My first job, before joining P&G 41 years ago, was as an apprentice account manager in a Los Angeles advertising agency. If my first boss and mentor, Grace Glasser, were alive and here today, she would be as proud as I am-and she would probably be saying, "Get to the point, Ed. We have work to do."
So, here's my point: The advertising business may be heading for trouble-or it may be heading for a new age of glory. Believe it or not, the direction-up or down-is in our hands.
The reason: Our most important advertising medium-television-is about to change big time, and we have one whale of a stake in these changes.
From where we stand today, we can't be sure that ad-supported TV programming will have a future in the world being created-a world of video-on-demand, pay-per-view and subscription television.
Within the next few years-surely before the end of the decade-consumers will be choosing among hundreds of shows and pay-per-view movies. They'll have dozens of home shopping channels. They'll play hours of interactive videogames.
And for many of these-maybe most-no advertising at all.
If that happens, if advertising is no longer needed to pay most of the cost of home entertainment, then advertisers like us will have a hard time achieving the reach and frequency we need to support our brands.
TV is changing-fast
This is a serious issue-and it's one that we've been spending a lot of time on in the last few months. Since March, in fact, I've met with a number of industry leaders-Larry Tisch, Tom Murphy, Barry Diller, John Malone, Jerry Levin, Sumner Redstone, and others-and I've come away from these discussions more convinced than ever that we in the advertising business have to get in front of these changes. Listen to what they have to say about the future:
Barry Diller: We're at the beginning of this process. It's not going to happen overnight. It's been overhyped to death. But it will, in the next three, four, five, seven, nine years, it will be part of our lives.
John Malone: Our timetable for making services available is to have our terrestrial facilities in the U.S. completed by the end of 1996, so that would be 21/2 years from now.
Larry Tisch: I see the next five years as a period of experimentation where various companies will do various tests in small markets to understand better what can be done on a mass market for the future.
Sumner Redstone: One thing is certain. You will have technological changes. You will have high-power direct broadcasts. You will have some new networks of which one will certainly be the Paramount network.
Barry Diller: I think that it's inevitable that as you get more choices, you get more fractionalization. The trick for the TV networks is going to be to brand themselves. They'll develop, over a period of time, some sort of personality profile-or they'll find themselves irrelevant, because one thing the future's going to bring us is the ability to choose programs and brands over simply generic providers.
Tom Murphy: Because we deliver on any weekly basis 95% to 100% of all the people in the U.S. ... if we got down to the point where you would be like radio is today, then the cost of delivering advertising messages ... would be very, very high and it would be very difficult to introduce new products, so I think the major advertisers and the networks really go hand in hand into the future.
Jerry Levin: We are simply taking the 200 million television sets that are out there and, behind the television set, putting a very powerful distributed computer system with all of this firepower that the consumer doesn't need to worry about. This is what happens when you finally digitize television.
John Malone: Five or 10 years from now what we'll see on the TV landscape is several hundred, maybe hundreds, of choices for the consumer.
Jerry Levin: When you give the consumer that control, that element of choice, that feature of convenience, then the consumer's attitudes are transformed in a remarkable way.
Any doubt in your mind that things are going to change?
Of course, some companies will flourish as a result of these changes. Barry Diller, at QVC, told me he can sell 20,000 pairs of earrings in 5 minutes on his home shopping channel. That's terrific for a company that sells impulse items.
But Procter & Gamble, in a given year, has to sell 400 million boxes of Tide-and to do that, we have to reach our consumers over and over throughout the year.
TV critical to brand loyalty
Frequency and depth of sale in advertising are critical to preserving loyalty to frequently purchased brands like ours. For example, in any given month, P&G brands like Tide and Crest and Pantene will reach more than 90% of their target audience six or seven times.
The only way you can achieve that kind of impact is with broad-reach television-which is why we spend almost 90% of our $3 billion advertising budget on TV, and why we simply must preserve our ability to use television as our principal advertising medium.
We run the risk of simply adapting to these changing technologies, but if we don't influence them-and if we don't harness them-loyalty to our brands could suffer in the long term.
We can't let that happen, so I'd like to use my time here this morning to share some of what I've learned and to suggest some starting points for industry action.
Viewing habits changing
Most of the hype about the "information highway" has focused on technology, but we're interested-as I know you are-in consumers: What is it that they want from these new services, and how much are they willing to pay for them?
What we've learned is that people want choice, convenience and control. And they're willing to pay a fair premium to the programmers and media suppliers that meet these needs.
The question is, if they get what they want-and I have no doubt that they will-how will that change the way they use television? And what will it mean for advertising?
The most important change, by far, is that people will become more program-driven and less channel-driven. What that means is we may lose access to broad segments of our audiences because program-driven viewers will no longer stay tuned to a particular channel. In fact, they may not even stay tuned to ad-supported programming at all.
