Saturday, February 6, 2016

Will Big Data Kill Advertising Agencies?

On December 1, 2015, I put up a post on this blog entitled “THE BIG DEAL ABOUT BIG DATA.” It generated a significant amount of response. Criticism tended to come from principals at small and medium sized ad agencies who, to a person, tended to downplay its influence in the coming years. As you might expect, I politely differ with that conclusion.

The appeal of Big Data to any marketer is quite simple. Using it, one now has more information about customers and prospects than ever before. How can you argue with that? Well, some critics say that there is too much reliance on data. Big Data users increasingly, in their view, look at short term sales and ignore the long term impact of what is happening with the brand. I have some sympathy with the later point as most people still do not understand that conventional advertising takes time to work as you need several impressions for a campaign to “register” with the target audience.

The other point that both proponents and critics wisely bring up is that the mountains of data currently available to many companies is only as useful as the skill of the people analyzing it. You need talented analysts who can separate the wheat from the chaff. Sadly, far too many agency types continue to say that a creative breakthrough remains the decisive key to success even in our brave new world of Big Data.

In writing and speaking with a number of people both agency and corporate, a few key issues popped up. Here are a few of the best verbatim comments:


Former mid-sized agency executive who is now a corporate marketing chief--“As a virtual agency brat who grew up in the business, I was skeptical of Big Data. My boss, a hard nosed guy with a maniacal focus loves ROI metrics because they make marketing expenditures accountable. His sole focus seems to be to drive cost of acquisition lower. We are getting better at it. So much so, that the old tightwad hired a brilliant young woman and later a young guy to work our data harder. Their modeling may seem crude relative to the retail giants but our performance is getting sharper each quarter and our cost of acquisition keeps dropping. Our agency keeps wanting to look under the hood at what we are doing but he keeps them at arm's length and cuts back their budget. Sales are up and so are our internal bonuses. The agency is getting testy. The only reason we keep them is that we are not a $100 million account. The CEO feels we would get lousy service at a giant. He is intrigued at what the holding companies may know from dealing with the world’s best companies but wants to matter with whomever he uses.”

Corporate Marketing Executive--“The smaller agencies just do not get it. More and more of us are moving our data analyses in-house. We are seeing trends in our business and sometimes even little things that make up the trends. Agencies are way too superficial and charge way too much for the little that they deliver. We will cut back their involvement, especially with the share of the marketing budget, for the foreseeable future.”

Soon to Retire agency owner--“I do not know what to do. We simply cannot compete. I cannot afford a system that can handle the needs of some prospects nor can I pay the people we would need to do the job correctly. The future of agencies is going to revolve around agility. How can we respond quickly if we cannot afford to tool up or staff up for the job? My younger partners are still dreaming of winning Clios. I am so glad that I married a wealthy woman.”


Consulting Firm Executive On Big Data--“When I joined these guys a while back, they told me that they could turn data into profits for clients and also provide brand driven insights. I said to myself Brand Driven Insights! What malarkey. Well, they are doing it and I am learning so much. The advertising agency model is broken. Other than the holding companies, most need to start from scratch. Media buying services may have to change the most.”

Is Big Data going to kill creative? No, but creativity must be wed with Big Data to maximize results.  And the in-house threat mentioned above should send a chill up the spine of every mid-sized or small ad agency CEO.

If you would like to contact Don Cole directly, you may reach him at doncolemedia@gmail.com

Thursday, January 28, 2016

Netflix Concerns

In recent years, Netflix has been a star of the media world and of the stock exchange. The company is widely credited with putting Blockbuster under (along with Blockbuster mistakes), is definitely the player that made binge viewing mainstream, and is also said to be harming cable television a great deal. Recently, when discussing Netflix with a few friends, we began to see that there may be some problems on the horizon.

Netflix is certainly a phenomenon. Speaking personally, I confess to loving the service. As an old film buff, I am able to find some hard to get titles and often stream them without waiting for a DVD to be delivered in the mail. Or, I can re-watch a film that I saw 30+ years ago. With more people becoming “cord-cutters” each month, it appears that Netflix along with Hulu or Hulu+ is an important component in video delivery for people who no longer have cable or satellite TV.

Why the concerns? It is really pretty simple. Over the years, I have observed that Netflix had an almost bullet proof business model. The viewer could watch thousands of films or episodes of TV shows on demand. If a subscriber were busy or traveling, Netflix still received their subscription fee regardless of usage.

