dictating, in which the internet is a dollar store for movies and series, in which ad agencies are marginalized and Cannes is deserted in the third week of June. It is a world, to be specific, in which marketing -- and even branding -- are conducted without much reliance on the 30-second spot or glossy spread.
Because nobody is much interested in seeing them, and because soon they will be largely unnecessary.
Perhaps you are already rolling your eyes. Perhaps you believe that vast structures on which vast societies and vast economies depend do not easily lose their primacy. Perhaps you believe that the TV commercial and magazine spread -- and radio spot and newspaper classified -- are forever and immutable, like the planets orbiting the sun. Good for you.
Now, say hello to Pluto -- the suddenly former planet. Forever and immutable, it turns out, are subject to demotion. This could be grim news for the agency business, which continues its erratic Pluto-like orbit around marketing budgets as if unaware that it has lost its stature -- and its relevance is next to go. In due course, you shall see how circumstances have conspired to threaten its place on the cosmic map altogether.
Video killed whom?
To support the analogy of planetary delisting, we needn't go back 5 billion years to the origin of the solar system. Instead, just think back to approximately the day before yesterday. Remember how they used to talk about "the MTV generation"?
It was shorthand for the post-baby boomers who couldn't be stimulated unless you basically jammed kaleidoscopes in their eyeballs. They had cut their teeth on the rapid-fire editing and visual noise of music video, so all media were obliged to pick up the pace or lose the attention of an entire generation. And just in case the symbolism escaped you, don't forget the first song that ever played on MTV:
"Video Killed the Radio Star," by the Buggles.
Ironic, eh? But not as ironic as this: The latest thing the MTV generation has begun losing interest in is MTV, where ratings fell sharply last year. Short Attention Span Theater has changed venues and is now housed on YouTube. Online video is killing the video star. Over at MTV Networks, the layoffs began in February.
No huge surprise there. Two years ago in this very publication, "The Chaos Scenario" predicted that the pillars of old media would soon come tumbling down. That the MTV pillar had Public Enemy and George Michael and 'NSync posters plastered all over it, and was deemed the last word in modern TV, makes it especially noteworthy -- but by no means unique. Since "Chaos":
- In December 2005, Viacom spun off CBS, the so-called Tiffany Network, lest the broadcast business impede growth and depress shareholder value.
- Just before Christmas 2005, Time Inc. laid off 100 employees. Just after Christmas, in January 2006, Time Inc. laid off 100 more employees. In April 2006, Time Inc. laid off 250 more employees -- the last round of job cuts, the company said. In January, Time Inc. laid off 300 more employees. No wonder. Since 2001, Time Warner's market capitalization has shrunk to $82 billion from $193 billion.
- Last fall, ostensibly to promote their new seasons, five broadcast networks bypassed their local affiliates and gave away new programs online.
- In October 2006, NBC announced a $750 million cost cutback, including 700 jobs and a moratorium on scripted programs in the first hour of prime time.
- In November 2006, Clear Channel -- the boogeyman of media consolidation -- sold to private-equity owners and declared that it wants to unload its TV and small-market radio stations. The sale fetched $38 a share. In 2000, the stock sold at $100 a share.
- The Minneapolis Star Tribune, acquired by McClatchy in 1998 for $1.2 billion, was sold to private investors in December 2006 for $530 million.
- In 2000, Chicago-based Tribune Co. was valued at $12 billion. It then bought Times-Mirror Co. for more than $8 billion. At this writing, with Tribune Co. for sale as a whole or in part, the value of the merged company is $7.34 billion.
- YouTube. Two years ago, it -- much less Joost and Revver and Brightcove and the online-video industry in general -- did not exist.
This is the fourth installment of Ad Age Ad Review columnist Bob Garfield's "Chronicles of the Media Revolution" series in which he explores ongoing technological upheaval across the media and marketing industries. His three earlier installments are:
YouTube Grows Up -- but What Does It Mean?Inside the New World of Listenomics
Bob Garfield Explores the Implications of the Video-Sharing Revolution
How the Open Source Revolution Impacts Your Brands Bob Garfield's "Chaos Scenario"
A Look at the Marketing Industry's Coming Disaster
Garfield's weekly columns and daily blog can be found in the Bob Garfield section of this AdAge.com website.