This shift toward program-driven viewing isn't new. It began when the first alternatives to the networks appeared-the early independents. And then as the UHF dial filled up and cable came on the scene, people got used to switching among more and more channels to find what they wanted to watch.
But the trend accelerated in the '80s as a result of a simple new technology-the remote control, the zapper.
This is a point that Barry Diller made when we talked.
Barry Diller: This country's communications began with enormous concentration in a couple of choices, all that were really available. Also, people didn't want to get up off their little chair and turn the set, 8 feet away. So they did tend to watch a network, and the trick then, going way up through the '60s, '70s, some of the '80s-even now, to some degree-was flow. Could you get them and keep them? That began to change with the remote control. What it changed was that now you didn't have to get up, period.
And so the advertising industry began to realize the consequences of program-driven viewing: channel surfing and the ability to "zap out" commercials altogether.
Navigating past channels
And remote controls were just the beginning. They'll soon be replaced by program navigational services that will fundamentally change the dynamics of TV viewing.
These "navigators" will be heavily marketed subscription services. They'll tell viewers what's on tonight-and more. They'll know what kinds of programs a viewer likes. They'll even remember everything a viewer has watched.
TCI is now working with TV Guide to develop a navigator called On-Screen TV Guide. Their vision is that subscribers will go immediately to their navigator channel whenever they turn on the TV. And the navigator will have done its homework-it'll recommend a lineup of programming, drawn from this 300- or 500-channel universe. It may even recommend two or three alternate lineups. And once viewers have said, "OK," they won't even need their remote. The navigator will turn the channels for them. They won't even need their zapper.
Virtually every major supplier will offer its own proprietary navigational service. On-Screen TV Guide will compete with Viacom's Star Sight and Bell Atlantic's Star Gazer. These services will rapidly erode the whole idea of channel identity. Network lineups will be replaced by navigator lineups. And television geography-the location on the dial where a program can be found-will no longer be important or even relevant.
A couple of things could happen. Without network lineups to keep people tuned to a particular channel, the advertising spots between programs could easily disappear. Right now, these spots represent 15% of TV advertising-$5 billion worth of revenue. If they go away, or become substantially less valuable, media costs are certain to rise.
Here's another chilling thought. There is a very real possibility that the majority of programs people watch will not be advertiser-supported.
Shifting to pay-per-view
Pay-per-view movies are a good example. People will flock to these because they offer all the functionality of home video plus the convenience of never leaving home.
Listen to Jerry Levin talk about what Time Warner's doing. Just put yourself in the consumer's shoes and see if you find this service appealing:
Jerry Levin: There is a digital library of movies I can access at any time-I don't have to wait for it, I don't have to put it into a machine and I can stop it in case the phone rings or I want to order a pizza-which I can now also order through this service-and I can fast-forward it, I can have this complete control of the digital library that can be summoned instantaneously when I want it and at my convenience.
That kind of functionality-which will be offered for about the same price as a video rental today-will draw millions of people to pay-per-view.
And that appeal will be strengthened even more with first-run and even pre-theatrical-release movies.
If you want an idea of how big a deal this could become, listen to John Malone describe his plans for this market.
John Malone: If you look at the cost of going to Madison Square Garden to see a sporting event-$50 a ticket-it's not hard to imagine that, for a hot event-a first-run movie, pre-theatrical-the numbers could be very large. "Home Alone 2." I kid Rupert Murdoch, but "Home Alone 2" [on] Christmas Eve, simultaneously with theatrical release, including a T-shirt, could be a $30-$40 item without a blink and you supply a videocassette as part of the package and you might see 20% of U.S. households buy something like that. The numbers are huge.
That's not an unreasonable scenario. In fact, research done by TCI and Time Warner indicates that pay-per-view will essentially displace the home video market-and will probably expand it substantially because there will be much more than movies on pay-per-view.
There'll also be real-time events-sports, concerts, Broadway musicals-almost anything people would pay to see live. And we may even see events that are ad-supported today moving to pay-per-view, like the World Series or the Super Bowl.
As you can imagine, pay-per-view could take very sizable audiences away from ad-supported programming. And based on what we know about the way consumers use home video today, we can expect much of the shift toward these services to occur during prime time.
Playing games-without advertising
Another huge draw will likely be video-games, especially for the kids and teen-agers who are target audiences for many brands.
We've already learned from Nintendo and Game Boy that kids-and many adults-often spend hours playing these games.
We can expect this habit to trend upward as new subscription game channels begin to appear, like the recently announced TCI/Sega channel. John Malone told us that this new channel, which will be available for $10 or $11 a month, will allow users to play up to 50 games-of any length-every month. And he believes that game programmers will put as much promotional firepower behind new releases as the biggest Hollywood movies get today.
