I received an e-mail from a long time friend a few weeks ago. He and I discuss markets of all kinds regularly. Our topics range from stocks to broadcast inventory to commodities to emerging markets. His question was: Are you going to start nibbling at broadcast oriented stocks now and make a big killing when they come roaring back in 2010?
Fortunately, the old fellow was not talking with me. I sent back a measured response and then called two days later. We basically agreed to disagree. His take is that the local broadcast marketplace is like a coiled spring ready to come unleashed once the “long recession” is officially over. My take has a bit more nuance; hence this post.
All of us are hoping for a recovery in 2010. Some say that it has already begun. P&G and Toyota have both promised to hike ad spending next year which is really encouraging. And, Microsoft says that they will attempt to take on Google with their Bing search product by spending $100 million+ of ad dollars in some venues that need the funds badly.
But the coiled spring analogy won’t apply in my opinion next year. Each medium will carve out a different path over the next several years and some will not follow the past pattern of economic recovery.
Historically, TV, particularly Spot TV, always did lead the charge into recovery. During expansions they always out performed other media types. Even during the horrible inflation of the Carter years (1977-1981), Spot TV usually increased billing by 3% or more over the increase in the Consumer Price Index (CPI). So they grew in real terms even when all others only grew nominally; a neat trick for sure.
Here is how we see things shaping up by medium over the next few years:
Internet—no surprises here and over the next few years we see low double digit increases in billing in the 11-13% range compounded. By some measures, Internet advertising has just passed radio in total billing and next year it looks as if it will hurdle over magazines as well.
Mobile—this is easily the fastest growing medium with billing set to grow by 30% and double every 30 months or so. Remember, they are starting from a low base so billing can double and double again over the next five years and they still will not be a major player.
Cable—the growth will continue both nationally and locally. Good sales organizations at both levels have positioned them for good growth even if the recovery is muted. We would forecast high single digit percentage growth here which is great if consumer prices stay flat for a while longer. Some of the national players work very hard to customize efforts for you—they have finally arrived at true integrated marketing communications. Panel members give Discovery Networks high marks for imagination and multi-platform offerings even to modest advertisers.
Outdoor— more than one panel member says there are signs of comeback here in some markets. Increasingly, people are catching on to its unique position as the last mass medium. As I travel, I see lots of open boards so “Let’s Make a Deal” may prevail for a while longer. While growth will not be as dynamic as cable, 5% growth per annum could be achieved easily.
Newspaper—Times are tough and will get tougher. Publishers are just not getting religion and the tidal wave of Internet growth and demographics is against them. Don’t be surprised if papers continue to close as the economy improves. Ad revenue declines of close to 10% compounded will take down some big names in the years to come. A shame but it will take a mass movement to Kindle or similar products to save some historic newspapers.
Magazines—some specialty titles may do okay but billings will drift down in the 5% range year to year for a while.
Radio—with car dealers closing all over and retail shaky as consumers pay down debt, the picture here is grim in some markets. A return to local ownership may breathe life into some stations in selected markets where sales people hustle and long standing relationships continue to be nurtured. People from coast to coast tell me that this medium is on the ropes but has promise with the right management and realistic expectations. Long term, they are losing lots of young people who get their music elsewhere which is a big issue. Overall, look for sales decreases to continue in the 3-4% range nationally.
TV—This one is tough. Some people will come back to TV next year. There is no way there will not be a bounce up from the horrible first quarter of 2009. But, offsetting that, hundreds of local car dealers no longer exist. They were instrumental in the “coiled spring” recovery years of past business cycles. If you do a proper Discounted Cash Flow (DCF) analysis of broadcasters the picture does not look good. Some say billings will decline by a couple percent per year going forward and they will back to mid-1990’s revenues in several years. This is way too linear for me. It is not so simple and there may be a downward shock or two. My analysis does not take into account the sophisticated number crunching of a Warren Buffett or a David Dreman who labor long and hard over revenue growth rates, depreciation, interest payments, taxes, and changes in working capital. But what I do see are two things that can cause a big drop in a few years:
1) Time Shifting Devices (TiVo et al) are now at about 35% penetration nationally. When TiVo and other DVR’s cover 40% of the US TV household base, some advertisers will abandon the TV ship including national network broadcast.
2) As DVR penetration grows beyond the 40% mark in individual markets, TV will stop working or paying out for many people. Broadcasters will have to cut rates and reach potential will accelerate its downward spiral of recent years.
