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Wednesday, June 21, 2017

Gresham's Law in Media?

In economics, there is a long standing monetary principle called Gresham’s Law. Succinctly, it states that bad money drives out good. In other words, historically if there were two forms of a commodity in circulation that a government gives similar face value, the more valuable commodity would disappear.

There have been many examples throughout history. I even witnessed once as a youngster. American dimes, quarters, and half dollars were largely silver through 1964. The next year dimes and quarters were a mixture of nickel and copper and half dollars had only 40% silver until 1970 when silver disappeared from US coinage. What happened? Gresham’s Law kicked in with a vengeance. I vividly remember seeing people get a roll of quarters from the bank, opening it, taking out the pre-1964 (silver) coins and hoarding them. One gentlemen at the time shook his head and told me the nation was finished as we had replaced silver in our money with cupro-nickel slugs.

Relax, I am not going to call for an immediate return to gold and silver as our sole form of money. I tell the story as, to me, it seems, a version of Gresham’s law seems to be in play in the media business.

With the growth of dozens of new platforms, advertising clutter is at an all time high and, despite protests from practitioners, advertising effectiveness is at an all time low. There is so much low quality or debased advertising currency on thousands of sites, that the most valuable outlets are getting weaker. Couple that with huge increases in advertising avoidance and you can see why launching a brand is often more difficult than ever.

What do I think will happen as this trend continues? Call me crazy but I think we will revert to a 1950’s model of sponsorships. One of my earliest memories is seeing The Men From Texaco opening The Milton Berle Show and Dinah Shore singing “See the USA in Your Chevrolet.” Maybe soap operas will make a comeback in the sense that large personal care or household product companies will sponsor programs again but they will not be daytime dramas. There will be far fewer commercial messages but the sponsor will be clearly identified. Think of the intros to Masterpiece on PBS. Programming will likely be interrupted minimally but the sponsor will be well known to the viewers.

This also sets up well for established brands and large, deep pocketed companies. They can afford to keep reminding the consumer of who they are but still reach advertising shy millennials.

The other option would be to go toward a heavy pay TV model which is really what Netflix and Hulu Plus and others are providing right now.

What do you think? Is there a modified Gresham’s Law moving in to the media world?

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

Tuesday, June 13, 2017

Will Millennials Become Wage Serfs?

In recent weeks, I have read several articles discussing how Millennials (those born from 1977-1995. Different demographers use varying time spans so I stuck with the Nielsen Media Research dates) may often become wage serfs. Amazingly, two people e-mailed me in the past few weeks and described the fate of some Millennials as Medieval serfs.

If you remember from grade school or a course in western civilization a Medieval serf led a pretty sorry existence. They were essentially peasant farmers who worked part time on their master’s land and, in exchange for their labors, they would get to use part of their master's land to grow their own food. It was a life with virtually no ability to rise. In your entire life, you may never stray more than a few miles from your master’s holdings.

Why are both pundits and my correspondents making such a harsh judgement? To me, it stems from an idea that most of us Americans have believed for a few hundred years. The idea is that each succeeding generation is better off than the one that preceded it. The “better off” is not just financial. It can mean education, sophistication, a healthier lifestyle or leading a life that matters.

The Great Recession of 2008-2009 had a profound effect on many Millennials. A number of observers have commented that it did long term economic and social damage to that youthful demographic. Some have said that this generation is rootless--many do not want to own homes or have allegiance to their employer. I do not see it that way. The issue to me appears to be economic hardship and fewer opportunities.

Here are a few Millennial factoids that I hope make my point:

--Seven out of ten students have borrowed for college. On balance, many people say that borrowing gives many an opportunity for a good education that they may not otherwise have. True, but student debt by definition has to slow economic growth. Many have a six figure millstone around their neck when they graduate and, unless they get in to a high paid field such as medicine or finance, they may be paying off the debt for 20 years. Go to graduate school and the meter really runs wild. Interestingly, many would be better off to attend a state school, work part time and finish in six years rather than four but few seem to want to go this route.

--Some 82% of Millennials say that they want to be home owners. Why are they not buying homes in great numbers in their late 20’s? They cannot afford it! Many are saddled with high levels of student debt and others live in wildly expensive cities. Right now, 22-35 year olds are paying as much as 45% of their salaries for apartments in cities including Los Angeles, San Francisco, New York or Miami. Others in the heartland are much lower. I remember that decades ago when I made my way in the world, rental agents would not write a lease if the monthly tab was more than 28% of your salary. So, how can Millennials save up for a downpayment when they are literally struggling to meet their monthly rent?

