Americans and Stock Ownership

 As I write, it is December 30, 2023 and financial markets are closed in the United States until January 2, 2024. Those of you who do not check your 401K, IRA, or mutual fund balances frequently are likely to be pleasantly surprised when you see your status when your year end statements arrive in the mail.

While many forecasters felt that we would have a recession in 2023 and that equities (stocks) might tank, neither happened. What happens in 2024 is not clear but I thought this holiday weekend would be a good time to look at just who has a stake in the stock market and how much do they own. The media do not cover this a great deal.

Stock ownership in the U.S. has increased in recent years. Records are a bit fuzzy when you go back a 100 years but it appears that, when the great crash of 1929 occurred, only approximately 10% of U.S. households owned any position in stocks at all. The people who suffered with a dramatic drop in their net worth or were wiped out in margin calls were a relatively small minority. After World War II ownership crept upward  Things really took off in the 1980’s with the introduction of Individual Retirement Accounts (IRA’s) and salary reduction plans (401k’s). Also, index funds with tiny fees and zero commission trading brought more people, especially the young, into the mix. 

Today, the Federal Reserve projects that approximately 61% of US households have some stake in the US stock market. Sounds great. Let’s look at how that ownership is arrayed.

The Top 1% own 53% of the equity value ($19.2 trillion).

The Top 10% owns 88.6% ($28.0 trillion)

The Bottom 50% own .6% ($21 billion)

Over the last 20 years, the big gains have gone to the top 1% and all other groups have declined. This triggers more wealth inequality and raises eyebrows and some left wing voices.

Go back to 1989 and what do we find:

The Top 1% owned 42.9% of the stock value. 

The Top 90-99% owned 39.3% so the Top 10% owned 82.2%

The  Top 50-90% group owned 17.1%.

The Bottom 50% of US shareholders had 1.2%.

Note that the relative ownership of the Bottom 50% has been cut in half from 1.2% of total to .6%

Today, the average household has $52,000 in stocks of which $15,000 is direct ownership of individual companies (non mutual funds). Some 15.2% of Americans own individual stocks. 

Over the years, from time to time, I have mentioned in MR that there will always be some inequality in a free market economy. Some people work harder, some are more intelligent, some are luckier and a few are born on third base. Charlie Munger, a man I admired very much, once said do not worry too much about American inequality as the next bear market will take the 1% down quite a bit. This is a rare case where I part company with the great man.

The 39% of households who have no skin in the game (equities) at present would gain a bit on the Top 1 and 10% in a down market but they have very little in most cases. And, the Top 10% will bounce back as markets always do.

Remember that the reason the 1% in particular have so much to invest is that they do not spend all of their large incomes. They put the savings to work and, over time, it grows. Many of the 39% who own no shares lead a hand to mouth existence and can save nothing or very little. So, the inequality will persist. 

So far, the inequality has not caused an enormous political backlash. At some point, there could be a change in tax policy in the U.S. to attempt to smooth things out a bit. Americans still love the idea of upward mobility or “rags to riches” so there may be less social engineering here than we have seen in other Western democracies. Also, the 1% have good lobbyists and contribute mightily to the political campaigns of candidates in both major parties.

I want to thank MR readers from all over the world who made this my most successful year ever with the blog. May all of us have a happy, healthy and prosperous 2024! I love hearing from you so to contact me you may reach me at doncolemedia@gmail.com or leave a message on the blog.

The Future of New Product Development

 Over the last couple months, I have had conversations with people who are still active in advertising and several recently retired marketers. To a person, they all commented on how difficult it will be for small players to introduce new products into the marketplace in the years ahead. 

In general, I tend to agree although a careful and thorough reader of the business press often sees somewhat breathless stories of bootstrap entrepreneurs who, against all odds, have succeeded in our current world.

Let us take a minute and get back to basics. Here are a few questions every fledgling entrepreneur needs to ask about his/her new product or service:

1) Does it fill a niche? Serve a genuine need? Solve a problem for consumers? Many fine products are launched but too few want them or see a need for them.

2) How are you going to price it? This is the downfall of many newbies. They come in so high that it does not get enough trial or they come in so low that it cannot pay out for them.

3) Distribution—where it will be sold? Can you get it on the shelf or at Amazon? Does the distribution fit the likely target?

4) Market Research—have you been thorough and paid enough for it to have a viable go to market strategy?

5) Coming out of Market Research, have you defined your target market? Do you have the resources to reach them?

6) Supply chain issues?

