Friday, December 12, 2014

Consumer Update

In the wildly exciting life that I live, I do my level best to keep track of demographic and consumer trends. Not quite two weeks ago, the Federal Reserve released new figures on consumer debt levels in the U.S. and I have decided to share them with you plus add a few comments.

Top line results were as follows:

Average Household Credit Card Debt--$15,608
Average Mortgage Debt--$154,847
Average Student Loan Debt--$32,397

Let us take a quick look at each category:

Credit Card Debt--Actually, if you include ALL households in the credit card debt universe, the average balance is about $7,200. Many, such as you and I, pay off their credit card balances each month. So, the $15.6k is for those who are carrying installment debt with credit cards. Some 47% use credit cards almost daily but have no balance and pay zero interest on them. Minimum payments, then, for those who have credit card debt, are over $300 per month.

There is a statistic that is even scarier than those above. When the Great Recession hit in 2008-2009, people saw that average credit card balances were declining. My knee jerk reaction was that scared citizens were cleaning up their personal balance sheets and paying down debt. Undoubtedly, many were. The real truth as we look at it several years later is that the decline in indebtedness was due more to defaults rather than restraints on spending.

Average Mortgage Debt--not a great deal to say here except that those who were underwater (mortgage balance higher than their home’s value) have often worked their way in to the black. The government agencies Fannie Mae and Freddie Mac announced this past week that they are now writing 3% downpayment mortgages again. This time, they say that documentation must be much tighter than in 2006-2008. A shift in policy such as this makes me nervous. Why not stick to the Canadian ironclad rule of 20% down or the mortgage will not be written?

Student Loan Debt--this is the fastest growing area of US debt. The average graduate starting out in the world has $32,400 in debt. Alarmingly, despite repeated media warnings, this total is up 9.6% from the prior year. And, approximately 32% of those who have student loans are late or have defaulted on them. Bankruptcy? Forget about it! If you declare bankruptcy congress has passed laws insuring that you must pay back the loans. Some will be 50 before they pay their loans off. I do not feel that it is the role of government to protect people from themselves yet given the age of people signing long term agreements more explanation and discussion is needed in my opinion.

Also, many of the loans are taken out by youngsters who take out loans to go to a community college. They borrow $16,000 and then fail out or drop out. Next stop is a minimum wage job at a 7-Eleven or fellow traveler. The debt will likely never be paid off and a 20 year old will have a financial millstone around his or her neck for life. Total student debt now stands at over $1.1 trillion.

So, where does this leave us? Some 70% of the US economy is (sadly) consumer driven.  Were everyone to pull in their horns all at once, the economy would be headed toward another Great Recession. There is a big buzz lately as the cost of a barrel of oil has dropped from $107 to around $60, as I write. The average American has approximately $100 per month extra to spend as long as oil stays low. Yet, if you look at Detroit sales in the last few months, SUV sales are up smartly. When oil inevitably goes up, they will be in a tighter spot than now. So, will people use this oil windfall to pay down some debt and re-liquify? Too good to be true. Also, historically, a big drop in the price of oil usually indicates a weakening economy. So, is the low cost at the pump merely a preclude of a weakening global economy?

If you would like to contact Don Cole directly, you may reach him at

Wednesday, November 26, 2014

Will Streaming Kill the Cable Bundle?

Several weeks ago, HBO announced that it would launch a “stand-alone, over the top HBO service in the United States” during calendar year, 2015. Essentially, you could watch HBO for five dollars a month streaming on to one of your devices without the expense of a cable subscription. The press had a field day with the announcement and I received dozens of e-mails about it and the possible implications for the cable industry. I thought that it was wise to wait a few weeks and think about the issue and also talk and e-mail a number of media analysts about it.

For years, in passing, a few dozen individuals have told me that the only reason that they subscribed to cable was HBO. I always would nod and smile but also observed that sometimes the programs that they discussed were on Showtime or in Mad Men’s case, AMC, not a premium channel. Additionally, they also mentioned some over the air series that they liked and sports would often play a part in the discussion.

So, if a free standing HBO is offered, will cable get hit with a million plus defections in 2015 solely do to the HBO gambit? I am a bit skeptical. Each month, many thousands of people “cut the cord” and abandon cable. They use some mix of Roku, Netflix, Hulu, Apple TV and even You Tube to fulfill their video needs. Some do it as they truly do not watch much TV and others do it out of economic necessity.