A few years ago, Netfllix began to produce their own original programming. "Lilyhammer" was the first effort followed shortly thereafter with the wildly successful and award winning “House of Cards” and then “Orange is the New Black”. Some critics praised it as an example of vertical integration. They produced the show, put in on their system, and the service model had all users being payers. Sounds great--not unlike an Exxon/Mobil or a Royal Dutch Petroleum which finds the oil, refines it, ships it, and sells it to you at the pump. They control the whole process.

What can be wrong with that? My friends and I have a theory. The movie picture and TV businesses are rough.  One old colleague said, “It is a glamorous but really crappy business. Notice how many executive producers films have now? Some are Wall Street or Silicon Valley types who have made a bundle and have “gone Hollywood.” They may lose a few million, love being on the set, going to parties and THINKING that they matter.” Most films do not make money and over 70% of new TV series historically die in the first season. The original business model was elegant in its simplicity. Netflix paid a rights fee for their programming and consumers paid a monthly subscription fee to Netflix. Now, they are a TV network and motion picture studio. The company has announced plans for $5 billion in 2016 to be used for production of original programming. What if most of the new entries bomb? Can they raise subscription rates several dollars overnight to made up for artistic failures?

Netflix has announced a good bit of international expansion. On the drawing board is entry in to South Korea, Hong Kong, Taiwan and Singapore. Great. They may need it as growth in the United States appears stalled the last few quarters.

Look, we media graybeards love Netflix as a product and still see it as a major disruptor to the advertiser supported video world. Yet, their model has changed rapidly. If the expensively produced new series do not bring in substantial incremental subscribers or if a possible global recession slows growth overseas, their status as a bulletproof player in the media world could end very quickly.

If you would like to contact Don Cole directly, you may reach him at doncolemedia@gmail.com

Thursday, January 21, 2016

Thinking Beyond Stage One

This morning I finished reading Thomas Sowell’s APPLIED ECONOMICS (Basic Books, 2009). Like all of Sowell’s books, he takes a subject that is often too dense for most readers, Economics, and make it clear and understandable.

The subtitle to the book was “Thinking Beyond Stage One.” Sowell talks about how so many ideas for economic policy are superficially appealing but often cause long term problems because most people never ask the question-- “And then what will happen?” after the policy is implemented. He gives marvelous examples of how sincere and well intentioned leaders may think hard about POLITICAL consequences but have not thought out the long term economic or social results of their actions. It is a fine read and makes you check your initial premise on an issue at every turn.


This idea of “Thinking Beyond Stage One” strikes me as relevant in the world of media strategy these days. A few young planners have contacted me in frustration about the superficial nature of what is going on within their departments or entire shops. Here are two of the best examples:

The first person was a young lady who asked me a thoughtful series of questions about TV attentiveness by daypart. I told her that 30+ years ago many of us would put probability of exposures weights on each daypart when putting together the optimum mix. For example, we might set primetime at a 100 index, late night at 75 (many asleep during programming) or early morning at 65 as viewers were not viewing but making breakfast or school lunches for kids or maybe shaving or showering. Sometimes in the ’80’s, an anchor on The CBS Morning News might have said, “If you are away from the viewing area, you might want to see this,” which was a clear admission and recognition that attentiveness had to be low from 7-8 am. My young friend was interested but her boss said she was complicating things way too much. “Just put together an efficient and affordable daypart mix and screw the research that the old man sent you,” is a sanitized version of what she was told. Being a bit of a terrier, she came back to me with the following: “Don, if you used those weights successfully 30 years ago, what would you use now? Most of us have another device going when we watch live, about half of us have a DVR, commercial free Netflix share is growing and You Tube takes up more time with many of us, so the daypart registration weights that you talked about using before I was born (I laughed out loud at that) have to be much, much lower today.” I had to agree but have not seen any updated research that truly reflects 2016 attentiveness habits to TV. We used to use probability of exposure weights for magazine ads as well depending on size and position in the book. How much of that is still done? So, it seems that even though the landscape has changed dramatically many people are not Thinking Beyond Stage One.

A young man hit me with a similar lament regarding media mix. This is an age old question but superficiality still seems to reign. How much of each medium is enough? He finds that he is using more on line and mobile and Facebook as he can track results better than with many conventional media options. “I know that 100% digital is a mistake for all my clients right now but I now lay in the digital (measurable) vehicles first. Once I have a base there, I move to TV, Radio and Print (if I have the money). If I try and discuss media mix options with my boss, he gives me 30 seconds and only asks if I have cleared the mix with the creative team.”

Young staffers need encouragement. I realize that part of management’s role is to use time efficiently and not get mired in analysis paralysis. Yet if you are a supervisor in a media group or an agency principal, try and dig a bit deeper and think about the long term consequences of your actions. Are you Thinking Beyond Stage One?

