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Tuesday, June 23, 2009

One Place to Find Appointment Viewing

Back in the 80's, NBC had the lead in primetime TV viewing. Their Thursday night lineup was incredibly strong with Cosby, Cheers, and Hill Street Blues. People absolutely locked in to it. NBC referred to it as "the best night of television on television." Later on, Seinfeld entered the picture and the concept of "appointment television" really took hold.

I can remember vividly sitting in my office and hearing people say on the phone "call me after Seinfeld is over tonight." People had to see it live and wanted to be able to talk about it at the water cooler the next day. People changed their habits--it was truly appointment viewing in every sense.

Since that time programs have come and gone and fragmentation has taken hold along with stronger cable options and time shifting devices and TiVo. "Survivor" showed aspects of appointment viewing and the last episodes of "American Idol" certainly do as well. Many viewers never miss a first run telecast of a niche cable program. But the broad excitement is far less than it once was.

There is only one arena where appointment viewing still reigns--Sports. Yes, even there, the numbers have declined somewhat over the years. Other than the Super Bowl, every event does not produce the wallop it once did. And, as I mentioned in my second post way back in January, TiVo is starting to make inroads into a PORTION of the sports audience.

Sports has always been premium priced. You paid for the larger audience and the perceived identification with the local franchise or the event. Yet today, with a weak economy, sports can represent excellent value.

As the economy has spun downward in recent months, I have had a thought about sports advertising. Let's say that you live in the Detroit suburbs. Things are nearly as bad as they were in 1933. You work for a supplier to the auto companies, you fear for your job, have a fair sized mortgage on a house you could not sell if you lost your job and, finally, two kids in college. Yes, the Red Wings did not win the Stanley Cup but they probably were a rallying point for you and many of your neighbors. The playoffs were world class entertainment and provided an excitement and escapism not found in your dreary, fearful existence. The same could be said of LeBron James' heroics lifting people in Cleveland which is suffering as well.

So sports may be watched with more interest in today's malaise. It is hard to quantify and I certainly cannot prove it, but with prices soft and interest likely up in many markets, sports may be the place to be.

There are several venues: local affiliates with season long packages, your cable interconnect with many, many offerings and regional sports networks (RSN) that can cover more than one market and produce special features and promotions customized just for you (for a detailed discussion of RSN, see my 3/9/09 post). And, don't forget sports radio. Not just play by play for people in the car but talk shows as well. You need to get past the "long time listener, first time caller" dismissal that people make of the medium. Lots of men in their 20's are loyal and active listeners and this is an excellent place to reach them at today's pricing. Talk shows have an enthusiastic following, will work hard for local sponsors, and will show up at your retail location in many instances.

A market by market issue to keep in mind that some areas are enthused about college sports (the southeast stands out) while others gravitate to pro teams. So make sure that you study the local turf before placing sports dollars.

When the economy snaps back (yes, some day it will) sports will distance itself from other broadcast properties once again. Take advantage of this window of opportunity and take a look at sports. It merits your serious consideration over the next 18 months.

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

Friday, June 19, 2009

The Other Omaha Oracle

Most people who follow business or American pop culture at all know that Warren Buffett, Chairman of Berkshire Hathaway, is often called The Oracle of Omaha. Over the last 40 years, his stock picking skill has made him one of the wealthiest men in the world and has rewarded his shareholders big time. But his partner, also an Omaha native, is no slouch. Charlie Munger serves as Chairman of Wesco Financial and Vice Chairman of Berkshire Hathaway. Analysts give Munger credit for softening Buffett's buying parameters to include "franchise" companies (such as Coca-Cola) among Berkshire investments. Today, they form the bulk of the Berkshire equity portfolio which early on was simply value stocks.

Charlie Munger is 85 years old. He is very spare of speech. Each year, when a friend sends me a copy, I pour through the transcript of the Berkshire annual meeting. For six hours, Buffett and Munger field questions from a number of the thousands of shareholders who sit in a packed Omaha auditorium. Buffett is full of humor, homespun wisdom, and sharp observations. Munger, not without wit, is far drier and often answers questions in a sentence or two. I make it a habit to read them carefully and then re-read them a few times. You can learn a lot by reading what Charlie has to say.

