Breakout Nations

Rucher Sharma is a big time money runner at Morgan Stanley. He has written a fascinating new book entitled, BREAKOUT NATIONS, In Pursuit of the Next Economic Miracles (W.W. Norton & Co, 2012).

He raises some great issues and explodes some time-honored myths. One point that he makes excellently is that “the factors driving growth in any given country at any given time are in constant flux. Economic regimes are like markets. When they are on a good run they tend to overshoot and create the conditions for their own demise.” You rarely see this kind of candor in financial writing. Markets go to extremes and people who should know better get caught up in the enthusiasm. Most “experts” on the international economy tend to have a few rules for growth, and, if a country follows those, their future is bright. Sharma explains quite cogently that you need to take each on a case-by-case basis.

What I enjoyed about the book was that unlike most foreign investment and development experts, he does not always go with the conventional wisdom. This comes in to focus the best when he dissects the BRIC countries (Brazil, Russia, India and China) that have led the globalization trends in recent years. His opinions are as follows:

Brazil—government has gone from 20% to 40% of the economy in recent years. This is not a positive (et tu, Washington?). The average adult only has a seventh grade education and their supply chain management is a mess. The ongoing oil boom will cover a multitude of sins in the years to come but things are not as bright as they appear on the surface.

Russia—Oil is virtually one half of GDP. What happens if we get our natural gas and domestic oil business humming in the US? Retail has not caught on, as there are only a few big cities so the big box retailers have not bothered with Russia. Also, there are few good rail links and infrastructure in general is weak with major cities often suffering from rolling blackouts.

India—suffers from a bloated bureaucracy and a heavy dose of crony capitalism. Has potential but will be weighed down.

China—the one child rule is speeding up the aging of their population (see Media Realism, “Malthus, Demographics and China’s Future, 3/27/11)

There were other surprises. A few years ago, Vietnam was on everyone’s list of a sure bet as an emerging economic success story. It was a mini-China in people’s eyes. What seems to be happening is that their command capitalistic system is ill equipped to handle the influx of foreign investment and local politicians are very corrupt. Docks are ancient and can only handle a fraction of the shipping containers per berth as compared to major international ports in other growing economies. So the big ships can’t get in and a major manufacturing plant could not get goods out of the country efficiently.  Most of the ports are owned by a state company and are under the influence of local politicians.

Mexico remains the poster child for an oligopoly where 8-10 families control 60-80% of economic activity. Turnover in billionaires according to Sharma is an interesting metric to look at for whether or not an economy is vibrant.

Sharma makes an excellent point that sustained economic success is a relatively rare phenomenon in economic history. But he ignores that developing nations are growing twice as fast as the US and are now cutting trade deals among themselves and, with every passing year are less dependent on the United States and other Western countries.

He is optimistic about the US reigniting its industrial base but does not mention at what wage level this will take place (I would assume lower). Germany is nicely positioned among other Western powers.

Where are the next breakout nations? In Europe he likes the Czech Republic and Poland.  Both have low levels of debt that put them in a strong position relative to their European neighbors. Poland’s economy actually grew 4% during the 2008-2009 economic debacle. Turkey, a European/Asian hybrid has promise and he really likes South Korea in Asia along with Indonesia. In Africa, he says Nigeria has a chance and touches on Nollywood, the nation film industry that is slightly bigger than Hollywood but remains far behind India’s Bollywood. We have all been aware of Bollywood for some time but did you know about Nollywood? Sri Lanka, in the Indian Ocean has improving prospects as a long civil war is over and the ensuing peace dividend should foster growth.

Marketers should always be on the lookout for where an emerging middle class is going to develop and then begin to do serious branding in those countries.  Purveyors of luxury goods have also taken note.  Roughly a third of Swiss watches are now sold in China!

This is a very thoughtful book. Whether you are an investor, a marketer, a political observer or an armchair dreamer, this book is a terrific read.

Merry Christmas to all!

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

Will the Second Screen Kill the Couch Potato?

Today, lots of media analysts are buzzing about the second screen and they have good reason for doing so. Definitions abound but usually describe a companion device or application that allows you to interact with the content of a TV show, movie, video game or music. Others include laptops or Smartphones where you may be doing something unrelated to the programming. For example, during summer baseball games, I often watch an inning or two of a game with a laptop close by and I either answer e-mail or surf the web on a wide variety of subjects.

Ten years ago, many pundits forecast that the Internet would kill TV. Well, the Nielsen people inform us that Americans are watching more TV than ever. It appears that the web, mobile and social media are all rapidly converging with television. Looking at research studies from across the world, you find wide variance in second screen usage but the trend is clearly that more and more of us are multi-tasking as we watch. Verizon, Google, Nielsen, Ericsson and a host of others are available—take your pick. All point to several trends going on both in America and other developed countries:

--25-40% at one time or another browse for products spotted while watching a TV show
---Some 20% are on Facebook or Twitter while viewing
--34% check sports scores of other contests during viewing of games
--60% on tablets read their e-mail
--At some point, 60% use their laptops, Smartphones, or tablets while viewing

All of the above leads to one clear conclusion—distraction to TV viewing is at an all time high and it is not going away!  The great Don Vito Corleone one said “Keep your friends close and your enemies closer.” If you are an advertiser, you need to embrace your enemy, this increased distraction, head on. You knew for a long time that not everyone was watching your expensively produced spots during commercial breaks. But now that number is in freefall especially among those under 35. So you need to integrate the second screen into your creative strategy. TV, as we knew it, will still work for some.  A small group that could be 10-15% of your viewers can enhance your commercial message as they browse the web to check out the product that you just advertised. The second screen then acts as a companion medium to the traditional TV message. Sometimes it will result in a cross-platform or cross-channel experience for your brand.

