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Wednesday, May 30, 2012

The Rich and The Stinking Rich

A few weeks ago, I had an amusing conversation with someone. She stated that I was rich and I laughed out loud.  Coincidentally, I ran across Timothy Noah’s new book, THE GREAT DIVERGENCE (Bloomsbury Press, 2012) the next day.  Noah is known in liberal circles as writing the “TRB” column in THE NEW REPUBLIC. I expected a left wing rant but instead was pleased to read a measured presentation of the facts of income inequality in this country.

For many years, I have told people in lecture halls and client presentations that Gallup has found that 88-90% of us consider ourselves to be middle class. Most of us accept the premise that if we think that we are middle class, then we are. As marketers, this is a very bad idea as we then inject ourselves into some everyman scenario where we believe that if we like a product, then the general public will as well.

To his credit, Mr. Noah does not buy in to the fuzzy everyman thinking. If  you are earning $109,000 a year, you are in the top 10% in 2012 so you are not middle class demographically no matter how average you feel. Noah breaks up the affluent into five general and amusing categories:

1) Sort of Rich—This is income between $109k and $153k which puts one in the bottom half of  the top 10%.
2) Basically Rich—This is people making between $153k and $368K with $368k being the bottom threshold for the top 1%.
3) Undeniably Rich—those making between $368k and $1.7 million ($1.7 million is the bottom of the top 0.1 percent).
4) Really Rich—this group does well. Annual income is between $1.7 million and $9.1 million ($9.1 mm is the bottom threshold for the top 0.01 percent)
5) Stinking Rich—this is the rarified air of the top 0.01 percent , which consists of $9.1 million or more in annual income. Many are ballplayers, entertainers, or financiers.

A lot of people would take issue with these demarcations. If you have a child at an elite college or two in prep school, you do not feel Sort of Rich or Basically Rich. You may even have a balance on your Visa card. Also, to me, wealth has always been a net worth statistic. Some people are rich but have surprisingly low incomes as their wealth is tied up in real estate, art, or low dividend stocks.

The book goes on to talk about a very discernible pattern in the U.S. today and much of the developed world as well. People on the top are gaining pretty consistently while those in the middle are struggling to keep pace.

Noah’s long term worry is that if this trend of income divergence continues it could undermine our democracy. So far, things have been calm with few examples of civil unrest or even anger among the lower 90% of U.S. citizens. To me, the reason for much of this is that America remains an aspirational society. We may not be in the top 1% or even 10%, but we still dream of getting there.  If things get worse over the next few years, I agree with Noah that a backlash could occur.

The author does offer a few solutions or suggestions. Education is failing in the US and has not kept up with technological demands. Right now, news sources say that we are 25th in global math proficiency, which is a real embarrassment. Our immigration policy is warped as it keeps out doctors, scientists and engineers that we badly need but lets in millions of unskilled workers.

So far, so good! To me, he goes off the reservation when he employs a “soak the rich” approach to raising revenue. Now, let me be clear. I think it is ridiculous that Mitt Romney and Warren Buffett pay a tax rate far lower than I do. Over a certain income threshold, say $1.5 million, a minimum tax of say 25% seems equitable to me.

Noah goes much further. He suggests a 70% tax on portions of the Really Rich and all of the Stinking Rich as he defined them.  According to IRS estimates only about 8,400 households make over $10 million per year. So putting a truly confiscatory tax on them will not raise all that much money when we have a deficit of $1.3 trillion this year. All this approach would do is encourage the wealthy to structure their assets in a way to defer income or limit tax liability. A few might even leave the country.

THE GREAT DIVERGENCE lays out the facts beautifully. It is an easy read and his style is breezy and he even makes demographics fun. As marketers, we need to understand the affluent as the divergence in income shows no signs of slowing down.

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

Tuesday, May 22, 2012

Urbanization, Globalization, and Media

I have a rather stunning statistic for you. Each and every day around 180,000 people leave the rural countryside across the world and move to a city. Demographers are not exactly sure but sometime in the 2007-2008 window, a majority of the world’s people lived in town and cities for the first time in measured history.  In my lifetime, cities have absorbed close to 70% of global population growth.

Along with our old favorite demographics, plus the increasingly significant globalization, urbanization is the last support in the three-legged stool of megatrends that are remaking the world in the 21st century.

