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Wednesday, October 26, 2011

Seven Billion and Counting

When I was in 5th grade, I remember reading a story during class in My Weekly Reader that stated there were now three billion people on earth. It was passed over quickly as it was just about time for recess. The concept of a billion kept gnawing at me. As recess was ending, I approached a nun who taught at the school and asked her to explain what a billion was. She struggled and could not do it. I said that I did not understand, and she called me impudent and told me to rejoin my class, which was lining up to re-enter the school. She then told my homeroom teacher how disrespectful I was and the rest of the school day was quite unpleasant for me.

When I got home that afternoon, I kept thinking about a billion. As dinner was ending, I asked my parents. The reception that I received was a lot different than that at school. Both parents pulled out a pad and pencil (no calculators in those days!) and patiently took me through the math until I knew it cold. I remember asking them if there were anyone with a billion dollars and my dad thought there was an American oilman living in England who was definitely worth that much. My oldest sibling ran upstairs and returned with a copy of TIME magazine containing a story about J. Paul Getty.

This past week, the memories of the mean spirited and ignorant nun and the kindness and patience of my family came flooding back to me. The United Nations is projecting that by Halloween (October 31st) the world population will pass seven billion. It was only 11 years ago that we hit six billion. Almost all futurists agree that 14 years from now we will add an additional billion to the world’s population. Beyond that things get a little fuzzy. In past years the U.N. and some think tanks felt that with the growth of family planning the world’s population would level off at somewhere around nine billion. Now virtually every organization forecasting population size has revised that calculation and says that by 2100 we will be at least 10 billion. With a huge base of seven billion a modest change in birth rates can have a dramatic increase in population estimates. For example, were the average woman to have simply a half a child more, the population will be at least 16 billion by 2100. Most of us would agree that the planet’s resources would be strained to the breaking point were that to occur.

Let us look at the next fourteen years as we march toward eight billion. Some obvious things are going to occur:

1) India will pass China as the most populous place on earth (remember the Chinese one child policy in many locales).
2) On a relative basis, Africa will increase and Europe will decrease.
3) Most of Western Europe as well as China and Japan are below Zero Population Growth (ZPG) meaning they will not be able to replace the current indigenous populations.
4) Much of the population growth will come from poorer countries where most of the newborns will live on less than $2 per day.

What does this mean to us? All gloom and doom? No, there is some obvious growth out there. Right now, approximately half of the people hospitalized around the world are there as a result of drinking impure water. So, a huge growth industry will be developing systems to get water to arid areas and purifying it everywhere. Right now, there is a huge effort going on in China to purify water that gets very little attention.

We also have to find a way to feed all these new people. Agriculture should boom as should companies providing fertilizers although some argue that our dependence on phosphorus rich fertilizers could deplete reserves and cause a bigger squeeze than possible energy shortfalls in the years ahead. Machinery used in agriculture should also see a nice run.

For agriculture you need a lot of water and the lack of that most precious commodity is already a big problem around the world. Also, if you are like me and think that there is something to global warming, rising temperatures in recent years have depressed global corn, soybean, and wheat production. That is great for American agriculture that will profit mightily from global production shortages but we still will have a billion more mouths to feed.

As marketers, do not despair. In Asian and Latin America some 50-60 million people per year will be entering the middle class and will buy high levels of package goods, appliances and automobiles. This bodes well for multi-national marketers, ad agency holding companies and selected media. Consider ESPN. If you watch them closely, they are constantly expanding their international footprint. Sports mania should continue to expand and an increasing global middle class should only fuel their continued growth.

Lack of water and especially clean water, pressure on energy and food production, and the global warming threat are all huge problems. But, think of the growth when we solve some of them. As we move toward eight billion people over the next decade and a half, stay positive. Technology will continue to move forward. The world will look different and economic power will do some shifting. If you are prepared and see what is coming, you may actually improve your situation.

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

Wednesday, October 19, 2011

A Fresh Look At You Tube

Just over five years ago (October 9, 2006), Google announced that it had agreed to purchase You Tube for $1.65 billion in stock. Patiently, many of us waited to see if this would lead to Google making big inroads into television advertising budgets. But, actually, to date, little has happened. As best as I can determine approximately 40% of total U.S. advertising budgets remain on some form of television (network and spot, network and local cable) and barely 1% on online video. Recent developments indicate that the lopsided ratio of TV to online video advertising revenues may finally begin to shift.

My interest really picked up recently when Google hired Lucas Watson. He had been Procter & Gamble's director of digital business strategy. Now, he is V.P. of Online Video Global Sales at You Tube. When a packaged goods pro is recruited by You Tube it looks as if they want to make a serious run at pulling significant funds from the TV advertising arena.

Interestingly, some media friends of mine at agencies say that they have tried to pull the rest of their shops into You Tube tests but they are meeting stiff resistance, especially from creative chiefs. In a long e-mail thread with an old friend and creative whom I really admire, I found the same answer my media buddies are experiencing. My friend wrote and I quote with his permission, "to sum it all up, I don't want my team's beautiful work running next to some horrible video that a 15 year old boy might have captured on his cell phone".