What, me worry?
So what's it like to face your economic mortality? There are some clues in a February speech by Timothy Balding, CEO of the Paris-based World Association of Newspapers: "What we are seeing completely contradicts the conventional wisdom that newspapers are in terminal decline. ... The fashion of predicting the death of newspapers should be exposed for what it is -- nothing more than a fashion, based on common assumptions that are belied by the facts."
Balding's set of facts comes courtesy of the proliferation of skimpy freebies, such as Metro, which are to newspapers what Skittles are to cuisine. His rosy outlook, however, does sound familiar. In the halls of media power, the optimism seems positively infectious. Jack Kliger, president-CEO of Hachette Filipacchi Media U.S. and chairman of the Magazine Publishers of America, declared this spring: "We are no longer threatened by digital media." Perhaps he didn't notice the precipitous drop in readership, what with the industrywide circulation fraud and all. Or perhaps he was busy killing ElleGirl and Premiere, but never mind. He's dug in: "I'm not ready to end up my career watching our industry get marginalized and fade away."
Likewise David Rehr, president-CEO, National Association of Broadcasters, who greeted the National Press Club last October as follows: "Ten months ago, when I took this position at the NAB, I knew that joining the broadcasting industry would be exciting. But after seeing the dynamics of this business firsthand, it is 20 times more exciting than I could have ever imagined." Naturally he's excited. Ratings are plummeting. The networks are bypassing his members via the web. The cash value of stations is in decline. What's more exciting than piloting a plane in a tailspin?
As for the networks, here's Leslie Moonves, president-CEO, CBS Corp., speaking at the Bear Stearns Media Conference: "We've been hearing this for years: 'The network is dead. The network is dead.'... All four networks are going to get CPM increases in the upfront. The business is extremely healthy."
Putting aside for the moment whether there is some creative accounting behind that claim, Moonves is bragging about charging his customers more for less. Please note that pride goeth before the fall -- just as before bargaining and acceptance goeth denial. At that same conference, protesting that DVR ad-skipping isn't so menacing, Time Warner Chief Operating Officer Jeff Bewkes trotted out perhaps the most absurd rationalization ever proffered: "When you fast-forward, you get a quick visual version that is three seconds instead of 30; you could get the same message anyway."
The 30-second is dead! Long live the three-second!
Mass media, of course, do not exist in a vacuum. They have a perfect symbiotic relationship with mass marketing. Advertising underwrites the content. The content delivers audience. Audiences receive the marketing messages and patronize the advertisers, and so on in what for centuries was an efficient cycle of economic life. The first element of Chaos presumes the fragmentation of mass media creates a different sort of cycle: an inexorable death spiral, in which audience fragmentation and ad-avoidance hardware lead to an exodus of advertisers, leading in turn to an exodus of capital, leading to a decline in the quality of content, leading to further audience defection, leading to further advertiser defection and so on to oblivion. The refugees -- audience and marketers alike -- flee to the internet. There they encounter the second, and more ominous, Chaos component: the internet's awkward infancy.
The online space isn't remotely developed enough -- nor will it be anytime soon -- to absorb the advertising budgets of the top 100 marketers, to match the reach of traditional media or to fulfill the content desires of the audience. (Maybe viewers no longer demand their MTV, but what remains of the mass audience is in no hurry to surrender its Los Angeles Times and "Lost.") A collapsing old model. An unconstructed new model. Paralyzed marketers. Disenchanted consumers. It's all so ... chaotic.
The economics of abundance
How long it will be before order is restored is anybody's guess. What is certain is that the Brave New World, when it emerges, will be far better for marketers than the old one. What is nearly as certain is that many existing ad agencies and some media agencies will be left behind. And the reason they will be left behind is their stubborn notion that they can somehow smoothly transition to a digital landscape.