In the November 9, 2014, edition of the Sunday New York Times, there was an excellent article entitled “TV Shrinks to Fit.” The article illustrates how many members of the wired generation do not even own TV’s. They lead busy lives and still love TV. Yet, they watch it on a device. The group is very well educated, many earn very good money, but a television or cable subscription does not fit in to their lives. Interestingly, the majority tend to be women. Young men still have TV’s, often with a large screen, so they can watch sporting events.

So my theory, and I do not have a lot of allies in this regard, is that HBO will actually pick up substantial numbers of these internet savvy upscale young women who never had cable in the first place (see Media Realism, “Does Zero TV Signal The Winds of Change for US Television, May 16, 2013).

As many of you know, I also do some lecturing to college students. Many men expressed great enthusiasm about the rumor that ESPN was considering a stand-alone product delivering all of their platforms via a streaming alternative for approximately 30 dollars. “I would dump cable in a New York minute,” a young Brooklynite told me. When I suggested that the NFL would no longer be available to them, a few young men said they would stick with cable and as, one put it, “continue to get ripped off.” One enterprising fellow said he would cut the cord, go the ESPN streaming route and show up at buddies apartments on game day. “If I bring a six pack of good beer, they will welcome me,” the personable young fellow said.

Many said they would spring for the CBS five dollar streaming deal but backed out to a man when I told them that CBS Sunday and Thursday football was excluded.

So, the Cassandras are not thinking this issue through in my opinion. When could stand alone streaming alternatives really hurt cable? To me, it would hit if many channels aped the HBO offering successfully. If ESPN follows suit (for far more than $5) and is joined by other players, consumer behavior may truly shift. Viewers could cobble together their dream team of HBO, ESPN, NFL, Netflix, Hulu and God knows what and save substantial money over their current cable package. As someone told me yesterday, “I pay for 250+ channels and I only watch six. Buying channels a la carte has real appeal to me. I get my news online. Most of cable is a waste to me.”

It will be great fun to see how this unfolds in the next 24-36 months. As I often say--expect to be surprised.

To my American readers, may I wish you a very Happy Thanksgiving.

If you would like to contact Don Cole directly, you may reach him at

Wednesday, November 12, 2014

A Blue State Basket of Wal-Mart Goods

For the last several years I have taught a course in Consumer Behavior at a local university. It is fascinating for me as the content needs constant updating and it often leads me in to Behavioral Economics which is a special interest of mine and a rapidly growing discipline.

Each semester I do a lecture about Wal-Mart and then have a class discussion about the company’s impact on retail and even on American life. Also, I do a market “basket of goods” comparing buying a list of products at Wal-Mart and then at other chains and grocery stores.

This fall I decided to put a little twist in the basket of goods. It did not contain my normal middle American selections. This time I compared Wal-Mart prices for goods that were not mainstream but were available at the retail giant and all of the competitors in my sample. These goods are considered expensive by those of moderate income yet all are found at Wal-Mart.

My market basket of goods contained items such as Kind cereals, high end toothpaste, expensive soaps and soups, fruit juice, Lindt chocolate, and “healthy” Granola bars. In previous “basket of goods” Wal-Mart always won vs. the best of the competition by 12-15% (sometimes a competitor would have an individual product for less. No sales items were allowed in the analysis). For this upmarket compilation, it was more like 25% savings at Wal-Mart!

The sample was Wal-Mart, Target, two prominent drug chains, a national grocery chain and two local, high end grocery stores. Across the board, Wal-Mart trounced all competitors. Yardley soap was 99 cents per bar while competitors came in at $1.69+. Kind Cereal was $4.78 which was close to one chain but the local grocery stores had it at $7.36. Toothpaste at Wal-Mart was at least a dollar less expensive than anywhere else. They even sold high end Rembrandt at an excellent price (when I was young there was Colgate, Crest, Gleem, Ipana, and Pepsodent. At one drug chain, I counted 54 different varieties of dental creme). Soups were 30 cents lower relative to everyone else. Expensive chocolate is available at Wal-Mart and averages a dollar to a $1.20 less than all competitors. A 60 ounce container of Ocean Spray Cranberry Juice was only $2.98 but as high as $4.56 at a local grocery store.