--The U.S. Census Bureau reports that people in the Millennial age bracket earn $2,000 less in REAL TERMS than they did in 1980.

--The Federal Reserve Bank of NY finds that for recent college graduates wages have only risen 1.6% in the last 25 years when adjusted for inflation. Put student debt and rising rents or housing costs and these youngsters face an uphill battle for achieving financial freedom.

--The Huffington Post reported that in 1990, those who took college loans only borrowed 28.6% of first year income. By 2015, the average loan is the equivalent of 78.3% of first year earnings and some owe much, much more with students loans now totally a staggering $1.3 trillion.

--The financial return on education is dropping. This may simply be the result of college tuitions wildly outstripping inflation.

So, while describing these fine young people as wage serfs offends me, I can see how many people who lack my optimism would come to that conclusion. Also, why did Bernie Sanders appeal to so many Millennials in the 2016 primaries? It is pretty simple to me. He promised free college education and universal medical care. Were I 22 years old, I can see why that might be appealing!

Are Millennials doomed to be 21st century serfs? I hope not. Yet, as logarithms gobble up more and more jobs and technology marches forward, young Americans are really going to need to differentiate themselves in the labor pool to keep the American dream of upward mobility with each generation alive.

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

Saturday, May 27, 2017

Weapons of Math Destruction

Today, like it or not, all of us live in the age of the algorithm. Some fairly big decisions in our life--be it a choice of university, getting a home mortgage, a reasonable car loan and the cost of our health insurance are now made by mathematical models, not human beings.

Banking titan J.P. Morgan testifying before congress over 110 years ago stated that credit was something that a person brought with them when they applied for a loan. It was as much about character as it was about financial creditworthiness. Not so any longer!

A model, often grouped under the term “Big Data,” determines whether a loan is approved and what terms you will pay. Early on, many of us thought that this would be a wonderful situation as bias, cronyism, and discrimination would be eliminated.

In a recent book entitled WEAPONS OF MATH DESTRUCTION (Crown, 2016), Cathy O’Neill says that the reverse is happening. The subtitle to the book is “How big data increases inequality and threatens democracy.”

Now, be aware that this book was NOT written by some bomb tossing emotional left winger. Ms. O’Neil has a Harvard PHD in Mathematics and has served as a quant at the prominent hedge fund D.E. Shaw. Disillusioned with the world of finance, she has shown involvement and sympathy for the Occupy Wall Street Movement. What she does, for sure, is expose the dark side of Big Data.

Her principal thesis and it is a very well reasoned argument is that many people are stuck where they are in America today because Big Data has, to a certain degree, locked them in a life of mediocrity. Smart kids from certain zip codes will not get approved for student loans, or may pay significantly higher rates for car insurance and auto loans.

Hourly workers are sometimes victims of modeling according to Ms. O’Neil. Take someone working at a fast food restaurant or even a casual dining establishment. Employees sometimes get their hours the day before the next day’s schedule is announced. This becomes a child care nightmare for many. Others close a store and then open it the next morning but do not know that until midday. The firm, often a franchise, has a sophisticated algorithm that determines the optimum use of employees. Great for them but it messes with the lives of many staffers. When Starbucks was alerted to this issue, they began publishing workers hours a week ahead of time which was a great help to many.

On the plus side, Big Data is a marvelous thing to those of us who are affluent. We can get great deals on airfares, sales on high ticket items, or reviews of hot new and reasonably priced restaurants that many Americans would never be able to afford. Amazon knows our every move in purchasing but we do not mind much as their logarithms place us in certain demographic and lifestyle “buckets” and we are offered prohibitively great deals on many items. The WALL STREET JOURNAL reported recently that even Neiman Marcus loyalists are now abandoning their favorite store and buying the same luxury goods online at a significant discount to the set price of the high end Dallas retailer.

Do I buy Ms. O’Neil’s thesis? Yes and no. As a marketer, Big Data gives you an edge that is incomparable to any tool that you could work with in the past. It is far easier to forecast who will buy certain items if you have a plethora of data points about a prospect and his or her lifestyle. If you are loaning money, it only stands to reason that you charge more to someone who has a lower probability of paying you back.

To me, Ms. O’Neil’s most powerful point is that there is no human element involved anymore in so many financial agreements. Some people have errors in their credit history and no machine double checks the veracity of them or tries to clear them up. Also, some people regardless of the health of their personal balance sheet are highly trustworthy.