"It's a very different kind of world," says Adam Thierer, senior fellow at the Progress & Freedom Foundation and author of "Media Myths: Making Sense of the Debate Over Media Ownership." "The problem is, the expectations are there to capture that mass audience that long ago disappeared. We are witnessing the gradual death of the business models that thrived in that age of scarcity."
The value of TV, like the value of anything, is built upon the economics of scarcity. For decades, the source of highly produced entertainment was limited to three or four distributors -- i.e., the major networks. Cable expanded the options tenfold, then, with digital cable, 100-fold. Now the internet promises to do so infinitely. Strictly speaking, as a distributor of goods, broadcast's revenue structure should have collapsed long ago.
But TV isn't really in the program-distribution business. It's in the audience-selling business, and there the economics of scarcity still stubbornly reign. Because no other medium offers the reach of TV, advertisers have continued to pay more and more per thousand viewers -- which is why Mr. Moonves is commanding higher CPMs; the upfront market has not yet plummeted; and video advertising on the internet, according to eMarketer, will amount to a paltry $775 million in 2007. On TV, it is $65 billion.
But economics will have its due. The law of diminishing returns will eventually prevail. Those who have perennially spent more and more for less and less will finally say, "No more," and take their money online -- whether there is sufficient ad inventory or not.
The tide is turning
Procter & Gamble has been talking about this for 13 years. When Chairman-CEO A.G. Lafley says, "We need to reinvent the way we market to consumers," he doesn't mean, "We need to find a place to amass 30 million people at a time so we can tell them not to squeeze the Charmin." As his chief marketing officer, Jim Stengel, told the 4A's Media Conference this month, "What we really need is a mind-set shift, a mind-set shift that will make us relevant to today's consumers, a mind-set shift from 'telling and selling' to building relationships." And he did not specify media advertising as a way to do so. In fact, his examples -- from word-of-mouth to social networking -- mainly had nothing to do with advertising. And why should they have?
Mass advertising flourished in the world of mass media. Not because it was part of God's Natural Order but because the two were mutually sustaining. You've read the Ten Commandments; not one of them is "Thou shalt finance hourlong dramas" -- nor is there a word in there about scale. So why assume that either must transition to the new model? Not only is it economically nonsensical, it squanders the very nature of the digital universe, the ability to speak with -- not to, but with -- the narrowest communities and individuals themselves.
Which, of course, is all blindingly obvious. When the yin is shriveling up and dying, this is hardly lost on the yang. And so, too, the yin-yang of denial. When you ask David Jones, CEO of Euro RSCG, how his agency network is equipped to deal with the Incredible Shrinking Mass Audience, here is what he has to say:
"The huge thing for our industry is that, actually, what we have been great at for the last 50 years, and what we will be great at for the next 50 years, is developing and delivering entertaining, engaging, short-format content. And in a world where your screens get smaller and attention spans get kind of shorter and shorter ... is where we need to focus. The fundamental thing that our industry is focused on is delivering brilliant ideas, and if we do, people will engage with them."
Huh? Content? And all this time we thought advertising was the stuff that interrupts content. Now, from a June Times of London op-ed, here is WPP's Sir Martin Sorrell: "Slowly, the new media will cease to be thought of as new media; they will simply be additional channels of communication. And like all media that were once new media but are now just media, they'll earn a well-deserved place in the media repertoire, perhaps through reverse takeovers -- but will almost certainly displace none."
The italics are mine. The absurdity is Sir Martin's. In terms of culture, organization, expertise and compensation structures, a global ad agency can no more easily transition from a gross-ratings-points mentality to a world of aggregation, information, optimization and customer-relationship management than Young & Rubicam can transition from English to French. It's two entirely different grammars and vocabularies. Not to mention revenue models.