Why do I bring this up? None of these products are bought in large quantities by struggling Americans. The upscale must be going to Wal-Mart more than they are willing to admit. The prices are clearly excellent. If these items were not selling, Wal-Mart would drop them and fast.

The financial press discuss how Wal-Mart is struggling a bit as they are losing some high end and younger customers to Amazon. At the other extreme, the very low end income customers are moving to Dollar General as Wal-Mart is perceived as too expensive. In fact, a new study has been released which has demonstrated that Dollar General is less expensive than Wal-mart. Next spring, when I do my next Wal-Mart analysis, I will include Dollar General in the mix with a more conventional “basket of goods” than I had this time.

Demographers often say that people who live in “blue” cities and states vote progressive politically and go to Thai restaurants, drive a Volvo or a Prius,  patronize green stores and farm to table restaurants, and they tend to look down their noses at the Wal-Mart nation. It seems, given my basket of goods this time around in a deep “blue” state, that many sneak in to Wal-Mart and get some high end products at excellent prices.

If you want to contact Don Cole directly, you may reach him at

Wednesday, November 5, 2014

Some Dismal Demographic Data

With this post, I am going to do something that I have never done before in Media Realism. I am going to revisit and expand on a post that I put up only a few weeks ago. The post was “Median Income Woes” and first appeared on September 24, 2014.

Essentially, I talked about recently published U.S. income data from the Social Security administration. Since then, and with a few encouraging e-mails from readers, I made a deep dive into the report. What I found was surprising and, may I add, deeply disturbing.

After I looked at the numbers, I checked and double-checked them. Searching across the web, I found a few media outlets and bloggers who picked up certain telling statistics from the report. So, all the stats and factoids that you will see may not totally surprise you. I will bet that you will not be familiar with all of them.

The talking heads on CNN and CNBC keep telling us that the economy is on the mend although all admit that we are experiencing the slowest recovery in measured history from the “Great Recession” of 2008-2009. Where are they misleading us? The key appears to be that they are ignoring basic statistics. They talk of average rather than median income which really distorts what is going on in this country.

So, fasten your seat belts. Let us look at what is really going on.

Here goes:

--The “average” yearly wage in the United States for 2013 was $43,041. If you take inflation into the equation, wages declined from the previous year even if you take the often criticized Federal government estimates as your benchmark. In fact, some have calculated that average wage is $500-600 below the 2007 level. Also, an average includes all wage earners and distorts the data. The 17 hedge fund managers who made over a billion dollars last year and the thousands of executives who made millions in 2013 all pull the average wage up somewhat.

--Let us look at median income, which to me is a far more meaningful statistic. To refresh your memory from Statistics 101, an average is a mean which takes ALL incomes and does a straight calculation dividing total income by total workers. The median is far more subtle. It is the 50th percentile. In other words, approximately half of people are above the median and half are below. The influence of high and ultra high earners are taken out of the statistic. According to the Social Security data, median pay for 2013 was $28,031. Have you heard anyone in the media discuss that? How about the 535 members of Congress or the White House  spin doctors? Look at the spread between median income ($28,031) and average income ($43,041). The high income earners (top 10%) are pulling up the average income data and they are doing it significantly.

--So, if $28,031 was the median that means 50% of Americans made less than that. Digging a bit deeper, it gets worse.

--Some 39% of US workers took home less than $20,000 in 2013

--A staggering 63% of workers made less than $40,000 last year

--And sadly, 72% of us made less than $50,000 in 2013

Remember, the above data comes from the Social Security Administration report. It is not from some political group manipulating the data for their own purposes.

Most consumer analysts say that it takes $50,000 to provide a middle class lifestyle for the quintessential family of four. So, if 72% make less than that, a single breadwinner no longer cuts it anywhere in the U.S. Median household income is about $53,000 as I write. Adjusted for inflation, that is no higher than it was 30 years ago. Both man and wife work because there is no choice.

So, the recovery is largely a fraud if you look at middle America. The “Great Recession” is still going on for million of Americans.