7) Financial backing? How long can you lose money before the turnaround?

Yes, a relative handful of new products and services seem to upset all precedent, break all the rules, go viral and are significant successes. This can especially be true in fashion fads. Yet, most of the time, new products fail even with clever marketers with deep pockets calling the shots.

In today’s world, my acquaintances seem to feel that things will get tougher for the under-capitalized newcomers. 

The big and experienced guns have a treasure trove of customer data—known under the umbrella of “Big Data.” So many have a very good idea of whom they can appeal to with a new offering among their existing base and have a fairly tight profile on whom new prospects might be. They do not rely on “gut feel” as they can afford the best information available. 

I have always not been a fan of the hundred plus year refrain of “the rich get rich and the poor get poorer” in market economies but the way of the world in our digital age seems to favor the big and established firms more so than in the past. Legacy media is so fragmented that a newcomer will find response to it tepid and their effort ruinously expensive. It may take several years to develop solid database management and by then, the entrepreneur may likely be bankrupt. 

So, the opinion of my vest pocket group of panel members and largely to me as well is that the big will get bigger as new products are launched. Also, those who buck the odds and succeed will likely get swallowed up by one of the giants in the category. Jeff Bezos has said more than once that some small player will take him and Amazon down someday. Perhaps. More likely he will buy the clever newcomers out and invite the clever players to work under his big tent.

If you would like to contact Don Cole directly, you may reach him at doncolemedia@gmail.com or leave a message on the blog.

Charlie Munger, RIP

 A few decades ago, I was going through outpatient surgery for a minor issue. As I was being prepped for the procedure, the surgeon told me that he was from Omaha and had moved to my locale a few years ago. I said you must be familiar with Warren Buffett. He said yes but added that he had met Berkshire Hathaway’s vice-chairman Charles T. “Charlie” Munger at a party and at a dinner and was very impressed. He said that Charlie was hilarious, direct and the most brilliant person that he had ever met. From then on, I began to follow Mr. Munger closely. I was saddened but not surprised when Charlie died a few days ago just several weeks short of his 100th birthday.

Most people have heroes and some say that it is good for us to have them. For me, a New England boy, Ted Williams was always there. Over the years, President Teddy Roosevelt joined the list. In finance, Jack Bogle who founded Vanguard, popularized the index fund which saved many disciplined and patient investors thousands in fees, and made many millionaires. Charlie Munger made the cut for the last 23 years and may well be on top of the small list (there are a few others whom most of you do not know so I leave them out of this post).

Each year, I avidly watch the Berkshire Hathaway annual meeting (known as Woodstock for Capitalists) where Warren Buffett and Charlie Munger held court for several hours at a big arena in Omaha. They got the necessary but perfunctory formal part of the meeting over quickly but then answered questions from the assembled shareholders for hours. 

Warren would generally start to answer each question in his folksy way and ramble on for a few minutes. He would then say, “Charlie, do you have anything to add?” In a few remarkably concise sentences, Charlie would cover the topic. After a while, I would watch to hear Charlie rather than Warren. The man was an absolute master of clarity and was funny, irreverent, and totally undiplomatic. 

Warren Buffett gave him full credit for changing his investment philosophy. Buffett was a student and disciple of investment writer and guru Benjamin Graham. His approach was to buy assets at a steep even huge discount. Warren was a strict adherent to this guideline in the early years of his career. Charlie convinced him to look at potential growth of companies that had a “franchise” with the public. The shift was to go from buying into good companies at a great price to one of investing in great companies at a fair price. Soon Berkshire Hathaway was buying large positions in Coca-Cola, American Express, Gillette (now part of Procter & Gamble) as well as a fairly recent enormous position in Apple.

Charlie Munger could be scathing regarding American graduate schools. His target was often MBA programs and the way they instructed students on financial analysis. I confess that I had to unlearn some things when I began to follow Charlie.

While Buffett praised Jack Bogle for getting many into index funds, Charlie called diversification—“deworseification.” His idea was to find a few really good ideas and stick with them. 

With equal bluntness he said of analysis of companies using EBITDA (Earnings before Interest, Taxes, Depreciation and Amortization)—“whenever you see EDITDA in a sentence, substitute it with the world Bullshit.”

As he grew older, he was willing to offer life advice to young people. Here are a few of my favorite gems:

—The secret to happiness is to lower your expectations.

—Acknowledging what you don’t know is the dawning of wisdom

—Develop into a lifelong self-learner through voracious reading. (I often would go back to this when colleagues told me that I read too much)

—The big money is not in the buying and selling….but in the waiting.