Please note that Nike has decided that, when it comes to fulfilling all of its digital-marketing needs, Wieden & Kennedy just can't do it. Wieden & Kennedy! Note, too, that while Sir Martin has been publicly spewing happy talk, he's also been reconfiguring WPP's portfolio so that less than half of the business -- on the way to only one-third -- derives from advertising or media services. No wonder. Agencies make money making spots and ads and buying the media for them. Barring a wholesale acquisition and divestiture, much of the nitty-gritty of digital marketing would have to be outsourced. And, with that, control of roughly half of what once was the ad budget. For instance, listen carefully to Jan Leth, executive creative director of OgilvyInteractive North America, as he tells a funny little story about an agency assignment for Six Flags.
"They had a promotion for their 45th anniversary. They wanted to give away 45,000 tickets for opening day to drive traffic. So we got a brief to do whatever: ads, microsite, whatever. But our interactive creative director just went off and posted it on Craigslist. Five hours later, 45,000 tickets were spoken for.
"No photo shoot. No after-shoot drinks at Shutters," he adds, with faux regret. Then, with somewhat less irony: "Now, the trick is, how do you get paid?"
"It's the cash-cow scenario," says Bob Greenberg of the Interpublic interactive agency R/GA. And what CEO would risk his share price, his job and personal compensation package to cut the cow in half? They'd rather just wait, Greenberg says, and hope nothing too disruptive happens too soon. "It's like Bush," he says, "turning the war over to the next president."
Still, Sir Martin is surely right about one thing: We are not witnessing the beginning of the end of old media. We are witnessing the middle of the end of old media. Both print and broadcast -- burdened with unwieldy, archaic and crushingly expensive means of distribution -- are experiencing the disintegration of the audience critical mass they require to operate profitably. Moreover, they are losing that audience to the infinitely fragmented digital media, which have near-zero distribution costs and are overwhelmingly free to the user.
Free is a tough price to compete with. As documented by Woodward and Bernstein, Deep Throat's advice to unraveling Watergate was to "Follow the money." In imagining Chaos 2.0, you must follow the no-money. And when you do, you'll have taken the Chaos Scenario one step further: to a digital landscape in which marketing achieves hitherto unimaginable effectiveness, but in which display advertising's main role will be to quickly, straightforwardly, informatively draw you into a broader brand experience.
"I always found Marshall McLuhan annoying," says Bruce M. Owen, senior fellow at Stanford University and author of the seminal "Television Economics," "but the medium conditions the message. It's already happening."
The promised details to follow momentarily, but consider for a moment Nike Plus, the joint project of Nike and Apple in which the iPod becomes a tool for monitoring running pace and style. The website combines utility, community, information and, of course, online sales. It is the marketing program, the CRM engine and the store. The sole function of the TV commercial -- which is an elaborate demo minus celebrities and narrative and jokes -- is to drive traffic to the site.
Now, multiply that formula by the Leading National Advertisers plus the entire Long Tail. Furthermore, thanks to emerging digital tools, there are endless permutations of the formula. Herewith, at last, five reasons the online world will not only transform traditional modes of advertising, it will largely displace them altogether.
1) People don't like ads
Sure, when your ad characters draw a parade crowd on Madison Avenue or you strut up to the awards stage in Cannes with ratty sneakers and fake indifference, of course you feel loved. Alas, you aren't, especially. In fact, you are mainly resented. A 2006 Forrester Research survey found that 63% of respondents believe there are too many ads, and 47% say ads spoil their reading or viewing enjoyment. This isn't just talk. Depending on whose numbers you believe, between 50% and 70% of DVR users skip ads. The historical quid pro quo -- acquiescence to advertising in exchange for free or subsidized content -- is yet another casualty of the revolution.
"The more access people have to technology," says Forrester senior analyst Peter Kim, "the more they will use it to skip advertising. When you as a consumer want content, you just want content. You don't want to be interrupted."
Nor is there any reason to think interruption is better-tolerated online. Forrester reports that only 2% of consumers trust banner ads and 81% of broadband users deploy spam filters and pop-up blockers.