Recently, I found a copy of a rare speech that Munger gave in a public forum at USC. Unlike the Wesco or Berkshire annual meetings, this one was a long one. It was full of gems about business in 21st century America. My favorite was: "the great lesson in micro-economics is to discriminate between when technology is going to help you and when it is going to kill you."

That is an amazingly succinct quotation for such a profound thought. Technology saved us all two decades ago. Both media and agencies were able to throw away the green eyeshades and streamline our billing and accounting departments. The millions saved in salaries was immense. Then, several years later, we did not need nearly as many secretaries as e-mail took over and we soon made our own travel arrangements without using a travel agent. Power-points allowed us to put together great looking presentations overnight without having a huge art services team or outside vendor doing most of the work.

But there has been a huge downside to the tech boom and all of us (who are honest) are feeling it now and have great concern for the future. Newspapers are being destroyed by several factors but being able to read them for free on line is a major contributor. TV advertising is far less effective due to technological advances such as time shifting devices (i.e. TiVo), Netflix, You Tube, and Hulu. Radio is reeling in terms of ad billing as young adults in particular go to i-pods, on line options, friends who steal music for them, and soon cellular in a big way. Ad agencies know that TV and radio do not work as well as they once did and that magazine often builds the impact it once had far too slowly. Agencies also know that for small accounts the Google dashboard has features that would allow a $500,000 account to function much more productively without an agency. Only a handful of people admit it but we all know that it is often the case. Perhaps only the cable industry and on-line of all media types have a pipeline of new products and services that will use technology to help them grow in the future.

So, all of us have to seriously consider Munger’s challenge about knowing when technology will kill you. A few people that I know have already addressed it but most seem to think that it will go away somehow. It will not.

Should we listen to two old guys like Buffett and Munger on this issue? Well, consider that they were early investors in the initial public offerings of Ogilvy & Mather (now part of WPP) and Interpublic. Also, they still own the Buffalo News, have a large stake in the Washington Post companies and were major holders of Cap Cities/ABC before they became Disney. About a dozen years ago, Buffett said that “local TV is a good business. It used to be a great business.” I wonder what he would say about TV today. These guys know media.

Please try and examine what technology is doing to your business. Will it help you grow or will it kill you?

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

Tuesday, June 16, 2009

Victor Hugo Called It!

Victor Hugo is world renowned as a great novelist, poet, and social justice advocate. He is most famous for his book "Les Miserables" although I personally prefer "Ninety Three" written in his old age. Forced to leave France for his political convictions, he settled in the Channel Islands, part of the United Kingdom, although very close to the French coast. He lived on the isle of Jersey from 1852-1855 and then moved to neighboring Guernsey from 1855-1870. While on Guernsey, he penned Les Miserables and also a host of poems and essays. In one essay, he attacked French financial shenanigans and wrote "Adversity makes men, and prosperity makes monsters."

That single sentence sums up the three book reviews that we will cover in this post (If you are new to Media Realism, each quarter we cover several books that I have recently read).

My three choices are of very recent vintage and cover the financial crisis of the past year:

1) House of Cards by William D. Cohan (Doubleday, 2009). This is a meticulously researched effort that covers the collapse of Bear Stearns, an 85 year old investment bank. A lot of the focus is on the last two CEO's, Ace Greenberg and Jimmy Cayne, two fine bridge players who got caught up in the greed of recent years. Unlike other investment banks, Bear Stearns did not have the Harvard or Wharton MBA's. It was full of midwestern and street smart New Yorkers who came up the hard way. They were great traders as they were taught to take losses quickly. It is a fascinating read and it takes a difficult topic and makes it read like a fast moving novel at times. Highly recommended.

2) Street Fighters by Kate Kelly (Portfolio, 2009). Also about the Bear Stearns collapse, it concentrates on the last 72 hours of the investment house. Also, she focuses less on Greenberg and Cayne and turns her attention to the thousands of 'little people", most impeccably well paid who gave Bear Stearns an almost blue collar or hustlers feel. The 72 hours up to the collapse is good reading but I give House of Cards the definite nod over it.