If this keeps up, the middle class is toast. Implications for advertising are profound. People are running hard to survive. Some 25% of apartment dwellers do not have enough savings to cover two months rent. A stunning 40% are in severe trouble if there car needs serious repairs even though the average car on the road is now 11 years old and some malfunction with the vehicles is inevitable.

Yes, even the struggling have a smartphone. That is used by many to say that people are doing okay. May I suggest that you visit a depressed area as I have very recently? Everyone does not live as we do in advertising, marketing or communications. If you want to be a marketer in 2014-2015 America, take a hard look at the REAL America.

If you would like to contact Don Cole directly, you may reach him at

Saturday, October 25, 2014

A Cure For Burnout?

I first heard the term burnout in the early 1980’s. Someone had left our agency and her boss wrote a note saying about her, “Totally burned out. Leaving the business.” Today, a week does not go by when I do not receive an e-mail or in a conversation have someone use the term. Some people even say it about themselves.

Psychologist Herbert Freudenberger is credited with coining the term back in the 1970s. The standard definition usually is something such as “long term exhaustion and diminished interest in work. Reporters Bianchi, Schonfeld and Laurent projected that 90% of workers who are “burned out” meet diagnostic criteria for depression.

I sent the burnout question to about a dozen members of my Media Realism panel. You had to be over 50 and in the advertising or communications business for more than 25 years to be asked to weigh in on the issue.

Most people felt that it was growing but I did get some interesting answers and a few hard nosed ones. Highlights, all quoted with permission, were:

1) “The people who say that they are burned out always tended to be the lazy people who were not bad enough to fire but never really great performers. Now that we all have to work a lot harder in the ad business, they say that they are burned out. Well, they certainly are not exhausted. They never worked a week like I do every week and have for 40 years.”
2) “A lot of the alleged burnout cases around me are people who cannot keep up with the changes. The business has passed them by and they hide behind burnout. After a drink, some will tell me that they just want to survive 5 or 10 more years and then retire. Somehow they think that the clock is going to stop. What irks me, and I am 59, is that this is arguably the most exciting time ever to be in advertising or media. My regret is that I will be gone soon and miss all the fun. One woman told me the other day that she wished we were back in the day when she only had to buy three stations in a market. I am not sure if these people are depressed. They, to me, suffer from lack of engagement. Change is scary, sure. But there is no alternative to it, none”.
3) Lastly, a very thoughtful executive gave me his cure for burnout. “Don, I have, as you know, changed jobs and companies every 5-7 years for the last 35. It is the perfect tonic for creeping burnout. The challenge is to prove yourself in a new arena and with new clients and customers. You never get in to what you used to describe to me as “a comfortable rut.” Also, when you start a new job, all of your ideas seem fresh to your new associates. I knew it was time to leave a job when associates would tell me that they knew what I was going to say about an issue before I opened my mouth. When you start a new position, for the first couple of years, you are not so predictable. You also learn a lot when you change your group of cronies. I have always loved getting a different perspective on things. A change in venue does that in spades.”

My last friend from item #3 has an interesting perspective. Fortunately, he lives in a big city, New York, where he can change jobs without uprooting his family. If you are in a Baltimore or Burlington or Salt Lake City, it might not be so easy to leave an agency or media property and find a similar or better job across town.

Clearly, depression is a big problem in 2014 America. Yet, are some people using it as an excuse as some of my panel members seem to feel? And, is leaving your present job the solution in many cases to reinvigorate your career?

If you would like to contact Don Cole directly, you may reach him at

Tuesday, October 14, 2014

Has Online Video Finally Arrived?

On October 6th, THE WALL STREET JOURNAL published an interview with Daryl Simm, the CEO of Omnicom’s Media operations. He is ultimately responsible for the spending of approximately $55 billion in media across the world.

In the interview he noted that his firm is currently advising their client base to place some 10-25% of their TV dollars in online video.

When I read it, I immediately sent it out to a few friends who responded pleasantly with comments such as: “Wow” or “It’s about time” or “We are already doing that.” Over the next few days, the tide turned and my e-mail box filled up with angry comments largely from local broadcasters.

The passionate remarks included, “Why can’t he just shut up” or “who cares what he thinks, the stuff never works.”

I do not think many of the angry people read the interview. He was quite measured. The Journal reported that Mr. Simm “said that cable and broadcast network owners are getting a significant portion of that money back, since their programming still makes up a large share of the premium online market.”