This will not happen everywhere. Some TV executives will run more DRTV (Direct Response TV), cut staff even more and bring new players into their medium. Others wedded to the old model will get clobbered. And, a few will benefit from network TV declines by being in a top 30 market and scooping up money that used to be spent in the network upfront marketplace.
Right now, network TV has not been hurt yet to a big degree as advertisers do not seem to know where to put their money. When a few big players cut back and have good years, the logjam will break and they will never be the same again.
How about ad agencies? Want to bet your kids tuition money on WPP or Interpublic? Larry Haverty, a mutual fund manager who follows media for the Gabelli Group put it well—“I would prefer to bet on companies selling stuff, rather than those specializing in the art of selling stuff.”
As always, there will be opportunities for the bold, the nimble, the tech savvy, and the lucky. Be prepared and realistic and you may come out of it just fine.
If you would like to contact Don Cole directly, you may e-mail him at doncolemedia@gmail.com
Tuesday, September 29, 2009
Tuesday, September 15, 2009
Galbraith's Affluent Society Revisited
Recently, I ran into someone who was waxing poetic about John Kenneth Galbraith’s Affluent Society (1958). Fifty years after publication, he said the book held up beautifully, he was eerily prescient in his forecasts about the dangers of consumerism, and he spotted advertising as being a dangerously manipulative force in our society.
The gentleman was clearly more left of center than I (not hard!) but I told him that Galbraith’s thesis was flawed and tried to say why. I had not read the book since I was 20 years old so I just reread it and would like to take you through my thinking. Why bother? Since his death at age 97 in 2005 his muddled arguments seem to be getting more traction than they have in a generation.
It all starts with the concept of Consumer Sovereignty. This concept was popularized by the great Austrian economist Ludwig von Mises who said that, in a free market economy, the consumer was king. In his book Bureaucracy (1936), Mises says “The real bosses under capitalism are the consumers. They, by their abstention from buying, decide who should own the capital and run the plants……They determine what should be produced and in what quantity and quality. They make poor men rich and rich men poor…As soon as something is offered to them that they like better or is cheaper, they desert their old provider.”
This idea permeated economic thinking until Galbraith unleashed The Affluent Society.
Galbraith was a fascinating character. Born in Canada, he was a towering six foot eight at a time when the average American was five foot seven. A brilliant scholar, he had a long teaching career at Harvard, served as Ambassador to India under President Kennedy, and was an advisor to many Democratic candidates over the years. He was a prolific writer but was not taken seriously by many other high profile economists as he was hard to categorize. Ken, as he was known, did not appear to belong to any specific economic school (Classical, Austrian, Marxist, Monetarist, and Keynesian). He liked to criticize the mistakes of contemporary economic policy but unlike the giants in economics such as Adam Smith, Marx, Schumpeter, and Keynes he did not provide his own model which anywhere near matched the scope of the Big Four.
He was glib, sarcastic but funny, and a wonderful guest on TV or NPR even into advanced old age. With a wide circle of friends he popped up everywhere and was frequently seen skiing in Switzerland with conservative icon William F. Buckley, Jr.
In The Affluent Society, Galbraith rejects the Misean precept of Consumer Sovereignty. In the post World War II era, Galbraith said that as things gradually got better, businesses must “create” consumer wants via advertising. While this create lots of jobs the artificial affluence through the production of unnecessary good and services forces the public sector to be ignored to a certain degree.
He went further by stating that “advertising mitigates shifts in consumer tastes by controlling tastes. The size of many consumer brand companies allows for product diversification which mitigates the consequences of a shift in tastes.” Galbraith said that a “techno-structure” was developing in the US that “closely controlled consumer demand and market growth through advertising and marketing”.
The idea got a lot of attention in certain political circles and all of us in advertising have probably at one time or another been accused by a relative or new acquaintance of working in a manipulative business.
The world did not accept his comments sitting down. Businesses quietly went about doing their thing and the years 1958-1968 were extremely prosperous in the US. Perhaps his most effective critic was one of my heroes, University of Chicago and Nobel Laureate Professor Milton Friedman. Uncle Miltie said that those who felt they had higher minds wanted to take choice from the American people because they knew better. In a review of The Affluent Society, Friedman said “many reformers, Galbraith is not alone in this—have as their basic objection to a free market that it frustrates them, because it enables people to have what they want, not what the reformers want. Hence, every reformer has a strong tendency to be averse in a free market.” This was brilliant as it crystallized that Galbraith’s criticisms were about his political agenda not economic theory.
