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Tuesday, December 21, 2010

Go East, Young People!

In 1841, a minister named J.B.L. Soule allegedly drafted an editorial in the Terre Haute Express that included the term “Go West, Young Man and Grow Up with The Country”. Urban legend has it that 14 years later, Horace Greeley of The New York Tribune stole that line which served as a rallying cry for the emergence of the American West.

As we approach 2011, perhaps the line for the genuinely ambitious and adventurous would be “Go East, Young People.” In about three years, the Asia Pacific region will be billing more in advertising than North America (U.S., Canada, and Mexico). And, looking forward given demographic and business trends, the Asia Pacific area will soon become the new global advertising hub by 2020.

What is the Asia Pacific region? Most demographers, financial analysts, and political theorists define it as the following 12 countries: China, Indonesia, Hong Kong, India, Australia, South Korea, Philippines, Thailand, Malaysia, New Zealand, Singapore and Taiwan. Some day soon Vietnam and New Guinea will be part of the list.

As we write, the annualized advertising expenditures are tracking at about $37.1 billion for 2010. Newspaper advertising has declined for the first time but TV, magazine, outdoor, internet and especially mobile are off the charts in terms of growth.

More telling is from a recent Nielsen release on consumer confidence. Looking at the whole world the leading 10 nations in terms of an upbeat outlook are from the Asia Pacific cadre with the only exceptions being Saudi Arabia and little Denmark. In tune with confidence, people in the Asia Pacific are future oriented. When asked what they would do with spare cash, Nielsen reports that 37% in the Asia Pacific countries would invest in stocks or mutual funds. The rest of the world lags way behind at 21% (perhaps they would pay down debt?).

Over the last year, media billings in some of the countries were very high compared to the previous 12 months. Nielsen tracks it at Indonesia +15%, Hong Kong +16%, India +15%, and Taiwan an eye-popping 19%. No nation in the group delivered less than +6% year to year.

The other thing about the region is that it is not monolithic in media usage. This is particularly true of internet activity. The Japanese and Koreans spend a lot of time blogging (can’t be all bad!), while, in Vietnam, mobile is the preferred method of internet access. The Australians and Chinese tend to use standard internet portals for their on line action.

These days many of my students and young people ask me what is the one thing that they can do to help their careers get off to a fast start. I answer with a straight face, “Leave the United States.” After they get over the shock, I tell them that I would like splendid young people like them to remain Americans forever. But, spending a few years overseas will pay very rich dividends over the next few decades in their careers. People who live overseas for a time come back with a perspective that their home bound colleagues lack. They may not be fluent in Mandarin but they can greet Chinese businessmen in their native tongue forever and understand better where their visitors are coming from in negotiations. If you live abroad for a while, you see America as it is and usually appreciate our freedoms more when you come home. Not all traveling businesspeople eventually get into the corner office. They do, however, have a certain self confidence and assurance that most of us do not have. They have seen more and experienced more. In a global economy, they can be invaluable to many firms and are simply more interesting people to be around.

I wish you and your families a very Merry Christmas.

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

Friday, December 17, 2010

Not Your Grandfather's Economy

This year, in the opening statement to his annual report to shareholders, J.P. Morgan Chase bank chief Jamie Dimon wrote “this is not your grandfather’s economy.” Whether you like big bank executives or not, Dimon’s statement was right on the money. I admit a grudging respect for him compared to all other money moguls.

The theme is an important one as we look at today’s economy and the mood of the people. For perhaps the first time in our long history, the majority of Americans do not look to the future with optimism. In a way when you look at the statistics, you can see why people are discouraged.

As we write:

1) Nearly one in five Americans is out of work or underemployed. Sure, the official unemployment rate is 9.8% but just as many work part time or in lesser jobs than they are capable of doing.
2) One in nine cannot make a minimum payment on their credit card balance
3) One in eight is in default or foreclosure on their home
4) One in eight is on food stamps
5) And, most damning of all, real average hourly wages now stand at 1974 levels!

No wonder people are discouraged. My favorite European commentator, the late Italian Luigi Barzini, once wrote of us—“America is alarmingly optimistic, compassionate and incredibly generous. It is a spiritual wind that drove Americans irresistibly ahead from the beginning.” Today, the American dream seems like a nightmare. Some 29 million households live on under $27,000 per year. Exactly one half of women 70 years old live only on Social Security payments.

To me, the American Dream never meant two cars in the garage and a college education for all. I was brought up to see it as each generation doing better than the previous one. For my children those hopes are still very much alive. Sadly, they are in a real minority. For over 100 years, America had greater upward mobility than any other nation of size. Now, there is far more upward mobility in Canada and all of Scandinavia than the U.S. Data is not available for Asia, but one would think, given their explosive economic growth, some nations there have surpassed us smartly.

Some say we need another leader. Many hark back to the sunny optimism of Ronald Reagan as the prescription for our current ills. He was a wonderful speaker, came off as a real leader, and made us feel good about being Americans. But, the problems now are more structural than in our heads.

Right after his inauguration, President Obama commented that we needed to maintain a vibrant middle class as they were “the class that made the twentieth century the American century.” It is hard to argue with that no matter what your politics are.

