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Thursday, February 9, 2017

The Greater Fool Theory and Media

There is a crazy idea in the marketplace that sometimes surfaces during stock market or real estate bubbles. It is known as The Greater Fool Theory. I would describe it as the polar opposite of a disciplined approach to making an investment. The investor (really a rash speculator) buys shares in a company, a beach house, or a co-op in a major city with a sizzling real estate market fully aware that the price that he or she is paying is unrealistically high. When questioned about it, participants say that they do not care as they are absolutely certain that the price is going to continue to skyrocket. They will then sell this asset to the next idiot in the chain whom they describe as The Greater Fool. The concept is based on the thesis that reality is not relevant as long as a Greater Fool makes an appearance before the bubble bursts. As stupid as this all sounds, it is hard to resist the clear momentum of a rapidly rising market especially when many around you seem to be scooping up easy and mindless profits.

Over the years, I have seen a similar process go on repeatedly in media markets. During some of the boom times of the 1980’s and 1990’s some spot TV markets had huge run-ups in the pricing of their inventory. The national average may have been only 6% in a given year but the high flyers would rise 20% or more. Sometimes, not often, I would hear from a competitor or even a broadcaster that certain markets no longer provided good value and that the advertising campaigns were not “paying out “ for marketers. During the inevitable recession that would eventually come, pricing drifted back to reality as pressure on inventory subsided.

Perhaps the height of the Greater Fool analogy in media occurred during the last quarter of 1999 and first quarter of 2000. The dot.com bubble was in full swing and some strange things were going on in major markets. I moved from Dallas to Atlanta on New Year’s 2000. Station availabilities were stamped with “these rates will hold for five days” and driving in both cities was distracting as billboards abounded with companies that were new to all of us. Clearly, to me, this was a bubble in search of a pin.

I arrived in a meeting in Atlanta planning to warn the client that we were exploring internet options for him but would ease it in to the media mix over the coming year. The client, whom I was meeting for the first time said, “Young man (I was 50 and wildly flattered), I don’t want to hear any crap about the internet today. The world has gone crazy.” He was not the smoothest marketer in the world and perhaps not the sharpest tool in the shed but he sensed that something was out of whack. Sadly, hundreds of others across the marketing world were not so able to resist the temptation of the sexy new media option. A few weeks later, the biggest cracks started to appear when some unknown newcomers advertised in the Super Bowl. One, fresh with Initial Public Offering money, allegedly had almost no sales.

Today, as a bewildering array of new platforms and apps emerge, I wonder if another bubble can happen again. People do not seem to learn from history. When? Hard to tell.

When I sent a draft of this post out to a few friends, two wrote back and asked if I thought the $5-5.4 million for a :30 in the Super Bowl last week was a sign of a bubble. I say no. The Super Bowl remains the ONLY place where you have the potential to reach 45% of America all at once (unduplicated audience) AND perhaps the best venue to get attentiveness to your commercial. The YouTube views and resulting Public Relations and Publicity can also help an advertiser’s involvement pay out.

So, if you see too many people bidding up the price of media property, hold on to your wallet. It may be that a media version of The Greater Fool Theory has taken hold.

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

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