Ms. O’Neil writes with great clarity. I highly recommend it and encourage you to reach your own conclusions. If you work in any aspect of marketing or finance, Big Data is here to stay and needs to be evaluated carefully.

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

Saturday, May 20, 2017

Is Working Hard The Silver Bullet?

Constantly, wildly successful people are often asked the secret to achieving great things in life. Invariably, at the top of their lists is simply “work hard.” It is difficult to argue with that succinct statement. Most people at the top of the heap have worked hard, sometimes very hard. When I hear that statement, my knee jerk response is to agree and go to the famous quotation of my hero, Teddy Roosevelt, who said, “Nothing in the world is worth having or worth doing unless it means effort, pain, difficulty...I have never in my life envied a human being who led an easy life. I have envied a great many people who led difficult lives and led them well.”

My man, TR, was an advocate of what was known as “the strenuous life.” It makes sense that he thought everything was a struggle when, as a sickly child, he had to overcome some difficult illnesses and succeeded. As the years have passed and with much observation, I have done some revisionist thinking on hard work and see it as important but do not see it as the guaranteed pathway to success.

Over the years, I have seen people who put more quality hours in than anyone around them and they remained stuck in their dead end jobs. Some were too low key to rise, others were content, but many bristled as newcomers came in above them. I vividly remember telling a client contact that he was not promoted as he always made his boss look good.

Three years ago, I flew back back to Rhode Island to visit a sibling and see another who was visiting. It was a nice time. At the airport, a voice called out, “Don, it can’t be.” The speaker was someone whom I had not seen in perhaps 30 years. We both had a good hour before our flights were called so we had a great talk. My old acquaintance was known for not tolerating fools well so it was clear why we did not work together for very long. He worked in a different discipline than I but we crossed paths a lot and I respected him greatly. He bounced from job to job compared to many of us but always seemed to land on his feet better than anyone whom I have ever met. I asked him how he did it and he gave me some real gems in terms of career advice for young people (he reads MR and corresponds with me regularly these days).

Here is some of his advice:

“Have your OWN vision. Don’t waste you hard work on someone else’s. Find your path and stick to it.”

“Run your own career; don’t let anyone run it for you.”

“Have your psychological bags packed at all times. Be ready to leave within an hour. You may have to!”

“Forget who signs your paycheck. Work hard but never forget that you really work for yourself.”

“Andy Grove of Intel had it right when he said that, ‘only the paranoid survive’. Trust yourself.”

He once asked me some 20 years ago in a phone call whether I had prepared business cards listing myself as a consultant. When I said no, he burst in to a diabolical laugh and said, “I have one. Get one, Don.”

My friend’s comments seem to betray both the concept of hard work and loyalty to his employers. Actually, he worked hard and still does. And, while he has had more jobs than most of us, I have never heard him utter a derogatory remark about any of his bosses or past companies. His point is that you are the CEO of your own life regardless of your current title. So, he is a Horatio Alger type telling you to strive and succeed but, at the same time, have no illusions. Do not drink the corporate Kool-Aid and never get comfortable.

In a world of downsizing and constant mergers, maybe my aging friend is on to something. He has never played politics and stubbornly remains his own man. And, to this day, he works hard. His only regret was that the job shifts and multi-state moves were difficult for his wife who also had to switch jobs and his children who had to adapt to a new school on several ocassions.

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

Tuesday, May 9, 2017

Poverty In America

As many of us, I was rattled when, a few months ago, I read accounts of how 45-47% of Americans did not have access to enough money to cover a $400 emergency expense. It might have been a serious car repair or a visit to the emergency room. When I bounced the statistic around to a few people, to a person they shook their heads and said that the figure had to be wrong. People may not have had 400 extra dollars in their checking accounts but they could go to relatives or friends or simply put the expense on a credit card.

So, I worked to find the source of the $400 statement. I found two--The ATLANTIC magazine and the Federal Reserve. Both sources have some credibility with me. The ATLANTIC is known for great writing, in depth analysis, and a strongly progressive tilt. I often do not agree with their conclusions or solutions to the issues that they raise but they almost always provide well reasoned arguments. The Federal Reserve perhaps should have raised interest rates earlier but they do look at FACTS and I am confident that their assertion that 46% of Americans would be hard pressed to come up with $400 for a surprise expense is likely quite valid.

In 2001, I read a then new book by Barbara Ehrenreich. It was entitled, Nickel and Dimed with the subtitle, On (Not) Getting by in America. Ms. Ehrenreich went "undercover" as a waitress and chambermaid to see how difficult it was to survive on minimum wage and tips. It was an eye-opener to any who read it. She talked of how hard it was physically to survive as well as financially when one was part of the underclass.

