The 4A's Media Conference Q&A: Group M's Irwin Gotlieb

WPP's Global CEO on How to Adapt to the Changing Media Market

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NEW YORK (AdAge.com) -- Irwin Gotlieb, global CEO of WPP Group's Group M, is the go-to guy when media executives want clear answers to the particularly thorny and perplexing problems facing the modern media-buying agency. Here he talks with Advertising Age Executive Editor Jonah Bloom about how emerging media is changing the way consumers use media, and how that affects how media agencies need to start thinking about changing their buying strategies.
Irwin Gotlieb

MEDIAWORKS: Two years ago at the 4A's Media Conference you said that people who are afraid of change should get out of the business and that those who like opportunity should "buckle up." What did you mean and how much do you really think things have changed in the past two years?

IRWIN GOTLIEB: Things are starting to change. We have experienced the inflection point. It's not something that's ahead of us anymore, it's behind us.

MW: What was that inflection point?

GOTLIEB: There have been several of them, at the very least. On the one hand, the dynamics of the TV markets have changed. The TV market in total is healthy, so this isn't about negotiating in the press. It's that the degree to which money is moving from network into cable has exceeded the rate at which the total pie is growing and on the cable side, there is so much fragmentation and proliferation that the size of each slice of the pie that everybody is getting leaves everyone hungry. So, that's an inflection point. Another inflection point might be movement and technology. We now have well over 40 million digital set tops out there. Estimates on DVR penetration are hard to come by, but depending on who you talk to, estimates are anywhere from 7 [million] to 9 and change million. Newest generation of TiVos have a Wi-Fi thing plugged into their USB port and a broadband back-channel. Google has surfaced in the last two years from what two years ago was a well-perceived search engine to the media enterprise with the highest market cap in the world. We are well into Internet 2.0. Internet 1.0 was the one that busted in 2000; it crashed and burned. Internet 2.0 isn't so much about the Web but more about the pipe enabling all sorts of other stuff.

MW: How do all of those technologies affect the market?

GOTLIEB: There are contradictory trends out there and there always have been. I'm going to give you a couple of really silly ones and then I'll give you one that's really relevant: 40% of people use their mobile phone when they are sitting in their living room and have access to a wired phone. Now why is that? The last time you needed a URL, did you write it down on a piece of paper? Now why do people do that? I mean we all have Blackberries and Treos and laptops and stuff but we scribble it down on a piece of paper. There's that kind of stuff related to technology. The relevant one here is that we're looking at fragmentation and proliferation, and ABC launches "Desperate Housewives," "Lost," "Grey's Anatomy," which are the most successful shows in several years, in terms of audience size, demography and everything else.

MW: To say nothing of Fox's "American Idol."

GOTLIEB: To say nothing of "Idol," exactly. With all this proliferation, total TV viewing is not in fact going down in terms of hours of consumption. There is clearly contrariness out there. Having said that, I guess clearly from the standpoint of content creation and amortization of content costs, you need to achieve critical-mass audience levels. We have a population, particularly in the U.S., but it's rapidly becoming true of the population in the world, where our standards have become very, very advanced. You watch something that was produced 30 years ago today and it feels slow and you can see the mistakes. You know what I mean? People just have a higher standard today. They have been exposed to more, they are critical consumers and they can tell the difference. So you can't just produce stuff for less money and hope to attract the audience.

MW: But even if you spend the money and get it right, people are still going to avoid the commercials, right?

GOTLIEB: Our own view is that people don't avoid commercials. Just look at a woman's service book, where the commercials, the ads, are perhaps more important than the editorial -- and don't say "what editorial?" -- people avoid commercials that are irrelevant to them. They avoid bad commercials. But we're moving toward technology that will enable us to provide the individual home with messaging that is more targeted and more relevant and therefore less likely to be avoided. This isn't going to make our jobs easier, but that's why we get paid the big bucks.

MW: But if it's about a pipe delivering individually targeted messages, do we need the media at all?

GOTLIEB: We used to think that the Internet was a medium. It's not, it's a pipe. The media part is the compelling content that attracts an audience and that could be TV that is either digitally or IP delivered or it could be print delivered to a reading tablet. There are all sorts of scenarios and if you fast forward far enough, it doesn't much matter what you're watching, I'm going to serve you something that I want you to see.

MW: What you're saying is that for your media planners, it's not necessarily going to be about what the content is so much as: Can I direct a one-to-one message down that pipe that's appropriate to the audience that's gathered at the end of that pipe?