What is going on? To me, we have lost our economic mojo. We had it good, maybe too good for way too long. Those of us in advertising, publishing and broadcasting let the good times roll. As long as people were borrowing and spending, people advertised and we had one hell of a ride. In 2008, reality set in and we may not all feel the pain but we definitely see it.

Everyone has heard the boring statistics that in 1950, some 30% of non-farm employment was in manufacturing. By 2009, it had dropped to 10%. So, our industrial base has eroded. To me, the middle class erosion is totally tied in to this. The INDUSTRIAL middle class is shrinking. Some data from the labor department released recently made the point chillingly.

From 1999-2009, some 45,000 factories or plants have closed in the U.S. Think about that for a moment, please. Another way to look at it is 84 per week or a dozen a day! The average plant employed about 200 workers. This is horrible but think of the collateral damage of small businesses servicing the workers of such enterprises that were also sharply affected.

So, if we are going to get out of this mess, we need to rebuild our industrial base. Everyone cannot work in Silicon Valley or financial services. The president’s proposal of transferring industrial workers to green jobs is well intentioned but will take decades and not make a huge dent in unemployment.

Here is the root problem to me and it is not a pretty one to talk about. Imagine if you were an executive of a foreign firm or an entrepreneur from outside the U.S. considering locating a plant in the U.S. Would you really want to come here? The Federal Corporate Tax Rate is 35% which is higher than any other major country except Japan. We will hit newcomers with terrible regulation and a workforce not as skilled or eager as it once was. Also, we are the most litigious society on earth. When traveling abroad you learn that they get by with far fewer lawyers and lawsuits. In Paris, lawyers are rare, almost exotic. The Japanese always tell U.S. attorneys who land on their fair shores that they would like “less lawyering and more conscience” from them. Interestingly, Japan has both one twentieth of the lawyers and crime of America. Hmm.

We need to start making things again. And, using what we have. Arguably, we have the world’s biggest reserves of natural gas in the world. Yet, the government order hundreds of thousands of gasoline fired vehicles each year. And, billions leave our shores each week to pay for oil bolstering up the regimes of countries that despise the American way of life. We can get out of this mess if we made America attractive to capital again. Especially global capital, regardless of its passport.

Winston Churchill once said that “Americans can be counted on to do the right thing after they have exhausted all other possibilities.” Most of us see what is unfolding. Let us hope the New Year brings a desire to do something about it.

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

Sunday, December 12, 2010

Netflix, Cable plus ESPN

Netflix is a great American success story. Almost every day the trade press mentions their latest surge in subscriptions and what a threat that they are to other media entities. Netflix stock has quadrupled in the last year which is vastly better performance compared to all other media or tech companies. And, it is given much of the credit for taking down the Blockbuster franchise.

Lately, a lot of buzz has been made of the Netflix/Epix deal where Netflix will carry their movies and really juice up the Epix subscriber base. As a result, Netflix increasingly will be viewed as far stronger competitor to premium cable channels that are movie oriented. In a recent interview, Ted Sarankos, the chief content officer of Netflix, said “our product is more complimentary to cable than specifically competitive to any channel”. Perhaps he is being a bit disingenuous. Lots of us see Netflix as a modest but growing competitor to cable.

Anyone who has an internet enabled TV or is anywhere where they have access to an internet connection may watch films or many of their favorite shows on Netflix. Couple that with Hulu.com and a little help from You Tube and many young people are beginning to question the need for cable or satellite. Young adults strapped for funds question spending $100 a month for TV is a major expense. On line options have great appeal to some, particularly the upscale and well educated light viewers. The idea of 100,000 films plus many TV properties when you want and, on an unlimited basis, generate lots of appeal. Netflix also appeals to both the high tech and the no tech. Many people in their seventies cheerfully subscribe and get a new film every several days via their mailbox. The young exploit the streaming video options that Netflix offers.

Cable has an ace in the hole, however. Sports. If you like ESPN, NFL Channel, Fox Sports, or the Big Ten Network, there is no substitute for cable or satellite. But even there, a chink may appear in cable’s armor.

In the middle of researching this post, I sent out questions to many readers, friends, and some Media Realism panel members about Netflix. Something very interesting happened. Several readers under 30 wrote and told me that if ESPN would put all of their channels on streaming video, they would cancel cable and get by with Netflix, Hulu.com, You Tube and their ESPN subscription. When I wrote back, they basically said that approximately $100 a month was a lot to pay for cable and that they would be happy to shell out $15 to receive ESPN on a streaming subscription.

This is heady stuff. While it is clearly not going to happen, it makes you think about what an incredible job that ESPN has done in branding themselves. More than one young reader basically told me that, to them, ESPN WAS cable. The cable industry will always have challenges with churn. They have done a marvelous job in improving viewer options and providing a wide range of services to subscribers. But ESPN stands apart and alone from all other players. They will not likely offer a non-cable option to viewers as they could jeopardize their amazingly successful cable presence and their lucrative advertising revenues.

Leading cable players are aware of all that Netflix is doing. Several are launching Vutopia, which is a souped up movie service with far more choices than current offerings. Several other ideas are in the works. And, perhaps they will re-structure their tiers a bit as time goes on. But, Netflix is not the last challenge that they will face in the years to come. I think that cable is up to the challenge but things will get harder not easier for them over the intermediate term.

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