John Malone: People will be able to play Sega in an interactive mode-they'll be able to play against the country, or the world, for that matter. You introduce a new game, whoever solves it first-let's say at 3:00 Sunday afternoon East Coast time, you download to your customers the next Super Mario 3 and the first kid who gets down to the code that's embedded in it and calls the 800-line gets a $100,000 college scholarship. Right. You got me. Big. Big. Big.
There will be other kinds of games. You'll be able to play along with "Jeopardy!" or "Wheel of Fortune" or try to predict the outcome of "Murder, She Wrote" or the Final Four.
These games will attract millions of viewers-kids and adults alike-and potentially every hour they spend playing these games will be spent away from ad-supported programming.
Shifting away from appointment TV
There's one other area I want to mention, and that's time-shifting, or on-demand television. In virtually all of the media tests that have been launched around the country, consumers respond very positively to time-shifting. They don't want to be tied to the TV every Sunday night just because they want to see "60 Minutes." In most of these tests, they've clearly indicated that they would pay a premium for the option of watching their favorite shows whenever they want to.
That could create a real problem for the traditional networks, as Larry Tisch pointed out:
Larry Tisch: Everybody knows that "60 Minutes" is on at 7:00 on Sunday night. That's appointment TV. You make it your business to watch "60 Minutes." If I said to the American people today, well you don't have to watch "60 Minutes" at 7:00 on Sunday night, you can pick it up on cable, on a pay-per-view basis, any time you want to see it, I have a big question in my own mind whether you destroy the whole idea of appointment TV. I'm not so sure it makes sense to have a system where people could forgo the program on the theory that they maybe could pick it up later if they wanted to. I think we would lose that critical audience size for the program that's so important to network TV and to the advertiser.
That's a good point. But, as John Malone says, consumers are tired of "appointment TV."
John Malone: The No. 1 thing we're finding in our market research is that people don't like to be enslaved with a pre-programmed schedule. And people, given the alternative, will rebel against being forced-if they see a particular program that they like-to have to watch it at a particular time, and I think that is going to break down and that will break down quite rapidly, in my opinion.
Now, it's possible that time-shifting will work to our advantage. If advertising is shifted along with the program, and people don't have the option to zap, that could create an even larger audience than a single showing can hope to achieve.
But if the ability to fast-forward is part of the time-shifting package, we lose that advantage. And, of course, if Larry's right and people end up not watching a program at all, then we get no benefit whatsoever.
The implications are clear: It's going to be harder than ever before just to reach consumers with our advertising, much less reach them with the frequency and regularity we need to build loyalty to our brands.
As I said at the beginning, we can't let that happen. Television advertising is the lifeblood of our business, and we must protect our access to it.
The question, of course, is, "How do we do that?"
Taking a page from advertising history
The first place to look is at our own history. Advertising started in print. When radio came along and we all had to buy time as well as space-and sell with words and music and no pictures-we, the advertising industry, took control of our environment.
We created programming. We molded the environment to fit our needs. We were no longer dealing just with newspapers and magazines that people bought and read every day. We had to create listener loyalty to programming we sponsored. We created soaps, comedy shows, variety shows and mysteries. We made listening to radio every Sunday night a family institution.
Those were days when the advertising industry grabbed technology change in its teeth and made it the greatest selling tool ever conceived.
Then along came television, and everything changed again-back to pictures, the era of visual demonstration, a boom time for the advertising industry. With television, we could do more than describe the benefits of our products. We could show those benefits-we could make cakes rise, stains disappear, dirty floors become clean again.
And again, the advertising industry grabbed the technology in its teeth and turned it into a bonanza for advertisers. The first 40 years of television could be called the "Big Brand Era," a period in which advertising could create Tides and Tylenols, Pampers and Pepsis, almost overnight, by harnessing the dynamic power of mass audience reach, the drama of moving pictures and the repetitive force of immense audience loyalty to programming.
Now, we're going to have to grab technology in our teeth again and make it work for us. But it isn't going to be as simple as it was to adapt to radio or TV, where everything favored the advertiser. Now, we've got competition, not just among traditional, ad-supported media but from unadvertised programming as well-entertainment and information that will represent an entirely separate source of revenue for media suppliers and programmers alike.
This is a real threat. These new media suppliers will give consumers what they want and potentially at a price they're willing to pay. If user fees replace advertising revenue, we're in serious trouble.
Turning change into opportunity
But I don't think that's going to happen. If this industry does what it's done before, you will turn this threat into an enormous opportunity.
Just think of some of the opportunities we've not had before:
We can use interactive technology to engage consumers in our commercials.
We can provide direct consumer response. If a consumer wants to know which Cover Girl nail polish matches the lipstick she saw in our commercial, we can tell her on the spot.
We can target not just demographic segments but individual households. If a family has a newborn baby, we can make sure they get a Pampers commercial.