3) Fool's Gold by Gillian Tett (Free Press, 2009). The sub-title to this one tells the tale--"How the Bold Dream of a Small Tribe at J.P. Morgan Was Corrupted by Wall Street Greed and Unleashed a Catastrophe." This, my friends, is the story of derivatives. And, it is a surprisingly easy read. The explanation of what a derivative is clear and understandable. Essentially, it was conceived as a hedge against risk and was very imaginative and CONSERVATIVE. But greed took over and soon the great Warren Buffett was referring to excessive use of derivatives as " financial weapons of mass destruction." The Morgan bankers who invented them are still at the financial services game and ironically, Morgan itself sidestepped big problems with them as they showed some restraint in their implementation. Many others did not and that is one reason that we are in such a mess today.

Try and read one of these books over the next year. All warn against greed better than the Baltimore Catechism ever did for me and maybe we will learn a lesson and avoid such excess in the future. It is amazing but 150 years ago, Victor Hugo almost forecast our meltdown. Human nature does not change and greed endures.

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

Monday, June 15, 2009

The Paradox of Thrift and An Ad Recovery

John Maynard Keynes, later Lord Keynes, was one of the famous and most influential economists in history. He developed a theory that Paul Samuelson, whose text you may have read in school, dubbed "The Paradox of Thrift."

It flies a bit in the face of wisdom such as Ben Franklin's "a penny saved is a penny earned" and other such homespun advice. Basically, Keynes said that savings were great during times of expansion and low unemployment but during a deep downturn such as we have today, strong saving can only hurt things.

Back when Keynes developed the theory in 1936, the western world was highly industrialized. Today, the US economy is not a manufacturing base but one in which 70% of the action comes from consumer spending. So, today's situation may be more exaggerated than ever before.

Right now, unemployment stands at 8.9% nationally. Recent data on the savings rate has it at 5.7%, the highest rate in 14 years. This time last year, the savings rate was zero. So, it appears that people who are still working full time are saving more than they have in decades. Those out of work obviously cannot save at all. So, the paradox of thrift comes in. As long as people remain fearful of their own jobs going away, they will be a huge drag on this consumer driven economy. And, if unemployment creeps up any more, the fear factor may grow and people will tighten their belts even more. So, the more people save, the higher unemployment may get and the longer the downturn.

This has strong implications for the advertising industry. Often, when times get tough, marketers cut their ad budgets first. And, they wait for very clear signs of recovery before going back to pre-recession levels of spending. Only a brave few have the guts to stay the course through a downturn and, depending on the category, that does not always make sense either.

Now, were Ben Franklin and fellow conservative advisors wrong with their advice to save? No, certainly not on an individual basis. We all have a responsibility to take care of ourselves and our families. So, paying off debt, delaying purchases of big items, and saving more is a great way for us to clean up our own PERSONAL balance sheets in these uncertain times. But, as marketers, we have to pray that not everyone does the same thing or it will be a long time before the good times roll again in the advertising world.

For thirty years, I have looked at debt levels grow like crazy in this country while savings rates evaporated and always thought that there would be a day of reckoning. Now, finally, many people may have become sufficiently afraid and are doing something about it. So, we are in the odd position of doing what is right for us personally but bad for our industry and our country.

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

Wednesday, June 10, 2009

The State of Radio--A Media Realism Interview

I have known Roddy Freeman for nearly 32 years. In that time, I have never met anyone who loved radio more or followed it more thoroughly or objectively. Today, he has graciously consented to a brief interview on the state of the medium. Roddy has been a media strategist for a very long time (translation--longer than I!) He had stints at Doner, Ted Bates, Cunningham & Walsh, Ayer (where I started) and McCann. In recent years, he has run his own media consultancy based in Atlanta. I had the pleasure of working with him on two tours of agency duty. Plus, he maintains his own blog on local radio entitled "Atlanta Airwaves Action". You might really enjoy it even if you are not Atlanta based.