Galbraith stated that as things got better, wants are “not real or genuine”. Who are they created by, then? The ad agencies and their wicked clients? That seems to be his drift.
In the early 1970’s I was at a conference where Libertarian lightning rod Dr. Murray Rothbard was asked about Galbraith and advertising. He answered with great vehemence and then later I found a Rothbard essay on the topic. His central theme was “If they buy a product that does not fulfill its claims, the product will soon fade into oblivion. Any advertising claims for products can be and are quickly tested by the consumer”.
Here is where I come out on Galbraith’s thesis. He did appear to foresee the consumer consumption gone wild that has helped to put us into the deep economic hole that we now face. And, if you look at our crumbling infrastructure of roads and bridges and many of our public schools that are an international joke, he makes some points about public sector neglect in recent decades. Remember, however, to do those public improvements would largely come from increasing local property taxes and state income taxes which had nothing to do with advertising spending.
His point of bigness dominating things has some truth as we accelerate in to the fragmented world of communications in this new century. The cost of reaching people will soar although targeting is getting much tighter. Big companies will do line extensions and have the marketing muscle with a few large retailers to effectively keep smaller players out. There will still be strong competition in most major categories even under this scenario.
However, he really never studied advertising closely. By any yardstick, most new products fail. That is, those that are rolled out across a wide piece of geography. Most put the death rate in the 50-55% range. But, there are thousands of products that never make it out of the first two test markets. If all of us in the advertising/marketing game are so powerful and manipulative with our irresistible messages, we should have a success rate far higher than what I have observed. My panel members who worked on rollouts to a person all admitted that most of their new product development introductions were failures.
The simple truth is that freedom works. Ignore your customers’ needs and wants and they will go away. Someone one told me that advertising was “Art with a message.”
We are not evil people. We serve, survive, and prosper at the mercy of the consumer.
If you would like to contact Don Cole directly, you may reach him at doncolemedia@gmail.com
The gentleman was clearly more left of center than I (not hard!) but I told him that Galbraith’s thesis was flawed and tried to say why. I had not read the book since I was 20 years old so I just reread it and would like to take you through my thinking. Why bother? Since his death at age 97 in 2005 his muddled arguments seem to be getting more traction than they have in a generation.
It all starts with the concept of Consumer Sovereignty. This concept was popularized by the great Austrian economist Ludwig von Mises who said that, in a free market economy, the consumer was king. In his book Bureaucracy (1936), Mises says “The real bosses under capitalism are the consumers. They, by their abstention from buying, decide who should own the capital and run the plants……They determine what should be produced and in what quantity and quality. They make poor men rich and rich men poor…As soon as something is offered to them that they like better or is cheaper, they desert their old provider.”
This idea permeated economic thinking until Galbraith unleashed The Affluent Society.
Galbraith was a fascinating character. Born in Canada, he was a towering six foot eight at a time when the average American was five foot seven. A brilliant scholar, he had a long teaching career at Harvard, served as Ambassador to India under President Kennedy, and was an advisor to many Democratic candidates over the years. He was a prolific writer but was not taken seriously by many other high profile economists as he was hard to categorize. Ken, as he was known, did not appear to belong to any specific economic school (Classical, Austrian, Marxist, Monetarist, and Keynesian). He liked to criticize the mistakes of contemporary economic policy but unlike the giants in economics such as Adam Smith, Marx, Schumpeter, and Keynes he did not provide his own model which anywhere near matched the scope of the Big Four.
He was glib, sarcastic but funny, and a wonderful guest on TV or NPR even into advanced old age. With a wide circle of friends he popped up everywhere and was frequently seen skiing in Switzerland with conservative icon William F. Buckley, Jr.
In The Affluent Society, Galbraith rejects the Misean precept of Consumer Sovereignty. In the post World War II era, Galbraith said that as things gradually got better, businesses must “create” consumer wants via advertising. While this create lots of jobs the artificial affluence through the production of unnecessary good and services forces the public sector to be ignored to a certain degree.
He went further by stating that “advertising mitigates shifts in consumer tastes by controlling tastes. The size of many consumer brand companies allows for product diversification which mitigates the consequences of a shift in tastes.” Galbraith said that a “techno-structure” was developing in the US that “closely controlled consumer demand and market growth through advertising and marketing”.