—In my whole life, I have known no wise person who did not read all the time—none. ZERO

—I like people admitting that they were complete stupid horses asses. I know I’ll perform better if I rub my nose in my mistakes. This is a wonderful trick to learn.

Charlie is gone but he left behind a few books and his interviews will live forever on You Tube. Check them out. I bet that many of you will find them as beneficial as I do.

Rest in peace, Charlie. You were a true renaissance man.

If you would like to contact Don Cole directly, you may reach him at doncolemedia@gmail.com or leave a message on the blog.

How Stretched Is The American Consumer?

 It seems as if we having been waiting patiently for the last two years for a recession to occur in the United States. When it did not occur  forecasters often admitted that they were wrong but pushed back the downturn to occur in 2024. A few have said the economy will have a “soft” landing and there will be no recession in the foreseeable future. Whenever and whatever happens, the issue will be dependent on the behavior of the American consumer.

Since the mid-late 1970’s, the American economy ceased to be an industry dominant economy. Today, the consumer segment comprises 70-72% of the Gross National Product. So, as the consumer goes, so goes the strength of the economy (when I was a teenager, the saying was “as General Motors goes, so goes the nation.” How times have changed!)

Interestingly, the US economy and the consumer has been defying predictions for the longest time in my recollection. Very few media outlets seem to say that trouble is brewing. The more conservative outlets tend to say that President Biden is in trouble as the economy is  not very good at all. They say this despite the fact that the unemployment is at a 40 year low and inflation has cooled from 9.1% some 18 months ago to approximately 3.2% today.  Their attack seems to be more political than fact based.The more liberal media tend to say things are great.

As you might expect, I do not see things either way. Recent polls from both CNN and Marist indicate that Americans feel that they are doing okay but the economy itself is not good. Some of this seems to be driven by the reality that many Americans are not pleased with the idea of the choice of either the current president or former president in November, 2024 so they say that things are not going well. Here is where I come out on the entire issue. The media need to focus on some facts. I see cracks in the economy but they have not surfaced in a big way yet. For example:

1) today, the median income household is paying 41% of take home pay for their mortgage payment. This the highest level since 1984. 

2) Credit card balances are going up as are delinquencies in payment each month. This is not good news. If it stops inching up and moves higher faster, the economy has to sag.

3) Another bellwether is the rise in delinquencies on auto loans, particularly with purchases of used cars. 

4) The US savings rate is down to 3%.

Clear data will not be available for months, but it appears that the top quintile (20%) of the households are doing great. And, for the first time in my life, the bottom 20% is in better shape than normal due to very low unemployment and strong raises for many low wage workers in the last year or two. The middle quintiles seems to be where the real stress is. They received a lot of cash during pandemic relief but that is now gone. Many engaged in “revenge buying” when the pandemic subsided and are now feeling the squeeze as bills come due. Also, student loans payments are back which is difficult for many young adults to meet.

Maybe the goldilocks economy will continue for another year. My wish is that the talking heads on business media focus on the consumer and keep us far better informed than we are now.

If you would like to contact Don Cole directly, you may reach him at doncolemedia@gmail.com or leave a message on the blog.

Net Worth Figures of US Households by Age

 

Last week, the Federal Reserve released their 2022 Survey of Consumer Finances. It provided household net worth data by age in terms of average and median net worth. What is net worth? Simply assets minus liabilities. In other words, the value of a household's home, cars, bank accounts, stocks and bonds, 401k’s or 403b’s, any real estate holdings minus mortgages, auto loans, student loans, and credit card debt.

The big surprise in the data provided below is that the young adults (under 35) were doing better than I anticipated. Yes, they carry the bulk of the trillion dollars in student loan debt but not every young adult has student debt.

You will note that there are two columns—one for average net worth and the other for median net worth. The gulf between the average and median appears, as best as I can tell, to be at an all time high. This is because wealth inequality is high now and always roars during a bull market in equities. Remember, these data are from February, 2022.

Why the huge gap between average and median numbers? Let me tell the modest joke that statistic professors have been using for years. There is a bar in a small town with 29 people in it. Bill Gates (worth $120 billion) enters. Now there are 30 people in the bar and the average net worth of folks in the bar in $4 billion ($120 billion divided by 30). The median net worth is about $75,000 as the median represents the 50th percentile in a group with half above and approximately half below that. It always annoys me that some people use average and median interchangeably. They are vastly different. So the wealthy, in each age group, pull the average up substantially. The median figure is a lot more realistic as a snapshot of American wealth.