My friend has a point but I encouraged him to give You Tube another look and meet with a sales rep along with his shop's media team. Not many people have deep experience in an emerging medium such as online video. Things are changing quite quickly and a notion held a year ago might not hold water today.

To date, music, technology and some entertainment advertisers dominate You Tube placement. Other categories should give it a shot. Also, there is a huge local ad window open to them as You Tube serves their videos to one person at a time. Local retailers could benefit if you targeted certain types of videos viewed in specific locales. This window of opportunity is open now but we all know that Comcast and Time Warner have products in development that will be able to send customized commercials to several homes on the same street. Agencies and advertisers comfortable with local cable will go there without blinking if You Tube does not pick some of them off first and develop a track record of success.

Take a hard look at the quality of You Tube videos. Yes, it is largely homespun material. And, some are in questionable taste. But professional videos are growing and you can confidently place commercials around them.

Importantly, You Tube, by definition, allows an advertiser to ask people to become part of the message. Yes, you lose some control with mash-ups of your spots but it really can easily become a new kind of promotional platform if done right. Also, there are some nice promotional opportunities as well.

If you are a major player with multi-national support, do remember that Google has the deepest pockets in media history. If they produce original programming (Google Tube?), it would have a GLOBAL audience overnight. They now attract almost 800 million unique viewers per month. Even 81 year old Warren Buffett admits to watching You Tube for 90 minutes at a stretch to relax. What if you saw a brief promo for their new programming or series when you went to You Tube? The audience could grow as fast as some of their popular viral videos. And Google can fund it forever if it does not turn a profit initially.

An investment newsletter that I recently read says that You Tube is perhaps marginally profitable now and may add close to a billion dollars a year to Google's outsized revenues. So, the upside for You Tube is huge if Google monetizes it properly. Consider You Tube as a small hedge in your 2012-2013 video allocation. Two years from now you may thank me.

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

Tuesday, October 11, 2011

Mises, Galbraith and Bottled Water

For the better part of 50 years a lively debate has taken place in some advertising and marketing circles. Essentially, the battle lines are drawn between Austrian theorist Ludwig von Mises and his concept of Consumer Sovereignty and John Kenneth Galbraith’s The Affluent Society, which tried to refute it very strongly.

In brief, Mises postulated that, in a free market economy, the consumer was king. The consumer made poor men rich and rich men poor. If the public found a product that was comparable and less expensive or of better quality they would vote with their cash and move to the new product. Galbraith took the tact that many of us who could be described as marketers were very manipulative. Due to marketing tactics, particularly advertising, consumers were often persuaded to buy things that they neither wanted nor needed (for a detailed explanation see Media Realism, 9/15/2009).

Over the years given my free market leanings, I have tended to side fairly strongly with Mises. Having worked on several new products that failed in the marketplace (as has any long term ad executive), I always questioned the concept that marketers were so smart and manipulative. Were advertising and marketing tactics so powerful why do most new products continue to fail?

In recent times, one category has sort of made me review my position. The category is that of bottled water. Most of us who are a bit mature in years remember Perrier as the first bottle water of any substance. It basically invaded the U.S. in the early 1970’s. Since then, bottled water has exploded and is often associated with social status and healthy living.

What most people do not realize is that approximately 40% of bottled water sold in the U.S. is really tap water that has been put through an extra filter or perhaps fortified with a mineral or two. The profit to the purveyors is enormous as tap water is very inexpensive. Often when you buy bottled water you are paying up to 1900 times what you pay for tap water. And, is it purer? Well, the bottled water from tap is usually more than okay. But for those claiming that they are selling spring water or mineral water, there is less regulation and supervision than there is for municipal tap water. In the western world, there are few places of size where the water is not safe. In developing countries, caution is a good idea and drinking a brand name bottled water makes great good sense in remote areas.

Interestingly, major beverage companies control bottled water sales in the United States. Coca-Cola owns Dasani and Pepsico sells Aquafina. Global food giant Nestle owns a fistful of brands including: Arrowhead, Deer Park, Ice Mountain, Ozarka, Poland Springs, and Zephyrhills. So these players have hedged their bets beautifully. If government cracks down on sales or raises taxes on sugared sodas, they will pick up much of the resulting shift to water products. Nestle waters website had a compelling argument that if one gave up a cola habit and switched to water you could save 50,000 calories per year. In a country worried about obesity, it is not an empty comparison.

The marketers have succeeded in creating more than an aura of health when you drink bottled water. There is a certain cache to it—have you ever noticed young people carrying a bottle everywhere? It has almost become a fashion accessory to some and is ubiquitous as a mobile device. In some upscale areas and at very fashionable universities, the branded drink has given way to a refillable bottle presumably filled with clean healthy tap water.

Given my strong free market bias, I clearly still believe in Mises concept of Consumer Sovereignty. The case of bottled water, however, has made me think that the Galbraithian notion of consumer manipulation is not always bankrupt.

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