The idea got a lot of attention in certain political circles and all of us in advertising have probably at one time or another been accused by a relative or new acquaintance of working in a manipulative business.
The world did not accept his comments sitting down. Businesses quietly went about doing their thing and the years 1958-1968 were extremely prosperous in the US. Perhaps his most effective critic was one of my heroes, University of Chicago and Nobel Laureate Professor Milton Friedman. Uncle Miltie said that those who felt they had higher minds wanted to take choice from the American people because they knew better. In a review of The Affluent Society, Friedman said “many reformers, Galbraith is not alone in this—have as their basic objection to a free market that it frustrates them, because it enables people to have what they want, not what the reformers want. Hence, every reformer has a strong tendency to be averse in a free market.” This was brilliant as it crystallized that Galbraith’s criticisms were about his political agenda not economic theory.
Galbraith stated that as things got better, wants are “not real or genuine”. Who are they created by, then? The ad agencies and their wicked clients? That seems to be his drift.
In the early 1970’s I was at a conference where Libertarian lightning rod Dr. Murray Rothbard was asked about Galbraith and advertising. He answered with great vehemence and then later I found a Rothbard essay on the topic. His central theme was “If they buy a product that does not fulfill its claims, the product will soon fade into oblivion. Any advertising claims for products can be and are quickly tested by the consumer”.
Here is where I come out on Galbraith’s thesis. He did appear to foresee the consumer consumption gone wild that has helped to put us into the deep economic hole that we now face. And, if you look at our crumbling infrastructure of roads and bridges and many of our public schools that are an international joke, he makes some points about public sector neglect in recent decades. Remember, however, to do those public improvements would largely come from increasing local property taxes and state income taxes which had nothing to do with advertising spending.
His point of bigness dominating things has some truth as we accelerate in to the fragmented world of communications in this new century. The cost of reaching people will soar although targeting is getting much tighter. Big companies will do line extensions and have the marketing muscle with a few large retailers to effectively keep smaller players out. There will still be strong competition in most major categories even under this scenario.
However, he really never studied advertising closely. By any yardstick, most new products fail. That is, those that are rolled out across a wide piece of geography. Most put the death rate in the 50-55% range. But, there are thousands of products that never make it out of the first two test markets. If all of us in the advertising/marketing game are so powerful and manipulative with our irresistible messages, we should have a success rate far higher than what I have observed. My panel members who worked on rollouts to a person all admitted that most of their new product development introductions were failures.
The simple truth is that freedom works. Ignore your customers’ needs and wants and they will go away. Someone one told me that advertising was “Art with a message.”
We are not evil people. We serve, survive, and prosper at the mercy of the consumer.
If you would like to contact Don Cole directly, you may reach him at doncolemedia@gmail.com
Thursday, September 10, 2009
Advice to the Young--Go Big or Small?
As many of you know, I now serve as a part time professor at two universities. Recently, a student who is a senior approached me and asked about where he should apply for a job next spring. We talked about many options and issues such as how far he was willing to move from home. Then he asked about working at a big company vs. a smaller one.
I suppose that I gave the standard arguments. At a big company vs. a smaller one you are given more thorough training, are exposed to broader thinking, and there are far more people to talk to about key issues and developments in the industry. At a small company, you can get involved in fairly major issues rather young and you get to know top management close up.
When I got home, a book was awaiting me. It was Lawrence G. McDonald’s A Colossal Failure of Common Sense, about the collapse of Lehman Brothers last year. By great coincidence, McDonald devoted some very heated copy to the issue of big vs. small companies.
McDonald and his partner, Steve Seefeld, had built a remarkable dot.com up over several years that provided bond analyses on line. It became so successful that they sold it to Lehman and became very rich young men but also Lehman employees. McDonald said they loved their start up venture because they lived by some simple rules—“If you have something to say, say it. If there is something to do, do it. If you’ve screwed up, admit it.”
But both were a bit shocked at the Lehman culture. Seefeld became fed up and left quickly but McDonald stayed on and fulfilled a lifelong ambition to become a trader.
Comparing Lehman to his dot.com he said, “The whole ethos of a major company is different. There are people forever trying to cover their own asses, people who have somehow carved an entire career out of making small but telling criticisms of other people’s work. That’s because in a big corporation, the guy who spots a screw-up is somehow cleverer and more valuable than the guy who wrote the 40 page marketing plan in the first place.”