If you would like to contact Don Cole directly, you may reach him at doncolemedia@gmail.com

Thursday, January 14, 2016

The Ever Changing Top 1%

These days the press and politicians talk incessantly about the top 1% in American society. Each day, it seems, as Senator Bernie Sanders delivers his passionate and fiery stump speech, he states “and the top 1% of Americans earn 22% of the national income.” The purpose of this post is not to trash Senator Sanders. It is, rather, to dig a bit deeper in to the top 1%. What I have found will surprise many of you and perhaps shock some as well.

First, let us define terms. Numbers float around and change constantly but as I write, IRS data puts the top 1% of household income at about $394,000. It may be higher the next time the report is released or adjustments are made by an economic forecasting team. For this post, let us simply accept that.

Now, when you read comments about the top 1%, they tend to discuss these fortunate individuals as being a PERMANENT force as locked in as the 19th century British landed gentry (the Downton Abbey crowd, for example). In his thought provoking 2014 book, “Capital in the Twenty-First Century”, French economist Thomas Piketty essentially says the 1% are a world apart and “stand out in society and exert a significant influence on both the social landscape and the political and economic order.” Were he describing the top 1% in WEALTH, I would agree completely. More about that later.

The main issue that startled me about looking at the top 1% in income was how much turnover was in that group. Only half of the people with these nosebleed incomes in a given year are still there a decade later. And, it is even more pronounced among the super earners who have the 400 highest incomes in the country. Only a quarter of the top 400 last for 10 straight years. Part of that is because incomes at the high end are largely from investments which are far more volatile than virtually anyone’s salary base.

Here are some startling (to me) factoids from the Panel on Income Dynamics which is derived from rock hard IRS data:

--Some 45% of Americans will take advantage of food stamps or Medicaid before age 60.
--70% of American workers will be in the top 20% of earnings for at least one year prior to age 60.
--53% of Americans will be in the to 10% for at least a year
--11.1% will be in the top 1% for at least a year
--Only .6% of the population will spend 10 consecutive years in the top 1% of earners

Are these numbers real? I assure you they are. How is it possible? We live in a country with a relatively free market. So, we have what economists may describe as a fluid economic order. People have good years and bad.

Before you say that you will never reach the top 1% in a single year, consider this.  If you have owed a house for 10 + years in a suburb of New York, Boston, Washington, San Francisco or just about anywhere in Hawaii and sell the place this year, the odds are overwhelming that for, this year, you will be in the top 1%. Do you have an aging parent or aunt or uncle? If they pass away, and leave you a reasonable inheritance you will join the lucky top 1% for 2016 when the inheritance is added to your household income. Next year, you are back in the pack. Ever get lucky with a tech stock that explodes upward like a Roman candle? Same thing. You have a big year.

So each year, many thousands come in and out of the top 1%. A few years back, SPORTS ILLUSTRATED published a stunning and sad piece about how 78% of NFL players declared bankruptcy within two years of retirement. Impossible? Remember, most players do not make it past four years and are ineligible for an NFL pension. Their income plummets and they fall from the 1% abruptly. Some may wind up on food stamps or some kind of assistance.

How about the top 400? Why the turnover? Well, some 40 people made over $1billion last year. Many were hedge fund managers. This year, some may lose money so they will have a negative income despite significant passive income (dividends and interest). Their net worth may be just great and they may still be billionaires in net worth. Yet they have fallen from the top .01% to the bottom with zero net income.

So the real issue for the reformers, politicians and even some Nobel laureates who should know better is to look at the concentration of wealth and not at income stats which I hope to have shown are very erratic at the top end. If a confiscatory income tax were put in to effect against the top 1% in the United States it would hurt many who were striving for accumulation of wealth (many of you younger readers). Those who already had significant wealth via an enormous asset base might find higher taxes an annoyance but it would not hamper their lifestyle or influence much at all.

If you would like to contact Don Cole directly, you may reach him at doncolemedia@gmail.com




Tuesday, December 29, 2015

A Sort of 2016 Media Forecast

In recent weeks, I have received a number of requests from readers and friends to put together a 2016 Media Forecast. I was very hesitant as I do not see the next year with much clarity. The economic world, among others, is in great flux. After years of explosive growth, emerging markets are taking a rest. The low cost of oil is affecting Russia and Brazil significantly and many do not see the supply overload righting itself until 2017. The muscular US dollar will likely only rise as interest rates inch up in 2016, and, as a result, American exports will suffer. Friends who are uber-bullish about the stock market seem to ignore that part of the relative strength has been companies simply buying back their shares rather than investing in innovation, personnel, or capital equipment. An old friend told me to go ahead with a forecast saying, “Don, you have been on this forecasting beat for 40 years; you must know something.” He is correct. What I know is what I do not know. And, I have never been more uncomfortable as I look ahead to 2016.