Even a casual look at the data is absolutely mind-boggling. Ghaziabad, India is adding 250,000 new residents each year on its current base of 4.6 million. Have you ever heard of Ghaziabad? While we are playing trivial pursuit, are you familiar with Beihai, China? I have been following its fortunes for several years. It is growing by 10-11% per year. In only seven years, it will double its current census count of 1.3 million making it the fastest growing metropolis in the world. While China and India or Chindia, as some have dubbed it, get all the publicity, don’t forget that across Asia millions in Indonesia, Thailand, Malaysia, the Philippines and Vietnam stream into their cities as well each year.

All of this action fuels economic growth but one problem stands in its way. That problem is an inadequate infrastructure. As young people across the globe flock to the cities for more opportunity, the strain on natural resources and urban area infrastructure in enormous.  By the middle of this century, there will be an additional 2.8 billion people living in cities.

The problems are huge. But, the opportunities are profound. People who produce steel, cement, copper and oil will have cities lined up to buy their products. The greatest problem may be supplying clean water to these new urbanites. China has a fifth of the world’s population yet only 7% of the world’s freshwater supply. Some engineering firms are going to have to provide some massive desalination plan or other sleight of hand to get them through the next few decades.

With this massive shift from rice paddy to world-class city, the world of media will be affected profoundly as well. Some friends have written to me to say that newspapers in the big Asian and South American cities are set for a spike as new citizens who devour them on mass transit to and from work. To me, that is legacy thinking that is not likely going forward.

Over the last 60 years, a young person starting out in a big city outside of North America would often take this route in media usage: Buy a radio, then get a phone, buy a TV, and then (over the last 10 years), purchase a laptop.

Today, all that has changed. Someone coming from a rural area to Manila might get a cheap radio, but few buy a laptop, a landline phone or cell phone and they delay a TV purchase. What they get as soon as they can is a Smartphone. This allows them to call anyone, get the music they want, have Internet access, and choose from a nice compliment of video options.  Once they upgrade to a decent apartment, maybe cable or satellite TV is added to the mix.

The key takeaway to me is that these new urbanites have skipped a few steps compared to my generation or likely yours. They grew up with very little media in primitive conditions in remote rural areas. For many a Smartphone is their first passport in to the media world of today. While not affluent yet, they are buying personal care products and discretionary purchases like McDonald’s, cigarettes, and Coca-Cola that they never did in their home villages. This is why all players in the new media world have to find out a way to properly monetize mobile. The potential is huge as some 400,000 +new Smartphones are sold globally DAILY.

Localization of online advertising has to explode given the current globalization scenario. Right now, some 20% of the world’s GDP comes from the top 10 metropolitan areas. With the population shifts that we have talked about, imagine how much will come from cities that we currently have never heard of in 20 years. The U.N. says that 80% of the world’s urban population will be in the developing world by 2032.

A shift in economic growth and power is well underway. Accompanying it will be a seismic shift in media usage habits. Get ready, my young friends.

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

Tuesday, May 15, 2012

Surely, TV is ruined?

In 1776, Adam Smith published his magnificent economic treatise A WEALTH OF NATIONS. It was a defining moment for classical economics and the free market.  A few years later, one of his past students, Sir John Sinclair, reported to Dr. Smith about the success of the colonists in the American Revolution. “Surely”, he wrote, “if we are on at this rate, the nation must be ruined.” Smith answered the letter as follows: “Be assured, my young friend, that there is a great deal of ruin in a nation.”  His meaning was that despite political bungling it takes a lot to bring a nation down.

I think that the same thing can be said about the TV medium. About a dozen years ago, I spoke at a conference and talked about how TiVo was going to change things in TV in a big way. No one was upset as penetration was in the low single digits at that time. I remember saying that DVR’s (Time Shifting Devices such as TiVo) would lead to greater commercial avoidance and that when DVR penetration hit 40%, TV would cease to be the powerful advertising medium that it had been for 50 years.  Even the TV folks in the audience applauded so I repeated my fearless forecast at events over the next few years and never received any push back.

Well. As we write DVR penetration is at 41% of US TV households according to Nielsen and other forecasters claim that it is in the 43-44% range.  And commercial avoidance is rampant. Study after study continues to find that not only are viewers skipping many commercials on playback but also people are multi-tasking so much with laptops and Smartphones that many TV commercials are being missed. And, any honest agency person who really analyzes clients sales will tell you that it takes more rating points, sometimes far more, than it did several years ago to move the sales needle.