So, here is Roddy's perspective:

Media Realism: Young people tell me that they often hear about new music from social media. Someone will post on their My Space page, for example, that they just heard Ms.X and love her music. That goes out to a few hundred people who in turn send it to thousands of others. How do you think that this is effecting the role of radio in young people's loves?

Roddy Freeman: Radio is definitely having a problem attracting young people. According to Arbitron, the average percentage of persons using radio at any given time has decreased 24% among teens and 22% among 18-24 from 1998 to 2007. Radio in these people’s lives has of course been replaced by music on iPods, computers and other devices. And, the frenzied growth of Facebook, My Space et al has greatly accelerated the viral spread of news about new music downloads.

MR: Arbitron's PPM (Portable People Meter) is turning rankings upside down. Most of us would agree that it is a big improvement over the diary measurement technique. Will this change formats in many markets?

RF: Yes. PPM already has been prompting format changes. The Smooth Jazz format has been virtually wiped out. Hot Talk (for a relatively young male audience) is becoming a thing of the past in PPM markets. On the other hand, PPM has been very kind to high-cuming formats, such as CHR (Top 40). A huge cume can disguise very short time spent listening by helping a station toward good quarter-hour numbers. As a result, new CHR stations have popped up in New York and L.A., and this trend will continue as PPM enters more markets in the months ahead.

MR--In smaller and mid-size markets, there is little local on air talent as syndicated shows cover many hours a day. Any chance that this can change?

RF--I would like to think this will change, especially if the big corporate station owners are forced to shed stations in medium markets. But technology might prevent this from changing. It’s become easy for small and medium market owners to acquire satellite formats and shows that sound better than what they could afford to do on their own. Given the technology available, it’s easy to “fool” a local audience by inserting the call letters (with the national host’s voice) after each song and going to a meteorological service for the local weather including the current temperature. And it’s also better for the bottom line. So we might see some localism come back but probably not a lot.

MR--When AM radio was on the ropes some years back, talk radio saved it. Anything on the horizon for FM that could breathe life into it?

RF--Talk actually is becoming big on FM. A number of large AM’s have recently started simulcasting on an FM or moving a successful AM News/Talk station to FM. Some market examples are Salt Lake City, Indianapolis and Pittsburgh. Otherwise, I don’t see any new format coming down the pike for FM. The reason is that as much as people complain about lack of music variety, ratings have always proven that listeners in general want very familiar music. A deep playlist or a format of unfamiliar songs is not commercially viable.

I don’t think radio has done a good job of incorporating digital into their marketing plans. Their streaming simply duplicates their on-air product except for the commercials. I think they’re missing an opportunity to put forth something different online, lure young people from an audio stream such as Slacker or Pandora, and turn it into a profit center.

MR--What do you think of the prospects for satellite radio? Has much of their problem been the decline of the US auto market and rotten economy? Or, was it just not that great a product to begin with?

RF--I don’t see the incentive for large numbers of people to purchase Satellite Radio in its present form. The music stations sound voicetracked (i.e. have disc jockeys who record their limited talk using software ahead of time) and have little personality; they are mainly music machines. Satellite Radio does offer virtually every conceivable genre of music, but most appeal to a small, very narrow audience that will have little impact on Satellite’s revenue. While listeners complain about advertising on FM, spots do not appear to have a noticeable effect on listening levels. Moreover, Talk shows on Satellite are simulcasts of what’s available on commercial radio and cable TV.

Satellite does fill a role of having a continuous radio companion on a distant car trip. The decline of the auto market is certainly having an effect on Satellite Radio; for the first time, Satellite subscriptions declined over the past several months. The jury is still out; now that Liberty Media owns a large share of Sirius XM and might own more in the near future, watching what the company might do to improve things will be interesting.

MR--If a giant such as Clear Channel goes bust, will local ownership come back in many markets?

RF--I’m hoping some local ownership will come back. What would be even better is smaller broadcasting companies owning fewer stations per market than are now owned by the Clear Channels of the world. The smaller groups would have more business and programming expertise plus greater financial resources than local owners.