This year, I decided an interesting tact would be to avoid going to my “old reliables.” These are people whom I have known forever and whose judgement I respect. Instead, I went to an ENTIRE new crew of contributors for a forecast. Candidly, I have been disappointed. There were too many remarks that were self serving. I received comments along the lines of “my medium is in tough shape. But my station (magazine, newspaper) will prance through 2016 smiling.” Others said that, “in 2016, we may have a brokered GOP convention. Think how much ad spend we will get in my state after decades of virtually nothing.” Finally, “you worry too much. Things are going to get better each quarter.”

Let me share a few things that I have often used as benchmarks for economic activity. They may not get much press but they have been my ultimate checklist over the years.

1) The Labor Participation Rate--the talking heads on TV talk about the relatively low unemployment rate. Yes, employment has slowly improved over the last few years. At the same time, my acid test, the Labor Participation Rate, is terrible. One group says that it is the lowest since 1977 while another group says that it is at the lowest level ever. Why split hairs? It stinks. One is only considered to be unemployed if he or she is actively seeking employment. If you are discouraged and stop searching for gainful employment, you are no longer considered unemployed.
2) Caterpillar (CAT)--the fortunes of the Illinois based company with the distinctive yellow backhoes and other earth moving equipment is a simplistic touchstone for me of global economic health. If CAT is not getting new orders, then ground is not being broken both in the U.S. and around the world. Right now, Caterpillar appears to be struggling. That is not a good sign for economic activity.
3) Trucking--most goods in the U.S. still move by truck. If the action slows as it has, that is not a good barometer of a vibrant economy picture.

Oversimplified? You bet! Scary. You bet?

Okay, here are a few fearless forecasts for 2016:

1) Digital will continue to grow at a double digit pace.
2) Social media will likely have a majority of its action in mobile vs. laptop. Not by much but a clear winner.
3) Mobile will continue to invade our lives but growth as an ad medium may be short of expectations.
4) Conventional media will continue to weaken due to what I have dubbed “internal deterioration.” Yes, TV could be up a few percentage points overall and radio in many markets will hold steady but their share of the ad pie will get smaller despite headlines touting increased spending for elections and Olympics. Newspaper and magazines will continue to decline.
5) Outside the U.S., the rate of growth will slow a bit as China softens (still growing but at slower pace), and Russia and Brazil and other natural resource dependent countries struggle. Europe will move forward a bit in most countries.

A sleeper. You have all heard of cord-cutting--some people give up on cable or satellite and make do with Netflix, Hulu, You Tube and other options. This year, you may hear about cord-nevers. These are young people who have never had a mainstream TV service and see no reason to get one. They tend to be well educated and increasingly affluent. How will you reach them? Hint--Big Data will help.


Toothless comments? Perhaps. Yet 2016 strikes me as being a year of murkiness and contradictions.

Here is wishing all of us a happy, healthy and prosperous 2016 despite the headwinds that I see ahead.

If you would like to contact Don Cole directly, you may reach him at doncolemedia@gmail.com or leave a comment on the blog



Monday, December 21, 2015

The Endowment Effect in Television Advertising

Those of you who have studied Consumer Behavior, Psychology, or Behavioral Economics are undoubtedly familiar with what is known as “The Endowment Effect.”  Quite simply, it occurs when a person or persons ascribe more value to things merely because they own them.

A few examples might include when a couple decides to sell their home. Their realtor may give them an estimate based on similar homes in the same zip code but the owners insist that their home is special and deserves to be premium priced. Used cars are another great example. A seller explains that his/her old car is a “cream puff” that was beautifully maintained and has mysteriously low mileage. Selling something on e-bay? The odds are good that the owner believes her collectible is going to fetch a top price after a lively bidding war.

Over the last few years, I have come to believe that, in television advertising, the endowment effect, is beginning to wane. Historically, literally going back 60 years, media planners and negotiators always took the attitude that one “pays more to get more.” In other words, you paid a higher cost per rating point for a spot with a 15 rating than one with a three rating. The appeal was that the 15 rating reached a larger unduplicated audience so you were willing to pay a premium, often significant, to get that substantial audience all at once. The Super Bowl remains an outstanding example of this principle as it consistently delivers 44-45% of US TV households each year, and importantly, commercial attentiveness is higher for The Super Bowl than any other TV event.