Though it is a $1.65 billion acquisition in search of a business model, YouTube won't even consider appending ads to its videos, because it knows it would alienate its audience. And though much has been made of ads posted on sites and going viral, only a handful -- notably "Ronaldinho" for Nike and "Evolution" for Dove -- have ever broken through. The sequel to "Evolution," for Dove Pro-Age, has languished, barely noticed, on YouTube in spite of a ginned-up controversy about nude, older models.
2) But they crave information
Consumers may not much care for commercials, but they like goods and services just fine and are in constant search of information about them. Oddly, in its obsession with not repelling audiences, advertising over the past two decades has provided more and more production spectacle, more and more belly laughs, but less and less information. Very quickly, because information is at its very core, the online world will fill the vacuum.
But why would display ads be the principal means of doing so? In 2007, according to ZenithOptimedia, $10.5 billion will be spent on display, including video, but $14 billion will be spent on search. Why? Because search is contextual, measurable and information-rich. The double-edged sword of search, of course, is that it captures shoppers in the process of shopping but does little to build brand awareness for the general population. On the other hand, building brand awareness for the general population is also wildly inefficient. As online display advertising itself becomes more targeted and measurable, it will be best deployed as a sort of street signage -- posted on extremely vertical social networks or served based on user profiles -- directing the audience to where the real information is: brand or third-party websites, or embedded in highly utilitarian content.
Hence, a new breed of aggregators -- not of content, like Yahoo or Digg -- but of vertical channels. Magnify.net hosts thousands of video-sharing communities and Ning.com thousands of equally vertical social networks -- from "American Idol Fans" to "Asthma Parents" to "Draft Gore." Marc Andreeson, founder of Netscape, is co-founder of Ning.com.
"People are interested in what they are interested in," he says. "The magical part of social networking is the people [specific category] advertisers are interested in are magically coming together." And they're trackable all the way down to the individual user, so why waste anyone's time with what co-founder Gina Bianchini calls "undifferentiated aspirational messages"?
As for how you serve the information once you've gotten the audience's attention, the digital tools for doing so get ever more impressive.
One particular eye-opener, from Vancouver, Canada, is VideoClix, a hypervideo application that lets the user roll over any part of the image -- a car in the background, for instance -- and click for information about make, model and so on. A second click directs the user to the manufacturer, retailer or whatever. It's like VH1's old "Pop-Up Video" show, only the user alone controls what to pop up. Thus, it exploits the online third dimension, beyond audio and video: info-depth.
"It's a layer of information," says founder Babak Maghfourian, "that people will demand."
Apart from its potentially staggering utility, particularly in the product-placement sphere, VideoClix and other tools threaten the very nature of brand advertising. As Wired editor in chief and Long Tail proponent Chris Anderson likes to observe, "Brands are a proxy for information." In other words, brandedness itself conveys to consumers a minimum assurance of quality, reliability and distribution. Obviously, brands convey other things as well -- including values, status and personality -- but their most basic function will be usurped by the information readily available at a mouse click or an instant PDA scan at retail.
3) The consumer is in control. No, really
"I guess the most important thing that I would be asking myself," says media economist Bruce Owen, "is: How can I make advertising something that people are not only willing to put up with but actually have positive willingness to take?"
Considering the statistics you've just been reading, that sounds almost preposterously naive -- like asking commuters to vote for traffic. But not only is there an answer to his musing, that answer presages a Golden Age of marketing. The fact is, people care deeply -- sometimes perversely -- about consumer goods, from Tag Heuer to North Face to Tab. What they don't like is being told what they should care about or when they should be caring. Forrester's research reveals that 48% of consumers believe it is their right to decide whether or not to receive ad messages. Opt-in e-mails were deemed twice as trustworthy as TV commercials and 10 times more trustworthy than banner ads precisely because the consumer chooses whether to engage.
This may be culturally difficult for advertisers to accept, having spent two centuries trying to browbeat/seduce captive audiences. But take heart. Once the consumer is in the driver's seat, he or she will often cheerfully drive right in your direction.