I hate to trot out a cliché but the second screen allows you to engage people with your brand and can be interactive if structured properly.  Technology will not stand still and you cannot afford to either. Start testing soon.

Twitter is playing a role that is increasingly rapidly in this space. Just under two years ago, I vividly remember being startled as Audi ran a spot in the 2011 Super Bowl. The hashtag #Progressls ran for only a few seconds at the end of the spot and, for a moment, I thought that I was imagining something.  Since then, a new form of social media, TV’s backchannel, has emerged.  It is real-time chat that is happening DURING the time a program is broadcast. At first, it was during award shows and other special events. Now, it is rampant. Thousands of member of the Twitter community often respond instantaneously when something happens. Networks look carefully at the tweets when a new program airs. The sample may be a bit biased but it is huge and will soon be a predictor of which shows will survive the Nielsen cut.

Commercials also get their fair share of reaction that provides valuable insights to advertisers and can actually get a buzz going about your company both positive and negative. Also, the power of the hashtag can strike in unlikely areas. Watching a GOP debate in January 2012, I found that I could monitor viewer comments on the Meet the Press Facebook page. Questions were sent in but I found  some of the tweets very absorbing reading.

So Social Media and TV now have some measurable co-usage. It is time for many advertisers to get on board. The backchannel will work for national advertisers and for some regional players but will likely have far less utility for smaller, local players.

For years, we worried that many young adults would be zombies watching an increasing amount of TV with each passing year. Now, it appears that the couch potato, thanks to social media, has a rendezvous with death.

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

Cut the Cable Cord?

These days you hear an increasing amount of noise regarding people “cutting the cord.” It refers to individuals who have chosen to cancel their cable service or satellite provider usually to save money in a tight economy.

We have written about this phenomenon in this space in the past but there is a chance that it is picking up a bit of steam and is worth a re-visit. In recent months various estimates say that 400,000 households have cut the cord and, over the last year, 1.5 million have ceased to carry the pay TV option for premium channels.

There appears to be two groups of people out there. The first is strapped for cash and fed up. Here is a composite statement from several people who have told me that they have cut the cord in recent months: “I waste hours waiting for the cable guy if there is a problem and each year my bills goes up giving me new channels that I did not want and will never watch.”  Or “I can’t afford to spend $100-150 per month anymore.” A large group of men over the last two years have told me directly that the only reason that they keep cable or satellite is live sports.

The second group tends to be young, a bit stretched financially but not always, and very tech savvy.  They tell me that they get by with a mix of online options with the most prevalent blend being Netflix, Hulu (or Hulu Plus), Roku, and You Tube. Other than live sports, this blend can do an exemplary job of covering the video needs of millions. Some have told me that you cannot always see a series episode on the day that it airs but waiting a day or two to catch up is worth the savings that can be $60-80 per month. Tellingly, they are teaching their parents to do the same.

A handful of people have gone to very low-tech options that work for them but not for many. In the last year I have met two people at my local library as I searched for DVD’s of old British series. Both were elderly and living almost exclusively on Social Security payments. Neither has a TV anymore but they watch the free DVD’s that the library provides and get their fill of video in that way. Interestingly, both said they no longer get a daily newspaper and they get their news from NPR!

Foreign exchange students cross my path daily and they have an interesting spin on Americans and TV viewing. One said and I quote “you Americans are foolish. You spend way too much money on satellite and cable. I know sites all over the world where I can get free movies and programs. My fellow students are amazed as they know nothing about them.”  Another foreign student sheepishly told me that by the end of the semester he had become hooked on American football and now pays a small amount (a six pack of beer?) to spend each Sunday at a friend’s apartment to watch the NFL.  But he stubbornly insists that he will never pay for a cable or satellite subscription himself even if he permanently resides in the U.S.

These piecemeal solutions are not for everyone. Some people do not have the patience to troll the web for programming but so many have Netflix and Hulu that much of their viewing may be done on laptops anyway.  This is an area that all media analysts need to follow closely. A lot of well-educated and busy young adults in our largest cities have no interest in paying for TV. They can get a huge majority of their viewing needs covered by cobbling together some combination of Netflix, Hulu, et al.  One young man e-mailed me that you would be stunned at how many movie classics are available on You Tube. Check it out. He is not exaggerating.

All of this leads to a conclusion. Back in the mid-1990’s Sumner Redstone of Viacom made the famous statement that “content is king.” Well, if you are honest about the issue, it still is. With every passing year new devices and platforms emerge. Yet, we all want content. The content providers seem to be the one sure thing in our emerging world no matter what device or company is delivering it to you. Two giants stand out—Disney and Discovery.

The Disney name has been the bellwether for entertainment for the last few generations. Most people think of theme parks but they are huge content provider. They own seven movie studios, ABC and the grand jewel these days—ESPN. Talk to young men. A surprising number will tell you that the ONLY reason they keep cable is ESPN.

Discovery does not get the respect that it deserves. It has nine content filled networks in the US including Discovery, TLC, Animal Planet and the Military Channel. What few realize is the breathtaking scope of their global reach.  They have 150 distribution feeds in 40 languages! Discovery is truly a prince of content.

And, finally, have you noticed what Comcast, the cable giant did? They purchased majority ownership in NBC Universal. So no matter what happens, they have a lot more than a toehold in content going forward.

A few people with whom I correspond basically tell me that these outliers who do not have cable or satellite need to enjoy their savings while they can. The big boys like Verizon and Comcast are not going to give you Internet access at a low price much longer after you have cut the cable cord. They want to sell content and you are getting a lot at a reduced price if you cut the cord and use their Internet service to get content at a fire sale rate. That is certainly possible if cord cutting picks up a lot more steam.

No matter where we go in the next decade in terms of devices, keep you eye on the ball. Content is and will remain king.

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