Something has to give and maybe will happen before the year is over. One problem is the banks probably don’t want stations back because they couldn’t get what is owed to them from new owners in the current marketplace; values have plummeted too much. But companies such as Citadel, Clear Channel and Cumulus Media Partners are in so much trouble that they probably will run out of refinancing options and be forced to unload stations.

MR--The agency model is broken and many shops are on the edge. Is their a future for radio as we now know it? How might it evolve?

RF--One thing that doomsayers forget is that radio has the best delivery system of any audio medium. Radio is accessible to virtually everyone, unlike an iPod, Blackberry or any other device. There’s no buffering and no downloading. Radio’s problem is its content. When it’s forced to, and radio is still a very viable medium, radio will correct its content problem. Doing so now might be difficult given all the financial problems. But eventually radio will straighten itself out. In terms of delivery system, radio has no problem at all.

MR--I have never thought that agencies have given radio a fair shake in putting media plans together. How can radio stations sell themselves better?

RF--Radio has always played second fiddle at ad agencies. Some of that has to do of course with glamour and making money. Some of it is legitimate; TV does offer a superior creative product as well as high reach and probably greater attentiveness. I’ve always felt the RAB sold radio incorrectly by saying it’s a reach medium and pointing out that almost everyone hears radio over a week. That would be a valid point if media buyers used every station. The truth is, because most people listen to just several stations, radio buys typically have low reach compared to TV. Yet radio does have some excellent attributes, and I think the RAB would better serve itself by promoting the medium’s actual strengths.

MR--Music theft is really rampant. I was surprised on my college tour (see May 14th post) by the stuff going on all over. Also, some young people tell me that some artists make so much on their concert tours they are willing to almost give away their music for free. The kids out there tell me that the "Wild West" mentality provides a greater variety of music and gives smaller artists a chance. I have gone to folk concerts recently where the artists hawked CD's during intermission and after the show. The only way to buy the music was in person or on the Web. What is the future of Warner Music et al?

RF--The record labels are having the same problems as radio, and I don’t see that going away. That’s why the record lobby is trying to push legislation through Congress that would charge radio stations royalties, and why music-only retailers have almost disappeared. I don’t know whether technology and legislation will ultimately converge to end illegal downloads.

Thanks, Roddy. That was terrific. And, please readers, do not forget to check out Atlanta Airwaves Action (atlairwaves.blogspot.com).

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

Monday, June 8, 2009

2010 Media Pricing--A Tough Call

Over the last two weeks, I have received several e-mails and calls from ad agency people across the country asking for some help in forecasting local media pricing for calendar year 2010. To a person, they say that they have done well for clients so far this year and are now getting hammered by advertisers to drop rates even more for the rest of 2009. Also, some clients are demanding additional rate relief throughout all of 2010. It is a complicated issue with a lot of moving parts. Let us look at it as rationally as possible.

I sent out a few questions on this topic to my panel of experts across the country and received almost a 100% response. Also, I asked some sales executives who are not panel members the same questions. There will be some quotes below but I cannot identify any sales managers or I could compromise their positions. Most people spoke with remarkable candor.

We are in the worst recession since the 1974-1975 debacle which occurrred as Dick Nixon resigned from the White House in disgrace in summer 1974. Jerry Ford, who replaced him, tried a Whip Inflation Now (WIN) campaign which fell flat on its face and the economy continued to tank. Ford narrowly lost to Jimmy Carter but by then the economy was on the mend but people did not fully realize it until months later. Many said Ford lost not to the bad economy but for his courageous and controversial pardoning of former President Nixon.

There are few of us still around who remember that time in media. As the recession ended, media pricing was like a coiled spring. Throughout 1976, local TV and radio prices snapped up dramatically. Some markets saw 40-50% increases in cost per points as car dealers came back from the brink and Americans started buying again. It was a great time to be a broadcaster and a difficult time to be an agency person explaining this dynamic marketplace to your client base. We do not see a replay of 75-76 happening this time around.

While there are some signs of improvement in the economy going on, most would say that they are quite tepid. The key indicators of retail sales, home prices, corporate earnings and jobs do not look good. The glass is half full crowd puts a positive spin on recent corporate earning reports--1st quarter results were down 32% year over year. The positive is that many analysts thought that they would be even worse. With jobs they take a similar tact--if the rate of new unemployment filings is lower than the last month, they consider it a victory even though the unemployment rate keeps inching up. Unemployment usually keeps moving upward until after the recession is over. No matter how you spin it it is clear that MAJOR HURDLES REMAIN.