You would think that he has made his point but turn to page 58 and McDonald really stokes up the heat as follows: “Fear is the key. Fear of being the one person in this whole morass of execs who got it wrong. Fear of being the scapegoat, fear of looking ridiculous, fear of being fired. Thus there develops a whole art form of corporate ducking and diving, staying out of the firing line, writing memorandums that somehow shift the responsibility, not being seen with your head above the parapet, subtly seeking the glory but always dodging the blame, carefully filing that memo that will ultimately exonerate.”
There is no question that all organizations have politics and once you get to a certain size it does get in the way of getting the job done. I clearly do not have as much anger in me as Mr. McDonald but directionally he makes a very good point.
I have observed that of the relative handful of jobs that I had, with each move I went to a smaller company. And, each time my influence on the enterprise and my happiness increased fairly significantly. I also appreciated very much that I was no longer at my first two jobs which were at larger, more bureaucratic places.
The only downside at the smaller places was that there were sometimes, but not always enough people to share your thoughts with or peers or top management who constantly challenged you to sharpen your thinking. But my last three jobs where I spent almost my entire career were places where I could speak by mind and I often did.
I can honestly say that I never had a fear of getting fired as I always thought there would be someone out there desperate enough to hire me. And, I lived fairly modestly so I was never under the gun financially.
So what do I tell my young friend the next time I see him? Probably start at some place fairly large and get some good training and exposure to a much wider world. If you start to chafe at the big company politics or bureaucracy, move down in size but not necessarily in quality. Find something you love and stick with it. I did and I have never regretted it.
By the way, the McDonald book is a very easy to read book about the Lehman collapse.
If you would like to contact Don Cole directly, you may reach him at doncolemedia@gmail.com
I suppose that I gave the standard arguments. At a big company vs. a smaller one you are given more thorough training, are exposed to broader thinking, and there are far more people to talk to about key issues and developments in the industry. At a small company, you can get involved in fairly major issues rather young and you get to know top management close up.
When I got home, a book was awaiting me. It was Lawrence G. McDonald’s A Colossal Failure of Common Sense, about the collapse of Lehman Brothers last year. By great coincidence, McDonald devoted some very heated copy to the issue of big vs. small companies.
McDonald and his partner, Steve Seefeld, had built a remarkable dot.com up over several years that provided bond analyses on line. It became so successful that they sold it to Lehman and became very rich young men but also Lehman employees. McDonald said they loved their start up venture because they lived by some simple rules—“If you have something to say, say it. If there is something to do, do it. If you’ve screwed up, admit it.”
But both were a bit shocked at the Lehman culture. Seefeld became fed up and left quickly but McDonald stayed on and fulfilled a lifelong ambition to become a trader.
Comparing Lehman to his dot.com he said, “The whole ethos of a major company is different. There are people forever trying to cover their own asses, people who have somehow carved an entire career out of making small but telling criticisms of other people’s work. That’s because in a big corporation, the guy who spots a screw-up is somehow cleverer and more valuable than the guy who wrote the 40 page marketing plan in the first place.”
You would think that he has made his point but turn to page 58 and McDonald really stokes up the heat as follows: “Fear is the key. Fear of being the one person in this whole morass of execs who got it wrong. Fear of being the scapegoat, fear of looking ridiculous, fear of being fired. Thus there develops a whole art form of corporate ducking and diving, staying out of the firing line, writing memorandums that somehow shift the responsibility, not being seen with your head above the parapet, subtly seeking the glory but always dodging the blame, carefully filing that memo that will ultimately exonerate.”
There is no question that all organizations have politics and once you get to a certain size it does get in the way of getting the job done. I clearly do not have as much anger in me as Mr. McDonald but directionally he makes a very good point.
I have observed that of the relative handful of jobs that I had, with each move I went to a smaller company. And, each time my influence on the enterprise and my happiness increased fairly significantly. I also appreciated very much that I was no longer at my first two jobs which were at larger, more bureaucratic places.
The only downside at the smaller places was that there were sometimes, but not always enough people to share your thoughts with or peers or top management who constantly challenged you to sharpen your thinking. But my last three jobs where I spent almost my entire career were places where I could speak by mind and I often did.