If you roll up all the age groups, the Fed says that average net worth is $1,059,470 while the median is $192,700. Remember, half of American households are BELOW the $192,700 figure.

Age Range Average Net Worth        Median Net Worth

20-24          $120,896                        $10,800

25-29          $120,185                        $30,160

30-34         $258,073                                $89,801

35-39         $501,289                              $141,200

40-44         $590,718                              $134,730

45-49         $781,923                              $212,800

50-54       $1,132,532                      $272,800

55-59       $1,442,075                      $320,700

60-64      $1,675,214                              $394,010

65-69      $1,836,884.                        $394,300

70-74     $1,714,085                              $433,100

75-80     $1,630,969                              $316,000

Source: Federal Reserve Board, data from February, 2022

If we have a recession next year and a bear market in equities (stocks), the average net worth figure should drop far faster than the median net worth estimate as the wealthier tend to have a higher proportion of their wealth in stocks.

These numbers are fun to look at and do not get too discouraged if you are below either the average or the median for your age group. Living costs vary widely across our country as do real estate values. Your family may be doing just fine. 

I also do not wish to drown you in numbers but I did take a look at the 25th percentile by age (25% of America is below that number and 75% above).

This shaped up as follows:

Under 35 head of household—$4,000

35-55–19k

45-54–51k

55-64–82k

67-74–87k

75+—94k

So, clearly most of Americans are far from being millionaires although a million is definitely not a definition of wealth anymore.

If you would like to contact Don Cole directly, you may reach him at doncolemedia@gmail.com or leave a message on the blog.

Lessons From Jeff Bezos

 I have long been fascinated by Jeff Bezos and the growth of Amazon. There is no question that his firm has changed the way we shop and set a standard for service for retailers. Here are a few things that I have digested by tracking his actions over the past few decades:

1) Bezos’ mantra is: “We have a whole process that starts with the consumer and works backwards.” As a result, many business analysts would say that Amazon is the most consumer-centric company in the world. Many have imitated their approach.

When I mentioned this to people in various industries, I have often received the reply that “just about everybody does that.” Not in my experience. Not even close. I worked with people who promised outstanding service when pitching business, yet when it came in their primary focus was on earning a 20%+ profit margin on the new acquisition. I was frequently accused of over-servicing an account. The customer was paid lip service but the firm’s bottom line mattered far more than the long term health of the people ultimately paying us.

A similar scam goes on in financial services where a “customized plan” is put together for new clients. The reality is that it is almost always a pre-packaged mix of assets that is driven solely by the age of the client(s) and their existing net worth. The exception was the late Jack Bogle of Vanguard who popularized the index fund. His tactic, fully above board, was to buy the entire market and charge a very, very low service fee. Overtime, the natural growth of markets would make your holdings rise and you were not eaten up by high fees from investment "professionals.” Bogle was truly customer-centric.

2) Bezos is a great communicator. Study his work and it is cloning Winston Churchill. Years ago, I told a colleague that he should read Warren Buffett’s annual letters to shareholders of Berkshire Hathaway (I still highly recommend them). My friend said you should read the Amazon letter to shareholders that Jeff Bezos puts out each year. The guy writes like Churchill, he said.

I am a huge Churchill fan and was always impressed since my teenage years with the clarity of both his writing and speeches. The great man once said regarding writing or speechmaking: “Short words are best, and old words when short are best of all.” Read Bezos or watch some of his presentations on You Tube. The man is a great communicator. Many words have one syllable, sentences are short and memorable. To me, it is a 21st century American version of Sir Winston. Executives in all industries should imitate this approach.

3) “Missionaries love their product and love their customers.”—Jeff Bezos

Do you REALLY love your customers? If not, maybe you are in the wrong game.

4) “Humans aren’t good at understanding exponential growth.”—Jeff Bezos

When Jeff launched Amazon, a deciding factor was that the internet was growing at 2,400% per year. Mind boggling but most of us missed it. I never bought Amazon shares as, a quasi-securities analyst, they had no consistent earnings for years. Yes, sales kept exploding but I was wedded to a low P/E (price to earnings ratio) strategy and the company’s shares left the station without me. This comment still hits home and smarts a bit.

5) Avoid big departments. Bezos once said that if your team cannot be fed with two pizzas, it is too big. So, he divides teams into smaller groups and fresh ideas seem to pop up.