GOTLIEB: Ultimately, yes.

MW: So what will the media owner look like in that world?

GOTLIEB: I don't know what a media owner is going to look like. I don't know that a TV station will be particularly important, vis-a-vis I don't think it will matter eventually whether it is a cable channel or a TV network because everybody's going to get it either through a satellite or a pipe. We don't have that much terrestrial distribution today anyway. It's not all that long ago that people used to talk about channel position as something highly relevant because we all had circular dials. Channel 5 in New York enjoyed a real advantage because it was between 4 and 7. That's stuff that goes away over time. If you talk to the average 18-year-old today they won't even remember there was such a thing as a circular dial.

MW: But as an aggregator of people in front of screens, the media industry has a brighter future than some suppose?

GOTLIEB: The one thing that the media owners do extraordinarily well is they select content, cause it to be manufactured and ultimately attract an audience that they monetize through advertising. I keep telling people, if you can't get people to show up at the party, there's nobody there to listen to your message. If media isn't being consumed, there's no one to reach. I will be able to reach people with greater and greater precision, but if there's nothing for them to watch or consume...

MW: But even with the audience there, how many of them are zapping the ads?

GOTLIEB: On the one hand, there'll be more avoidance. On the other hand, we have the opportunity to make commercials that aren't avoided, short form and long form, and we're already seeing the ability to do some low-level transactions. Those things will serve to transform the function we perform.

MW: In what way? You mean those technologies will turn you into the people who actually make a sale for the marketer?

GOTLIEB: In its simplest terms, 10 years ago, 15 years ago, we were in the business of buying GRPs by the pound and if we were sophisticated we modeled those GRPs into reach and frequency and if we were really sophisticated we modeled those reach and frequencies into an awareness measure and that's as far as we got. As we go forward, we will have much harder metrics, and our role will be quite different. It won't just be about awareness generation, it will be about sales creation. GRPs were a surrogate for sales potential. Reach and frequency was a better surrogate. Awareness was a modeled result of a modeled result.

MW: And people extrapolated that to the likelihood of making a sale, but didn't know how well the two were linked?

GOTLIEB: We actually got to be pretty good at linking the two but again we're using a statistical sample to begin with, slicing and dicing it very, very finely, we're modeling it several times over and it worked for its day. But, the potential that media has to contribute results to a client going forward are going to be quite dramatic. The thing that really is fascinating and exciting for people on our side of the business is that if you look over the last 25 years, the share of each marketing dollar that goes to paid media has been falling off, with more and more money going to trade support and other communications channels.

MW: Because those things offered a more direct link to sales...

GOTLIEB: Right, and we will see a resurgence in the paid-media ratio because it will work harder, and it will be more accountable.

MW: Will that work in print?

GOTLIEB: Yes, because print won't be distributed on paper in the next few years. If you look at the technology on the reading tablet in the three-to-five-year product-development window, it's amazing stuff.

MW: Most newspaper guys don't seem to believe that they'll ever leave behind the printed form.

GOTLIEB: I get my Ad Age now on the Zinio reader. It does two things for me: First is that my paper copy always came late on Monday, so now I no longer have to scream on the phone every Monday morning that Ad Age hadn't arrived. But that aside, shortly after Ad Age started coming on Zinio, I got an e-mail from Popular Photography saying I could also get Popular Photography on Zinio. Popular Photography comes to my house every month. I don't travel with it because I don't have room for more paper. My briefcase has finite capacity. So I may pick up a magazine at a newsstand before I get on the plane and then I'll leave it on the plane but it's never going to live in my briefcase. I have been reading Popular Photography much more religiously and much more thoroughly since it became available in Zinio. It loads automatically, it's there, I get a little blurb and the next time I'm in the back seat of a car, or on a plane, I read it. When newspapers figure that part of it out, they'll sell their subscriptions that way. They'll put their money into editorial and they'll save the two-thirds of their revenue that goes on paper, newsprint and physical distribution, and they'll have a much healthier business.

MW: Will a digital format like that be sufficiently portable?

GOTLIEB: If you look at the technology on the reading tablet in the three-to-five-year product-development window, it's amazing stuff. Sony introduced some stuff at CES this year. I was in Japan last summer and I saw some prototype work -- brilliant! The screens are so sharp. They fold so that the screen size is quite large. When they are open, you don't see the middle seam. In something that's only a little larger than a Blackberry, and substantially thinner than your Blackberry, you have a decent-size reading tablet. And for an old guy like me, if I could change my font size or zoom in that would really be helpful, too.