I can honestly say that I never had a fear of getting fired as I always thought there would be someone out there desperate enough to hire me. And, I lived fairly modestly so I was never under the gun financially.
So what do I tell my young friend the next time I see him? Probably start at some place fairly large and get some good training and exposure to a much wider world. If you start to chafe at the big company politics or bureaucracy, move down in size but not necessarily in quality. Find something you love and stick with it. I did and I have never regretted it.
By the way, the McDonald book is a very easy to read book about the Lehman collapse.
If you would like to contact Don Cole directly, you may reach him at doncolemedia@gmail.com
Sunday, September 6, 2009
A Media Bellwether and Then Some
Today, we cover Direct Response Television (DRTV). I know that some of you may already be snickering, because the common perception of DRTV is late night hucksters who belong in the scrap heap of failed advertisers. But please hang on, my friends. The story is a bit more involved and worth a moment of your time.
DRTV is any advertising that asks consumers to respond directly to the advertiser. It almost always involves calling an 800 number or often visiting a web site these days. DRTV has two basis categories—short form and long form. Short form is two minutes and under and long form can go to 28 and1/2 minutes. Since the mid-1980’s when long form hit its stride it has been referred to as infomericals.
Today, the majority of billing for DRTV is done by specialists who only handle the arcane medium. Many conventional agencies dabble in it and some do it very well. DRTV rates are much lower than the conventional rates for package goods or financial institutions because all time purchased is remnant inventory. DRTV thus performs a very useful function for local station operators and for national cable networks and satellite players. Any time that is unsold they can offer to DRTV at fractional rates. If they find some one at the last minute to pay full bodied rates, the DRTV is immediately pre-emptible and does not run. So, by accepting DRTV, a station or cable player can easily find replacement revenue for their enterprise on very short notice. The DRTV advertiser has to be flexible. There are no ironclad etched in stone media efforts for them. Many of us have seen DRTV advertisers run 200 rating points in a market in a single week and then only “clear” or run 50 the following week. But the price concessions they receive cover a multitude of sins.
Historically, over the last 25 years that I have been involved in the medium, DRTV clearances are highest in mid-summer and from December 26-February 1st when stations and cable properties are never sold out. At other times, you can usually tell how tight a station or cable network is by monitoring how heavy the load of DRTV is as a percentage of total advertising. As a result, DRTV is something of a bellwether to tell you the state of the TV marketplace.
This point has been especially clear during this long and painful economic malaise of ours which some are referring to as “The Great Recession.” As the car business went south, a reasonably alert observer could observe that there was more DRTV all over the place. By March of this year, it was everywhere. DRTV has long been famous for keeping minor or new cable TV networks afloat. But early this year it was amazing. A New York cable executive told me that he had weeks where 80% of his advertising was direct response. Why did they take it? Some of the gadgets and cleaning products were not the ideal backdrop for some of the high quality shows that you see on cable. But there is an old Swiss saying from the Latin which sums it up—Pecunia non olet. It translates “Money has no smell.” Things are not going well now but were much worse earlier this year. Broadcasters and cable sales executives took money from those who could pay the bills and who can blame them.
Infomercials are a whole other category. Often, you see them referred to as paid programming. Some are hilarious (remember the real estate guys who promised you a million dollars in equity in 18 months) and you wonder how anyone would purchase. But remember this: if an infomercial is not performing, it gets yanked very quickly. One snowy Saturday morning several years ago, I vividly remember grazing across the cable offerings and counted seven infomercials featuring gadgets that guaranteed, with faithful use, a noticeably trimmer mid-section. Somebody was calling in and ordering the “belly-busters” or they would not keep running week after week and fighting such stiff competition. Mysteriously, when I hit the beach a few months later, the rock hard abs all of the gadgets promised were not in evidence.
The main appeal of the infomercial is that it promises a “magical transformation.” The product will make you beautiful or rich (although the real estate hucksters have largely dried up with the crash in home prices nationwide). In addition to the magical transformation, kitchen gadgets and special golf or fishing equipment often are big sellers. For stations and cable players, the paid programming offered by infomercials can be lucrative. You have no virtually no staff or production charges and often there is a line of people who pay upfront wanting to get on your program list.