Mr. Simm also went on to say that, “We look at delivering against segments of an audience. If you are trying to increase your reach against light TV viewers, the answer is to move a significant part of the video budget to online video. We council the client depending on what businesses they are in.”

A few people said a hard and fast percentage is a bad idea. I agree but 10-25% is a pretty big range. He is clearly stating that individual analysis is required depending on the account and its target.

Being longer in the tooth than most of you, I remember when Ted Bates way back in the early 1980’s published their 5% solution. What they were saying was that to hedge your bets and get the total audience for many brands, you should put 5% of TV buys on WTBS, then known as a Superstation. Many in the media scoffed and said all TBS had was Atlanta Braves games and Gomer Pyle reruns. But, did you notice that within a couple of years, cable took off as an advertising medium and then, a decade later, local cable finally got the recognition that it deserved?

Online video may not garner 10-25% of TV budgets next year or even in 2016. The die, however, is cast.

Also, did you notice that today You Tube announced that their Google Preferred ad space is sold out? Coincidence? Hmmm.

Still another train is leaving the media station. Do not get left behind, my friends.

If you would like to contact Don Cole directly, you may reach him at

Saturday, October 11, 2014

Moving The Goalposts

The term “moving the goalposts” is a metaphor for something that is changed while in progress. It originated in Britain but is frequently used in the United States when the rules of the game or measurement metrics are changed.

I first became aware of it as a young adult reading claims of the East German government for industrial output (yes, I led a wildly exciting youth). They were so ridiculous that I knew that someone was cooking the books.

In the United States, they move so gradually that you have to watch carefully or you will miss them or dismiss them. It first hit me in the early1980’s when Social Security increases were adjusted to reflect a “more realistic” cost of living for recipients. They took mortgage interest rates out of the calculation saying that few recipients were in the market for a mortgage. On hearing, I nodded and moved on.

Then, coming off the terrible 1982 recession, the Reagan administration suddenly blended the 1.5 million Army, Navy, Air Force, and Marine personnel on active duty with the civilian work force. Presto! The unemployment rate fell--some say by as much as two percent.

A decade later, the Clinton administration upped the ante big time. The moved goalpost was also unemployment figures. If you were so discouraged that you gave up looking for work, you were no longer counted as unemployed. If you wanted full time work but could only work part time, you were not in the unemployment figure. And, full time work was now 21 hours per week even though benefits had to be paid at 30 hours per week.

The Core Consumer Price Index no longer includes food or energy costs. Actually, it has not for years. What? Nope. Food and energy price swings are considered too volatile and short term. Recently (2012), the Core CPI has been replaced and even a stat geek like me is having a hard time sorting out the new formula.

So, are our government statisticians a bunch of liars? No. I am sure the staffers are very careful about the calculations. Are they forced to manipulate statistics and data by policymakers? Yes! When the criteria change, the formulae change.

It is hard to tell whether the economy is really improving when “the goalposts are moved.”  Interestingly, people on both sides of the political and economic spectrum share their annoyance with governmental adjustments. Jim Sinclair, a “gloom & doomer” and passionate gold bug and Chris Hedges, a strident left wing journalist, both swear by John Williams’ Shadowstats. Williams once had a job analyzing government statistics and decided to publish his own as the “official” numbers in his view were so divorced from reality.

Critics say this cozy arrangement has lots of benefits. The government pays less in pension adjustments and social security and private companies can pay less in wages by claiming that the cost of living has hardly budged. Our Social Security time bomb has a slightly longer fuse and business can drop more to the bottom line by citing government cost of living stats at raise time.

While preparing this, a panel member suggested that a similar scam is going on with the Nielsen +7 audience measurement (actual viewing plus playbacks for the next week). I thought that was a bit unkind as a broadcaster or cable entity has the right to charge for their entire audience. He countered that most of the people playing back a program days later would edit out the commercials as they went along. He also said that prices were driven not by audience size but supply and demand so the Nielsen +7 was another example of a “moving a goalpost.”  His point was certainly well made.

Mark Twain once said that, “There are lies, damned lies, and statistics.”  The great humorist was on to something.

If you would like to contact Don Cole directly, you may reach him at