Yet, this week, the network upfront market is about to explode in New York as each of the major players gives its new season presentations. While few are expecting the 12% uptick in sales that the networks had last year over the previous year, most reliable sources are betting on a high single digit year over year increase which is very good given a domestic economy with only 2% GDP growth and worries about European banks and that continent’s fragile economy (the upfront marketplace is where major network advertisers place approximately 85-92% of commercial dollars. It happens in a two-week cavalry charge in late spring each year. Old network hands say that they sell for two weeks a year and move inventory around the rest of the time. Inventory not sold in the upfront is sold in the scatter market at higher prices than the upfront and a small allocation goes to opportunistic or last minute buys at often very favorable rates).

While all this is going on, Dish Network is introducing Auto Hop, a service that will allow subscribers to automatically skip commercials on many if not most primetime programs.  Not a death blow, for sure, but it is clearly another way that network TV commercials lose some more of their effectiveness.

So, what is going on? To me, it remains the same as it has been for the past several years. Increasingly, major advertisers are using more social media and experimenting with mobile. But, national network TV is their security blanket. Package goods have crossed the Rubicon and now spend more on promotion that conventional advertising. In many categories, however, network TV and increasingly national cable TV remain the backbone of their media efforts.  And, the networks have done a great job of mining new categories for TV spending.

If you had asked most media analysts five years ago how long the network upfront could last, many would have said 3-5 years. Now, it looks as if it could be 5-7 more years regardless of the extent of commercial avoidance.

Measurement metrics for all new media are improving and some very rapidly. That has to raise the confidence level of marketers over the next few years in reallocating their media dollars.

So, is TV ruined as the dominant advertising medium? Long term, as commercial avoidance grows, it has to be but to paraphrase the great Adam Smith, “there is a lot of ruin in the TV medium”. Stay tuned, my friends. I will.

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

Friday, May 4, 2012

Mobile Media Set For Takeoff

This past week Apple reported a remarkable earnings story that had the whole financial world buzzing. For the 1st quarter, 2012, they had earnings of $11.6 billion vs. $6.0 billion for the same quarter a year ago. Most analysts had projected earnings to be in the $10 billion range.  In the quarter they sold 4 million macs, and 11.8 million Tablets. Currently, they are selling 400,000 I phones a day across the world. In China, sales have quintupled in the last year.

Analysts are falling all over themselves to talk about the $100 billion cash stash that Apple has. With that they could swallow the entire upcoming IPO (Initial Public Offering) from Facebook or buy all of McDonald’s. It is staggering when you consider it. Will Apple be the first company to have a capitalization of a trillion dollars?

I consider all of the stock market buzz to be mostly noise.  This Apple news signals to me a significant breakthrough in the media world. This year, mobile media is now 5% of online billing and about 1% of the total domestic advertising handle. But, look closely, my friends. Big players are starting to pile in. With Smartphones and Tablets exploding the big guys now see scalable platforms in mobile via display, search, video and in-app. Mobile spending should be up 50% this year.

The future looks bright beyond belief. I have seen several projections but International Data Corporation’s appears to be the most widely quoted with tablet shipments projected to be up over 50% this year to over 100 million and top 195 million units in 2016. Smartphones are set to reach 660 million units this year and an amazing 1.1 billion by the end of 2015. How is that possible? There are 7 billion people on earth so 15% will get a Smartphone in 2015? Actually, it is within reach as many who have a Smartphone get a new model every two years and couple that with organic category growth and a billion plus units three and a half years from now is definitely within reach. (By the way, what is a Smartphone? There is no formal definition but I use the one from PC Magazine that describes it as “a cellular phone with built in applications and internet access)

Can anything stop this growth?  Well, remember Research in Motion and the Blackberry? Now, they are fighting for survival. Or the problems Motorola had when they dominated flip-phones but did move fast enough to web-enabled handsets. The issue is that the players may be different 5 years from now but people want the world in the palm of their hands. Mobile media will capitalize on that desire.

As has been true of every emerging medium, there will be hiccups as you experiment with its possibilities. Don’t let the little bumps in the road deter you—the potential is tremendous and you do not wish to be left behind.

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