MW: You talk to designers and they've been saying that for a few years. That small part of the application is huge. Do you think that the print guys are kind of missing the point when they keep defending the values of print rather than the value of the content?

GOTLIEB: It is analogous to the railroad barons a hundred years ago defining themselves as being in the railroad business not that transportation business. They're totally missing the point.

MW: What about the apparently contrarian movements we're seeing at the moment in media? We have the CW network coming together and Viacom splitting apart. Carl Icahn was arguing for splitting Time Warner apart. Do you see them all being split into disparate parts then assembled again later? Is this just cyclical?

GOTLIEB: No, I see a lot of logic and rationale for consolidation. The only rationale I've seen for deconsolidation is short-term improvement in shareholder value or solving a problem of internal dysfunctionality. If you have a company where the parts aren't playing nicely with each other, then one can easily justify breaking it apart. It's not a strategic decision; it's just a practical decision. If you have a company where you think you can fetch greater shareholder value by breaking it up, one could do that and realize a quick gain. But don't mistake either of those with strategy.

MW: And the logic for consolidation?

GOTLIEB: There is substantial logic for consolidation on an ongoing basis. If you look at the dynamics of our marketplace, structures in the media business, there is a natural synergy in combining infrastructure i.e. satellite or cable ownership because if you produce content and you don't own any stations or network, there's a gatekeeper issue. If you have cable networks or stations and you don't have infrastructure, there is an actual delivery issue and ultimately you could become a distributor who is held hostage by a different gatekeeper. If you look at the way the consumer buys product, there could be a rationale for bundling with telephony, particularly if you're dealing with any kind of shared infrastructure and VOIP and then you look at globalization potential. I mean look at how telephony is globalizing. Look at the assets of a Vodaphone or a T-Mobile, which is really Deutsche Telekom, and on and on.

MW: You think we could even see the telephony players in the media-ownership space?

GOTLIEB: We're already seeing it and it's just the tip of the iceberg.

MW: Coming back to your own organization, what's the role for media companies in all of this?

GOTLIEB: Well, look, all of us -- all of the major media shops -- are heavily into marketing and business sciences, all of us are heavily into consumer insights. All of us are into communication strategy with neutrality across communications choices. All of us have always been good at media strategy, media tactics and media implementation. The role of media, its capabilities, will become enhanced over time. We believe that the share of marketing dollars that go to paid media will increase. And, that the effectiveness of media will improve. Right? So you take all those factors together. This is a good time to be in our business.

MW: Have you got a compensation model at the moment that rewards you for those things that you're talking about? Because it seems that you've tended to be paid based on a model where it was effectively about how much marketing budget was being spent.

GOTLIEB: Our remuneration is still tied to a legacy of buying GRPs by the pound.

MW: Which is going to be a problem if you're no longer buying as many pounds of GRPs?

GOTLIEB: That is correct. All of us in this business have to, on our side of the business, have to work to come up with something that is mutually beneficial, that is to ourselves and our clients. Where we are paid and rewarded for performance and I am absolutely confident that as an industry we can make that change. It will be much more based on performance.

MW: On transactions, basically.

GOTLIEB: Transactions, sales generation, much harder metrics than what we have now.

MW: Are you already starting to move into that? Are you starting to see more?

GOTLIEB: We have some relationships that are morphing in that direction. I'm not promoting our own business although I hasten to add that we are very, very good at the practice. But our competitors are getting better at this simultaneously, which is good. As an industry there will be benefit to the participants as well as to the client that result from this. It's another reason to buckle up.

MW: Do you see the media agencies effectively becoming the arbiters of all marketing spending?

GOTLIEB: We are all heavily into communications-strategy development, communication-mix modeling, communication-mix allocations and all of that stuff. But, most of us aren't going to be delivering the PR implementation, for example, or the trade-support implementation. We may be delivering a broader array than just paid media. Most of us are already in the branded-content game. Many of us are in sports- and entertainment-marketing businesses. So there are extensions. We are broadening the palette with which we operate but it is unlikely that any of us will be able to develop core competence in every one of the communication channel options.

MW: But you do have sister agencies that can conduct that implementation, so you can still be at the center of planning how a marketer spends its budget?

GOTLIEB: Certainly we have the quantitative and strategic competence to do that and in conjunction with the other partners and the marketing operations we need to come to the table and solve the problem for the benefit of our clients.

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