"I'm amazed that anyone would go online to the American Express site to learn about credit cards," says Ted Shergalis, founder and chief product officer of [x+1], a web-optimization firm, "but they do. By the millions every day." Yet the same consumers may TiVo right past Ellen DeGeneres in an AmEx TV spot, because "they want the information on their terms."
4) Diversion of ad budgets
In order to exploit the internet's phenomenal capacity for targeting and optimizing messages in ads and on websites, advertisers will have to invest vast resources in information-technology infrastructure -- hardware, software and flesh-and-bloodware -- to crunch the vast amount of data that will be pouring in every second of every day. In the aggregate, this will amount to many billions of dollars. Much, if not most, of the money will come from existing ad budgets.
This will accelerate the destruction of mass media/mass advertising symbiosis (see "death spiral" above) and unlock the very power of aggregation, information, optimization and customer-relationship management that will render most image advertising impotent and superficial.
Let us not forget what the advertising yin is the yang of: free media. But what if, in the near future, most content is paid for by the user, either via subscription, like HBO, or a la carte, like pay-per-view or iTunes? This would eliminate advertising from the equation. If micropayments ever become practical, pay as you go would allow users to seamlessly buy, for instance, newspaper content on an edition-by-edition or even article-by-article basis. As Bruce Owen puts it, "The willingness to pay by consumers is far greater per eyeball than the willingness of advertisers."
In February, citing the pioneering efforts of Wal-Mart, Amazon and iTunes, Adams Media Research projected that paid streams and downloads will quickly overtake advertising as the revenue model for video content. "By 2011," according to the report, "advertiser spending on internet video streams to PCs and TVs will approach $1.7 billion, but movie and TV downloads will generate consumer spending of $4.1 billion." Likewise, in a January report titled "The Digital Consumer: Examining Trends in Digital Media," the investment firm Oppenheimer & Co. concludes the same: Content "is not likely to be ad-supported."
In other words, Madison Avenue has problems out the yin-yang.
Such a revenue model would suit content producers as well. In their life-and-death struggle against piracy, no digital-rights-management technology offers the awesome impact of price. As download costs are pushed inexorably downward -- say $1.99 compared to $25 for a DVD -- the incentive to steal is pushed down accordingly. Why bother shoplifting from the dollar store?
In the interest of full disclosure, the rejection of traditional-media doomsday scenarios is not limited to those with a proprietary stake in the Old Model. For instance, when asked if he felt like the last nail in broadcast TV's coffin, YouTube's Chad Hurley reacted as if he were facing a space cadet from the Planet Moron. "Why is that?" he said.
Shelly Palmer, of Advanced Media Ventures Group, says, yeah, the consumer is in control, and the consumer wants to watch TV. "There's no way that changes while we are alive, no matter what anybody thinks. As long as Americans get paid on Friday, then Thursday night from 8 to 11 is going to be the most important time to reach a major audience. It will be incumbent on broadcasters to deliver that audience, and they will, because that's what they do."
Then there was that other fellow.
Advertisinge Age: "Do you buy the Chaos Scenario?"
Bill Gates: "No. ... You'll see a little bit more turmoil, in terms of who succeeds and who doesn't, but it's not some overnight cataclysm."
Ad Age: "Is it fair to assume that the advertising people are exposed to, that they actually permit into their lives, will be more informational and less, let's just say, entertaining and creative and whimsical than advertising we've seen in the past?"
Mr. Gates: "I wouldn't say that."
On the other hand, of the $500 million Microsoft allocated to the introduction of its Vista operating system, 30% went online. If every national advertiser did the same tomorrow, Madison Avenue and Hollywood wouldn't be chaotic. They would be Pluto, relegated to some barren, subordinate outer orbit of the economy. And a lot of people would be singing a different tune.
We hear the playback and it seems so long ago
And you remember the jingles used to go
Video killed the radio star
Video killed the radio star
In my mind and in my car
We can't rewind; we've gone
-- The Buggles, 1979