The problem is that today there are few things out there that even deliver a fourth of The Super Bowl’s audience. And, commercial avoidance via DVR’s, Netflix, Hulu, or simply using the remote, is at an all time high and gaining ground. So, even if one buy’s one of today’s top rated primetime show (assume an eight rating), many will tape the show and edit out commercials as they watch it. The advertiser has paid a premium for the large audience but what are they really getting in terms of attentiveness?

Separately, there is the issue of sports programming. Sports has always been premium priced on a cost per potential eye ball basis. While it varies by telecast and quality of the audience, let us use a 20% premium as a benchmark for advertising in a sports vehicle.  Today, some people tape football games and play them back. The average game has 12-13 minutes of action. Do people dutifully watch commercials or listen to sometimes inane commentary when playing a game back? It would appear to be highly unlikely. On fall Saturdays when college games are broadcast, it is not unusual to have seven games playing simultaneously. Hardcore pigskin fans can jump from game to game during commercial breaks lessening the impact of advertising dollars placed in specific games.

Some have commented to me that my point is well made but it is all relative. In the 1980’s, General Hospital on ABC Daytime was a soap opera that delivered a 20 household rating and was often used by buyers as a primetime surrogate depending on the product advertised. Simultaneously, some late news (WPVI in Philadelphia, for example) also delivered killer numbers that could bring buys in nicely. Today, an eight is the new 20. I see their point but there does not seem to be a lowering of the premium over ordinary fare consistent with the precipitous drop in ratings.

Now, I fully understand that TV costs are determined by the law of supply and demand. So, if media negotiators continue to bid up the prices of a handful of selected shows with either strong numbers or attractive demographics, that is simply the way the market works. Yet, when will it end or slow down? We all know that TV does not work as well as it used to not so many years ago. Measurement of a host of digital options is getting better and better so a shift away from TV may start to pick up speed and soon.

Agency media people continue to give certain aspects of TV an endowment effect that remains on steroids despite crumbling measured delivery and attentiveness. Something has to give.

To Media Realism readers all over the world, may I wish you a very Merry Christmas.

If you would like to contact Don Cole directly, you may reach him at doncolemedia@gmail.com

Sunday, December 13, 2015

The Key to Success is Failure

For most of my adult life, I have read or heard people talk about positive thinking and how some people are just born winners. There is no question that positive thinking is a good thing but to me the greatest success often comes to people who have had some hard knocks, learned from it, and overcome the difficulty.

Like many New Englanders of my generation, my childhood hero was Red Sox great Ted Williams. Urban legend has it that in retirement, Ted one said that baseball “is the only field of endeavor where a man can succeed three times out of ten and be considered a good performer.” Ted was right about baseball. If a guy hits .300 consistently for 10-15 years, he is a virtual lock for the Baseball Hall of Fame at Cooperstown.

Actually, Ted was wrong that a .300 batting average would only make you a success in baseball. Ask any advertising agency executive about his or her new business batting average. Yes, many shops have hot streaks, but virtually no one bats .300 at new business over the long pull. If you are not talking about the three-four shops who make the cut for the creative or marketing shoot-out, then the average for everyone is much much lower than .300 as many do not make the cut at the RFP (Request for Proposal) stage.

How about the new rage in marketing--Targeting models employing Big Data?
Well, look at Groupon coupon redemptions. The number is something like six coupons out of 10,000 mailed out. Amazon does far better with their Zappos offers as they have a clear look at purchase history but still, despite the best targeting ever, the failure rate is staggering.

How about science? From the time I was able to read, I also was informed of the genius of Thomas Edison. Yet, Edison performed thousands and thousands of experiments before he had a breakthrough with electricity or movie cameras. He was quoted as saying that discovery was “1% inspiration and 99% perspiration.”

Know many investment millionaires? Most will tell you that most of their purchases lost money or were lackluster. A couple of 10 baggers (1,000% return) or one 100 bagger (10,000% return) put them on easy street.

How about those dealing with addiction? Most fail a few times before turning their lives around in re-hab. And, it is a verifiable fact that the majority of “overnight successes” in the entrepreneurial world may have struck gold on their third or fourth attempt.

Failure is so important in the business world. If you learn from your mistakes, you improve your chances significantly on your next effort. And, importantly, failure teaches you true humility which is the differentiating characteristic of many great leaders.

So, we all have failures and will continue to experience them. Analyze them and try and learn from them. Dust yourself off and get back in the game. Over the long pull, failure can be your friend.

If you would like to contact Don Cole directly, you may reach him at doncolemedia@gmail.com