A dozen years ago, DRTV never worked on local cable as the pricing was never right and the audience too small. Generally, about 1 in a 1,000 people viewing calls in and responds. So, if a cable channel only had 1,500 viewers in a local TV market, maybe one call would come in, maybe not. Now, larger systems can run short form and make it work. A combination of rational pricing and some bonus units across a wide range of channels can amortize the expense and often make DRTV pay out in many markets. In smaller markets, both on broadcast and local cable, DRTV is usually problematic due to the low number of viewers and 1 in 1,000 response rates.
Nielsen also weighed in recently which may be a straw in the wind regarding the future of DRTV. They have just introduced a new product, Sigma, which allows an agency or buying service to monitor all 210 Nielsen television markets (DMA) daily. So, a DRTV advertiser can get a good read on what has run yesterday. Most shops of any size have proprietary software or subscribe to a service that helps with monitoring. Nielsen’s willingness to enter this marketplace may indicate that demand for DRTV will continue to grow.
In recent months, I have been candid in this blog about the difficult prospects that all forms of TV face over the next few years. Will DRTV suffer the same fate? Clearly, it will be harder to make it work. But, if business is really bad, broadcasters will love the upfront payment from smaller players and paid programming works for them as the risk is taken on by the advertiser. I have always felt that the infomercial viewer was just a bit different demographically and psychologically that the rest of us. They catch people who are bored. Keep in mind no one turns on the TV set with the purpose of watching an infomercial. You stumble on to them by accident. So, it is likely that infomercials may always be with us. And, if TV and cable really do lose as DVR, Hulu.com, and You Tube and a dozen other options get even more traction, short form may have a renaissance for a few years. This could happen if bootstrap entrepreneurs with a new gadget step up to the TV plate as major players cut back sharply or even abandon it.
Meanwhile, track the short form closely. It is a fine bellwether for what is happening out there. And, some of it is just plain fun and a wonderful example of American Pop Culture at work.
If you would like to contact Don Cole directly, you may do so at doncolemedia@gmail.com
DRTV is any advertising that asks consumers to respond directly to the advertiser. It almost always involves calling an 800 number or often visiting a web site these days. DRTV has two basis categories—short form and long form. Short form is two minutes and under and long form can go to 28 and1/2 minutes. Since the mid-1980’s when long form hit its stride it has been referred to as infomericals.
Today, the majority of billing for DRTV is done by specialists who only handle the arcane medium. Many conventional agencies dabble in it and some do it very well. DRTV rates are much lower than the conventional rates for package goods or financial institutions because all time purchased is remnant inventory. DRTV thus performs a very useful function for local station operators and for national cable networks and satellite players. Any time that is unsold they can offer to DRTV at fractional rates. If they find some one at the last minute to pay full bodied rates, the DRTV is immediately pre-emptible and does not run. So, by accepting DRTV, a station or cable player can easily find replacement revenue for their enterprise on very short notice. The DRTV advertiser has to be flexible. There are no ironclad etched in stone media efforts for them. Many of us have seen DRTV advertisers run 200 rating points in a market in a single week and then only “clear” or run 50 the following week. But the price concessions they receive cover a multitude of sins.
Historically, over the last 25 years that I have been involved in the medium, DRTV clearances are highest in mid-summer and from December 26-February 1st when stations and cable properties are never sold out. At other times, you can usually tell how tight a station or cable network is by monitoring how heavy the load of DRTV is as a percentage of total advertising. As a result, DRTV is something of a bellwether to tell you the state of the TV marketplace.
This point has been especially clear during this long and painful economic malaise of ours which some are referring to as “The Great Recession.” As the car business went south, a reasonably alert observer could observe that there was more DRTV all over the place. By March of this year, it was everywhere. DRTV has long been famous for keeping minor or new cable TV networks afloat. But early this year it was amazing. A New York cable executive told me that he had weeks where 80% of his advertising was direct response. Why did they take it? Some of the gadgets and cleaning products were not the ideal backdrop for some of the high quality shows that you see on cable. But there is an old Swiss saying from the Latin which sums it up—Pecunia non olet. It translates “Money has no smell.” Things are not going well now but were much worse earlier this year. Broadcasters and cable sales executives took money from those who could pay the bills and who can blame them.
Infomercials are a whole other category. Often, you see them referred to as paid programming. Some are hilarious (remember the real estate guys who promised you a million dollars in equity in 18 months) and you wonder how anyone would purchase. But remember this: if an infomercial is not performing, it gets yanked very quickly. One snowy Saturday morning several years ago, I vividly remember grazing across the cable offerings and counted seven infomercials featuring gadgets that guaranteed, with faithful use, a noticeably trimmer mid-section. Somebody was calling in and ordering the “belly-busters” or they would not keep running week after week and fighting such stiff competition. Mysteriously, when I hit the beach a few months later, the rock hard abs all of the gadgets promised were not in evidence.