Just how bad is it? Niall Ferguson is recognized as the greatest living economic historian. He is only 45, teaches in the US and Britain and is a wonderfully lucid writer. In the June 1st issue of BARRON's he was interviewed and I quote "Nobody has the faintest idea what next year is going to look like. It isn't clear yet that this is just a common recession. This is probably a slight depression." Wow! The most prominent economic historian in the world has already dropped the "D" word. If you remember a post from a few months ago (Are We in a Depression? February 23, 2009) we defined it in two time honored ways:

1) a depression was official after 36 months of continuous decline in GNP. That would put us at January, 2011 so we have a long way to go.
2) an official unemployment rate of 11.0% or more. Again, we have that in a few states but nationally we have a way to go yet.

Some local broadcasters may be in a depression (Ohio, Michigan top the list) but the national economy clearly is not at present.

What do our panel members and guest commentors say about media prices? A fellow in Ohio says things are desperate. He has to fire more staff and New York just does not understand. An uber-experienced sales executive says "Agencies smell the blood of a depressed media economy and have slashed their cost per points for the rest of the year." A very thoughtful media executive says "I would be ecstatic if the back half of 2009 came back but I do not see it happening. The loss of the big three auto spending is too devastating and the German and the Japanese maufacturers are feeling it too. I just don't know how any category boost in ad spending can compensate."

Three people mentioned a scary thought. They said that network affiliates are under such pressure that they have played "Let's Make a Deal" with everyone. Some are already sold out for third quarter. This violates the old saw that a good sales manager is never out of inventory. If you are sold out this early, you priced your product too low. Headquarters is happy that billing is on the books but a) will it run or get cancelled mid-stream? and b) if you have no inventory how do you take care of big advertisers with make good weight when buys do not deliver? It is a recipe for disaster that stations have not had to deal with much over the years.

A buying chief that I have known forever tells me "1st quarter was a dream. But, we were actually pre-empted a few times in May. I do not think that things are so dire. Rates next year will be tied 100% to the economy at that time." A few others echoed that sentiment.

So what happens in 2010? The honest answer is a bit unclear. I will bet that with automotive still on the ropes we will definitely not see a replay of the 40-50% increases of 1976. But another 25-30% drop is equally unrealistic. It is clear to many of us that this will not be a V shaped recession but one where we scrape along the bottom for an uncomfortably long time.

What of other media? Outdoor looks like a great opportunity right now. Radio the same with great value available in many markets and good people standing on their heads with promotions. Newspapers? They may be dying but many still don't get it. Magazines? They will provide good deals if you push a little. Digital? They appear to be still growing but the rate of growth is way down. If you don't ask, you don't get so for 2010 be sure to ask for rate relief with all online buys.

This is a tough issue. Clients keep pounding the table because they are nervous and CNBC, Fox News, and CNN do not help with their incessant reports on the struggles of the media. Stay aggressive but, above all, stay cordial. Most of us can survive this once in a lifetime horror show if we keep our heads. And, if you are an advertiser reading this, remember that with the big drop in TV and Radio this year, you are starting from a lower base. So another double digit decline in media prices for 2010 is remote unless the economy really gets horrible.

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

Wednesday, June 3, 2009

Develop a Hedge Strategy

I hate to admit it but over 36 years ago I was a graduate student at Boston College. One day, I read in the Boston Globe (we read daily papers in those days) that a prominent middle European banker was speaking at the Harvard Business School later in the week. When the day arrived, I hopped on the train at BC and, after a transfer, arrived in Cambridge.

It was a cinch to sneak into the session and within seconds all of us in the audience were enthralled by this sophisticated Swiss national who spoke better English than any of us. He warned of inflation coming to the United States and suggested that all Americans put 10% of their money in gold (at that time, in early 1973, Americans could not own gold but gold shares and numismatic coins were legal). When some money managers in the crowd pressured him on the yellow metal recommendation he said "Put 10% of your money in gold and hope that it goes down." A few older people in the audience nodded but all of us kids looked at each other. Finally, a young fellow asked what we were all thinking. "Mr. X, why buy something and hope that it goes down in value."