When I saw the $400 articles and commentary, I thought it might be time for an update so, in the great Don Cole tradition, I read three books of recent vintage with a similar theme:

1) Hand to Mouth by Linda Tirado
2) The American Way of Poverty by Sasha Abramsky
3) $2.00 a Day: Living on Almost Nothing in America by Kathryn Eden

The books vary in quality but all give real life stories that tear at your heart if you have one. Ms. Tirado's HAND TO MOUTH received the most publicity and is an easy and breezy read. She recounts her personal struggles and the many indignities that she and her family have had as they have dropped from the middle class to the underclass. Also, she is perceptive, very intelligent and quite angry. The anger and her vulgarity gets in the way of telling the tale.

She also loses points as she rationalizes many things. For example, she smokes cigarettes as a "five minute vacation" from her rough life and openly admits that after a hard day at work, she may eat all the wrong foods. In nearly the same breath, she complains about lack of funds. Well, stop smoking and you will be healthier and have more cash. She also talks of being fired repeatedly and candidly admits that she "lost it" with the boss in public. We all have to exercise verbal discipline on the job. She does not seem to get that. Still, the book is powerful. Her stories about dealing with insensitive landlords are deeply moving.

Sasha Abramsky’s THE AMERICAN WAY OF POVERTY is not a personal story. He does a nice job of using individual people’s stories to capture the hopelessness many impoverished people must feel. And, he offers a great many ideas for government programs that he feel can turn the tide. I am not so sure. When I go back to Lyndon Johnson’s “Great Society” of the mid-1960’s, we find that well intended programs often miss the mark. It does not seem to matter which major party is in power. Poverty, measured by the government, seems to be 12-14% of the population.

The final book is $2.00 a Day: Living on Almost Nothing in America by Kathryn J. Eden. This book seems unbelievable at first but as she takes you through anecdote after anecdote you soon realize that there are perhaps a few million people in America living as many do in a developing country (two billion people live on less than $2.50 globally). Reading it had a shock effect that I suppose we all need now and then.

Okay, what does this have to say to Media Realism readers. A few things hit me. Number one, most of the working poor work very hard. Some have made a few bad choices early on in their lives and are on a very rough treadmill simply trying to survive. Others had some bad luck and never recovered. Few are simply “too damn lazy to work” as many have been saying for years.
Secondly, some are in tight spots due to lack of discipline. If you are struggling to survive it may feel good for a minute to tell off the boss but you wind up out of a job soon. Also, you need to take of yourself physically and be sure to get to work on time. Basic stuff that many of us take for granted. Additionally, children are usually involved in most of the stories told in all three books. What can we do to help them so the vicious cycle of lifelong poverty does not continue?

The technological changes going on are apt to leave this underclass almost totally behind. Many of the minimum wage jobs that they are currently doing will be executed in large part by robots in a decade or so. Also, Amazon and fellow travelers are killing many retail outlets which have been a large employer for many struggling Americans for decades.

Finally, what will happen to TV? The underclass does not have cable, satellite, or Netflix or Amazon Prime. Most do not have credit cards and many, such as Ms. Tirado (at the time she wrote the book) are unbanked. So, conventional TV is going to become the only entertainment option of those living in poverty. The demographics of over the air TV and radio have been weakening for years. They will only get worse.
Reading these books made me realize the economics of poverty better than I ever have. You, my readers, along with me may not be satisfied with our current financial situation despite the NASDAQ seemingly breaking records almost daily. Yet, what if you had no skin in the game and no prospects for advancement? Think about it.
If you would like to contact Don Cole directly, you may reach him at doncolemedia@gmail.com

Sunday, April 30, 2017

The Ooda Loop vs. Buffett's Moat

Perhaps as long as 38 years ago, I was waiting to enter  a presentation which my agency was giving at the Pentagon. Some of the creatives were a bit nervous presenting new work but all I had to do was show a magazine schedule that had largely run and answer a few questions. While my colleagues paced, I looked for a place to get a coffee.

As I was pouring my cup, I overheard a major and a lieutenant colonel talking about an upcoming visit by retired Air Force Col. John Boyd. He was going to discuss his Ooda Loop strategy. For some reason, I employed a memory trick that I learned as a teenager. I made a ridiculous association and locked in his name and his strategy (I imagined William Boyd, the actor who played Hopalong Cassidy in my youth in fully Hoppy regalia in a jet doing barrel rolls). A few weeks ago, I heard of Ooda Loop again, and like magic, John Boyd came back to me instantly.