The main appeal of the infomercial is that it promises a “magical transformation.” The product will make you beautiful or rich (although the real estate hucksters have largely dried up with the crash in home prices nationwide). In addition to the magical transformation, kitchen gadgets and special golf or fishing equipment often are big sellers. For stations and cable players, the paid programming offered by infomercials can be lucrative. You have no virtually no staff or production charges and often there is a line of people who pay upfront wanting to get on your program list.
A dozen years ago, DRTV never worked on local cable as the pricing was never right and the audience too small. Generally, about 1 in a 1,000 people viewing calls in and responds. So, if a cable channel only had 1,500 viewers in a local TV market, maybe one call would come in, maybe not. Now, larger systems can run short form and make it work. A combination of rational pricing and some bonus units across a wide range of channels can amortize the expense and often make DRTV pay out in many markets. In smaller markets, both on broadcast and local cable, DRTV is usually problematic due to the low number of viewers and 1 in 1,000 response rates.
Nielsen also weighed in recently which may be a straw in the wind regarding the future of DRTV. They have just introduced a new product, Sigma, which allows an agency or buying service to monitor all 210 Nielsen television markets (DMA) daily. So, a DRTV advertiser can get a good read on what has run yesterday. Most shops of any size have proprietary software or subscribe to a service that helps with monitoring. Nielsen’s willingness to enter this marketplace may indicate that demand for DRTV will continue to grow.
In recent months, I have been candid in this blog about the difficult prospects that all forms of TV face over the next few years. Will DRTV suffer the same fate? Clearly, it will be harder to make it work. But, if business is really bad, broadcasters will love the upfront payment from smaller players and paid programming works for them as the risk is taken on by the advertiser. I have always felt that the infomercial viewer was just a bit different demographically and psychologically that the rest of us. They catch people who are bored. Keep in mind no one turns on the TV set with the purpose of watching an infomercial. You stumble on to them by accident. So, it is likely that infomercials may always be with us. And, if TV and cable really do lose as DVR, Hulu.com, and You Tube and a dozen other options get even more traction, short form may have a renaissance for a few years. This could happen if bootstrap entrepreneurs with a new gadget step up to the TV plate as major players cut back sharply or even abandon it.
Meanwhile, track the short form closely. It is a fine bellwether for what is happening out there. And, some of it is just plain fun and a wonderful example of American Pop Culture at work.
If you would like to contact Don Cole directly, you may do so at doncolemedia@gmail.com
Wednesday, September 2, 2009
Follow-up--the Tar Sands
In my post last week, I departed from the usual media commentary and focused on what I believe is the dangerous position that the US is in regarding energy. We are less than 5% of the world's population yet we use 25% of the world's oil.
Yesterday, a brief blurb was in some publications regarding a Chinese based purchase of a substanial interest in a private company in Canada's Athabasca Tar Sands. Petro-China invested $1.7 billion in Athabasca Oil Sands Corporation's MacKay River and Dover Oil Sands. So what, you might ask.
Well, most of us assume that our major single supplier of oil is Saudi Arabia. Think again, it is Canada! And you can be sure that future oil from these areas will largely be sent to China.
If you want to grow and maintain an industrial economy you need many things but at the top of the list you find oil, steel, and cement. China will get what they need because they have a policy. We do not. Think about it.
If you wish to contact Don Cole directly, you may reach him at doncolemedia@gmail.com
Yesterday, a brief blurb was in some publications regarding a Chinese based purchase of a substanial interest in a private company in Canada's Athabasca Tar Sands. Petro-China invested $1.7 billion in Athabasca Oil Sands Corporation's MacKay River and Dover Oil Sands. So what, you might ask.
Well, most of us assume that our major single supplier of oil is Saudi Arabia. Think again, it is Canada! And you can be sure that future oil from these areas will largely be sent to China.
If you want to grow and maintain an industrial economy you need many things but at the top of the list you find oil, steel, and cement. China will get what they need because they have a policy. We do not. Think about it.
If you wish to contact Don Cole directly, you may reach him at doncolemedia@gmail.com
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