A bemused smile came on the speaker's face. He explained how Europeans were used to turmoil in politics and markets and gold was the ultimate hedge against uncertainty. If you did not live through two world wars on your home turf, the nightmare German hyperflation of the Weimar Republic in the 1920's, and endless governments in France and especially Italy, you did not understand the need to hedge. He said if you put 10% in gold and the markets tanked, gold would soar and your entire portfolio would be protected. The smooth gentlemen was right on the money as the Dow Jones halved over the next few years and gold jumped from $70 to $870 an ounce before pulling back. I certainly learned a lesson that day that has stuck with me.

Whenever I speak with advertisers about using new media, they are interested but are afraid that some of the alternative media tests will not pay out. They do not want failures. Well, as we have said before in this space, most of these new wave tests will fail. But you still need to do them!!!

Some say that our economic world is entering a replay of the 1970's. Maybe it is and maybe it is not. But the concept of hedging that the urbane banker spoke of then is valid now. If you stick with conventional media exclusively, you will surely get burned as fragmentation and commercial avoidance continues to gallop. And, there is no question that some new media tests will be stunning failures. But, if you sit tight and do the same thing that you have always done, failure is assured.

While not life threatening as what Europe suffered under Napoleon, Hitler, World War I and other disasters, the current media climate is very unsettling and can easily be described as a revolution.

Consider new media as a hedge. If you use some now, test more. Have you given mobile a fair test yet? What have you done in social media? Hedging is a form of media portfolio insurance. Embrace it and learn how to navigate our rapidly shifting waters.

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

Monday, June 1, 2009

Media Prices are Determined at the Margin

I was on a plane the other day and a fellow next to me began talking about how big oil companies control the world. All efforts to deflect my seat mate and bury my head in my book failed, so I had to hear him out. He kept repeating that there had to be a conspiracy going on if demand fell 20% recently but price of a barrel of oil dropped from $147 to $35. I patiently explained that prices are determined at the margin and that there is nothing sinister about it. It would have been better had I kept quiet. Sadly, my wife was not with me. She can shut me up and quickly.

Here is what I mean using an example that we can all understand these days--residential real estate pricing. Let us say that we all live in a suburb of Philadelphia, Pennsylvania where the average home price is around $300,000. How is the price determined? Reaching back to Economics 101 most of you would say Supply and Demand. Okay, but let's take this price analysis just a bit deeper. Last year, the average price was $300,000 but that was when you had a normal number of homes for sale (assume 4%). That is your supply. But what happened when 15% of homes in our town are for sale. Did you average price stay the same? We all know the answer to that. It fell sharply, probably to $220,000-235,000 with no rise in consumer demand.

What does this mean to our media world these days? Just about everything. Who are the people holding their own? It is the scrappy players like the local cable interconnects that bring dozens of new clients into TV on a zoned basis for the first time. Or, the broadcast TV sales teams, often with former radio salesman, who know how to find new clients. They bring them into small market TV with imaginative packaging, or these days, simply with low prices. The game is won at the margins with a few new clients providing the replacement revenue that they need to keep corporate happy and the team employed.

Pricing at the margin has always been something of a double-edged sword. The advantage is that a small number of advertisers can make a difference in monthly profit and loss figures for a TV or radio station. Remember the knife fights for share that went on when a large local car dealer decided to put this budget on one or two stations? Stations played ball because they needed that revenue at the margin. The other side of the sword is that a few players such as local car dealers can break you if they drift away.

Today, with many car dealers tettering and GM declaring bankruptcy and shutting down thousands of dealerships, the concept of pricing at the margin will be more prominent than ever. Even when the economy recovers (it will some day), there will be structural changes as the tried and true auto dealers and other local retailers will no longer be there to make your month. Those who survive and prosper will find the next generation of retailers or services. The challenge is daunting but many are up to it.

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