We can use games, infomercials, video shopping malls. We'll have a whole bag of tools to engage and inform consumers, and if we do that right, we can keep people in their seats when the commercials come on.
History says that the advertising industry adapts brilliantly to new technology. But we can't sit there. We have to act. So what should our game plan be?
An industry game plan
First of all, we've got to get together as an industry to better define the video market of the future, and to understand how consumer viewing habits will change as the result of these new technologies. Our objective should be to define the new opportunities to make advertising more effective, more exciting and more persuasive-and that learning should then be shared throughout the advertising industry. This needs to be a collaborative industry effort because we are all in the same boat with our anchors down.
We asked Sumner Redstone, "What do you think about the state of the ad industry's involvement in planning its future?"
Sumner Redstone: I've been surprised actually-considering the enormous changes that are in the making right now and will take place over the next several years-that the advertising agents and indeed the advertisers have not sought to play a different and bigger role in what's going to take place in the multimedia future.
You know, we're probably at the beginning of the most exciting age in entertainment throughout the world, and if I had any role in that, I'd be seeking to escalate it. And believe me, we just did-at a cost of about $10 billion.
We also asked John Malone whether he believes it could make a difference if the ad agencies get more pro-active in this process of change.
John Malone: Every advertiser has entirely different goals and audiences, and these different services and different technologies will impact each advertiser differently. And an understanding of that-to help shape it as it evolves-I think should be very useful to the advertising community.
What else do we need to do? We've got to borrow a page from our own history and start getting control of the new environment. The whole idea of this new technology is that it makes it easier to divert revenue away from advertising into fees. There's nothing wrong with that. It gives the consumer more choice, and it forces us to be more creative.
Remember, consumers are on our side. They would rather have their home entertainment free.
So we've got to get involved in programming to make certain that advertisers have access to the mass audience and to the best properties.
In fact, every industry leader we talked to agreed that advertisers should get back into program ownership. Here's how Barry Diller put it.
Barry Diller: I think the advertisers are going to have to godfather programs as they once did in the past. I think they will take proprietary interest in programs, be responsible, promote them through. I think that's a healthy thing.
And we've got to form active working alliances with the new providers.
As John Malone explained, many of the new-media suppliers don't fully understand the value we can bring.
John Malone: I think perhaps the guys who are coming at this from the technological perspective are not thinking very much about how this does impact the advertising community and how the advertising community can be a strong ally in developing some of these new services.
We need to make sure they understand what we can bring to the table. Maybe our involvement means that a pay-per-view movie can be pulled down for half the price-or even free-if it includes commercials.
Or maybe it means that the $10 monthly fee for a game channel can be reduced to $2 or $3 if we can integrate advertising.
We're limited only by our creativity here-and our ability to prove that it's in everyone's interest to involve advertising in these new media.
The third thing we need to do is to put together a legislative and regulatory game plan. No. 1 priority: protect universal access to advertising-supported media. Second priority: ensure continued competition among media suppliers. It's not in the public interest if communities end up with only one wire coming into the home. Tom Murphy underscores why.
Tom Murphy: We want to be sure that we don't end up with just one monopoly having control of the signal into the home and consequently being in the position where they could demand a high price from the media or from the public so they can get the programming into the home.
We ought to bring together all related trade associations-the NAB, the Motion Picture Association [of America], the ANA and the Four A's-to accomplish our objective. And we need to do this as soon as possible because other parties are already at the table.
For example, an advisory council on the Information Infrastructure has been formed to work with Commerce Secretary Ron Brown. There's not a single representative from the Four A's or the ANA on that panel.
This is an area where we simply have to be more pro-active. That's the only way we can ensure universal access and continued media competition.
A call to action
We've got a lot of work to do, and we need to get going. So I'm calling on the Four A's and the ANA to join forces and lead our industry to action. I've already talked with Roy Bostock, and with Dick Garvey at the ANA, and they've agreed to take on this responsibility.
The first step is for the staffs to do some critical homework: We need to study the various consumer tests, like Time Warner's test in Orlando, to learn what we can about consumer interest and behavior; we need to develop models to predict the impact of time-shifting and navigational services on the reach and frequency of advertising; we need to develop a detailed analysis of how these technologies could affect our overall access to television audiences.
Then, we need to bring together the senior members of the industry into a leadership summit-no more than six months from now. We need to get aligned on what we need to do as an industry.
Jerry Levin of Time Warner is an advertiser, a program provider and a media supplier, but he has no trouble seeing this as an opportunity first and foremost for the advertising business.
Jerry Levin: If I were younger and entering the business today, I couldn't think of a more exciting time rather than something to be fearful of-a more exciting, engaging opportunity for the creative things that advertisers and agencies do.
We may not get another opportunity like this in our lifetime. Let's grab all this new technology in our teeth once again and turn it into a bonanza for advertising.