During the Korean War, fighter pilot Boyd worked out an approach for making quick decisions that would improve chances of success in environments that were changing quite rapidly. His approach dubbed OODA was--Observe, Orient, Decide, and Act. I would argue that it is applicable to 2017 business, especially in tech.

Boyd observed that US pilots tended to win most dogfights in the air even though their planes were a bit slower than the Soviet MiG jets. The trick was not simply that his pilots were better trained. It was that they were able to make TRANSITIONS more swiftly.

So, he developed OODA. The Observe part was basic. Pay rigid attention as things are progressing. The Orient task came next. Unless you are able to interpret information it is not worth much. You need to digest information and come away with a more sophisticated view than most. Decide is next--just as a fighter pilot has to act so does a man or woman in business. Cut through the fog and make a judgement. Finally, you Act. The best way to mess up a rival be it a hostile jet or a business competitor is to hit them with unexpected actions. If you take action before an opponent can switch their tactics, you competitor will be at least temporarily disoriented.

It appears that many successful Silicon Valley entrepreneurs are using the OODA loop in some form. I have seen write-ups about how the PayPal founders employed it directly and it appears many are doing it without realizing it.

This is contrary to Warren Buffett’s famous “moat.” The great Omaha investor always has stated that he likes to invest in businesses with a moat around them. The cost of entry is high and the well established brand (Coca-Cola, Wells Fargo, Washington Post) has a sustainable competitive advantage over its competition. Such an approach has served Buffett and Berkshire Hathaway shareholders very well. Are the times changing, however, especially in new wave disciplines?

Eighty-eight year old business guru and former Royal Dutch Petroleum executive, Arie de Geus, said a few years ago that, “The ability to learn faster than your competitors may be the only sustainable competitive advantage.” If he is right, we may be seeing a great deal more about the OODA loop in the years to come.

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

Saturday, April 1, 2017

Pounding For Home

“Don’t look back. Something might be chasing you”--Satchel Paige

“Never look back unless you are planning to go that way”--Henry David Thoreau

One of my older brothers has been a long distance runner for 50 years. Today, at 74, he contents himself with 5k’s, 10k’s and the occasional half marathon which I make it a point to be sure to attend. He is a remarkable physical specimen and an inspiration to us young guys. I remember his first full marathon back in 1967--the Boston Marathon! It was a bitter April day and was snowing in Hopkinton, Ma. as the race began. He did very well for his first big race and finished 150th. As my Dad and I picked him up, I asked him what he was thinking as he arrived at Heartbreak Hill (this is a famous location between mile 20 and 21 of the race right near Boston College where both he and I did our graduate work).

My brother’s answer was “six more miles to go, pounding for home downtown.” In the car back to Rhode Island after we dropped Dick Jr. off at his apartment, I asked my father, a former coach and world class athlete, what he thought of my brother’s answer. “Shouldn’t he have felt great about making it up Heartbreak Hill.” My father smiled and shook his head. “You big brother has got it right, Don. The previous 20 miles did not mean much. Always look ahead. That is the mindset of a champion.”

In previous MR posts, I have mentioned how tedious it is for me to meet with old cronies who continue to talk about the good old days of buying three stations in a TV DMA and not having to worry about cable, consumer avoidance, Netflix and dozens of digital platforms. It has been my observation that creators of businesses of all kinds keep building toward a long term goal. They do not dwell on where they are and rarely focus on where they have been. Their eyes are always “on the prize”--their long term goal.

A now famous story about looking ahead was an exchange that took place between the late Andy Grove, President of Intel and Gordon Moore, Intel’s Chairman (credited with Moore’s Law which stated that processing speed for computers approximately doubled every two years). Sometime in the mid-1980’s Grove asked Moore, “If we got kicked out and the board brought in a new CEO, what would that man do.” Moore’s immediate response was, “A new CEO would get us out of the memory chip business.” Grove’s fired back with “Why shouldn’t you and I walk out the door, come back, and do it ourselves?” That, of course, is precisely what happened.

Moore and Grove were creators but they were not mired in nostalgia. Nothing was going to get in the way of progress. Their energy was focused on the future; there was no time for regret or resting on their laurels. Business and life is a road full of potholes. You will hit some and dodge others. The winners will not let age, distractions or negative people get in their way. They will be too busy pounding for home.

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