6) He banned power-points at meetings. At Amazon, memos are used and very tightly written. For some meetings, no one reads the recommendation memo until decision-makers are all in the room. The memo is passed out and everyone reads it at the same time. Also, for each staff meeting, there is an empty chair at the table. The point is that the chair represents the consumer and you always need to be aware of them and their needs and wants.

7) One last gem from Bezos—“You don’t choose your passions. You passions choose you.” 

Many people have tried to copy some of this. Some Amazon alumni are developing consumer-centric companies. I wish them well. One very successful player is Bom Kim who has created a company called Coupang (ticker symbol CPNG) which is referred to as the Amazon of South Korea. I am not touting the company and do not own any at present but I do follow their journey closely.

There are many books out about Amazon. My two favorites are: The Bezos Blueprint by Carmine Gallo and bezanomics by Brian Dumaine.

If you would like to contact Don Cole directly, you may reach him at doncolemedia@gmail.com or leave a message on the blog.

Game Over For Spot TV?

Last week, I was visiting a relative in a market that is no longer a top 50 Nielsen DMA. For a change, I watched a bit of local network affiliate TV checking some local news and a few other programs. I was more than a bit surprised by what I saw.

The issue was not at all the quality of the actual programming. It was the size and quality of the advertisers. I expected local multi-unit retailers and some car dealers. Instead, the airwaves were flooded with individual craftsmen such as plumbers, roofers, and glorified handymen hawking their business. 

All may be solid business people and pillars of their communities. The gnawing question was how can they afford to advertise on DMA wide TV? The answer clearly was that the network affiliates were taking what they can get. Actually, I applaud the sales teams who do not look down their noses at tiny players. What hit me was that the relentless decline in spot tv revenue was clearly coming to an end soon.

Also, how could the commercials pay out? A rule of thumb for decades is that you needed a certain number of points of distribution if you were advertising across an entire DMA for advertising to work for a retail advertiser. These one shot players must have been paying almost nothing for the time or would only be on one brief flight and swear off over the air TV as it failed to move the sales needle profitably for them. Local cable, however, could certainly work in some cases for single unit advertisers.

Linear, or over the air TV, was the greatest mass medium ever. Both network and their affiliate stations were able to reach an overwhelming majority of the country or their individual market respectively almost weekly. Profit margins for strong affiliates were a virtual cash machine. Not so any longer!

In media, as in life, it has always been true that the only constant is change. Still, I felt a bit of sadness getting hit so directly with visible evidence of the medium’s decline.

It also brought back another issue that I have mentioned several times over the years in Media Realism (MR). How does one launch a new product aimed at a mass audience? Fragmentation continues to get worse. My answer is that a few upstarts will break through as their message and products go viral. Most success will likely come from the existing giants in many categories who can do line extensions and are a proven quantity to most prospects.

You may reach Don Cole at doncolemedia@gmail.com or leave a message on the blog.

Will Artificial Intelligence Kill Search?

 Artificial Intelligence (AI) is the rage these days. Futurists, stock market analysts, gloom & doomers, sociologists, and mega-cap companies are all weighing in. They are all right about one thing—it is coming on fast and soon and it will likely be as transformational as the Internet revolution of a few decades ago.

I read many of the AI forecasts with great interest and some with amusement. One that tickles me quite a bit is that AI will be a sudden killer of online search. Another was that Tim Cook of Apple had no AI strategy.

We need to step back from the somewhat breathless forecasts for AI’s future and keep our feet on the ground. As, is true of many events in business evolution, I have seen this movie before. Remember, when Microsoft brought out Bing? Many were saying that Google (now Alphabet) was toast. Well, today Bing has a lusty 3% of search in the U.S. today while Alphabet has 88%+. Or when Google invaded social media and Facebook (now Meta) was finished? It did not happen.

Look at what the cash rich mega-caps in tech are doing. Apple, Microsoft, Alphabet, Meta and Oracle are investing billions in AI R&D. Yes, Nvidia may have the current lead according to some reports but there are dozens of smaller companies working in the AI space. If they make big inroads into AI you can be sure one or two of the deep pocketed giants will scoop them up. Does Tim Cook have an AI strategy? You can bet he does and some great minds are working on it along with AI swat teams at the other tech giants.

So will AI kill search as we know it? Yes, but not overnight. Consumers lag technology and the population in the West is rapidly growing older so adapting to a new approach may take a bit of time. Also, the long awaited recession in the U.S. will likely slow things down as well.

To sum up, I am convinced AI will rock our world. And, yes, search will suffer OVER TIME. Just do not be naive enough to think that today’s big players will get hurt as much as some are forecasting.

If you would like to contact Don Cole directly, you may reach him at doncolemedia@gmail.com or leave a message on the blog.

The Case For Disney

 

Yesterday, shares of the Walt Disney Company hit a nine year low on the New York Stock Exchange. From $190 just two years ago, they are hovering (as I write) at about $83 and change. This, plus a host of reports in the media have many analysts, pundits and consumers talking about the iconic company.

 

Disney has had a rough road the last few years.  The Covid virus killed their cruise ship business and was a body blow to their popular theme parks. Their ownership of ABC TV network plus several local network affiliate channels is a future albatross as linear TV continues to lose viewership and advertiser credibility. And, ESPN, once a corporate cash cow, faces some tough sledding as sports rights fee advance and ESPN is not as dominant with the heavy sports viewers as they were several years ago. Finally, Disney +, their streaming service, continues to lose big money.

 

Short term, the actors’ and writers’ strike, is an annoyance that they do not need right now.

 

So, is Disney down for the count? We do not think so. There are a host of things that they appear to be exploring and they include:

 

1)    Breaking the company up. Is the entertainment conglomerate just too big to be managed easily? A few people told me that Apple should buy the entire company. Others wrote to me that Apple could not afford it. Nonsense. If they stopped buying back their shares at such a frenetic pace, they could easily swallow Disney whole and bankers would not blink to make any loan needed. To me, Apple is not a good fit for ALL of Disney. Do they really want to run a cruise line or a slew of theme parks. Buy ESPN? Now that is any idea that has some traction with me. Apple wants to expand their presence in sports, and they can afford rights fees. Putting ESPN as a streaming service on Apple TV provides some synergies.

 

 

2)    As we put this together, Disney appears to be talking with Amazon about an ESPN partnership that could include the sports channel appearing on Amazon Video and Amazon perhaps taking an ownership position in ESPN.

 

3)    There are rumors that Disney might spin off the owned and operated ABC stations to shareholders. Or maybe ABC. Without being snarky, who would want them given the rocky road ahead unless the price was dirt cheap?

 

4)    The Disney movie studios have not produced the normal blockbusters of late. That may turn around quickly with a couple of winners.

 

     There is a lot to unpack in the Disney dilemma. Clearly, there will be changes in their structure and a new alliance or two is most likely. Just do not count them out yet as a dominant media player.

CEO Bob Iger had to come out of retirement to help right the ship. He is a very capable executive who is clearly exploring many options for the company. To me, his biggest task may well be helping to choose the right successor.

 

Disney has great assets. No one can accurately forecast their share price but I think that they will bounce back as a major player in entertainment.

 

If you would like to contact Don Cole directly, you may reach him at doncolemedia@gmail.com or leave a message on the blog.

 

 

Dinosaurs Still Exist!

 

About 20 years ago, I would often hear from old media hands that they hated what was going on in the advertising world. The lament usually went something such as this: “Just give me three, maybe four stations to buy, add a couple of cable channels and I am happy. All this online activity is ridiculous. I want to go back to 1980.” At the time, I patiently would say that times are changing and, to stay at this game, you need to shift gears and embrace new platforms in both media and marketing. It did not play well.

 

A week ago, I got a bit of a surprise. I was approached by phone by someone who used to correspond with me decades ago. She never worked with me or was a client, but she had been one of the dinosaurs in denial of the internet and digital revolution. To my amazement, she still operates in media buying broadcast for a few clients in the upper Midwest. Her lament was remarkably like my manufactured quote above.

 

The conversation was not simply sad. It got me thinking. How many other digital deniers are still out there? They obviously are not dealing with Fortune 500 companies, nor do they likely have lush budgets from the clients they still maintain. What gnawed at me was how the clients must be getting shortchanged. Fifteen years ago, we looked at those who limited efforts only to conventional media as primitives. Now, it is unconscionable.

 

So, please keep learning. Stay on top of changes and continue to test new platforms or venues. Some will work, some will not but you will be doing your duty as a steward of clients’ funds.

 

Change is not easy for any of us. Shifting gears with communications strategy and tactics is essential.

 

If you would like to contact Don Cole directly, you may reach him at doncolemedia@gmail.com or leave a message on the blog.

 

 

The SAG-AFTRA Strike and Viewing

In recent weeks, many of us have been following the strike that has been taking place in Hollywood. SAG-AFTRA (Screen Actors Guild and American Federation of Television and Radio Artists) allied with WGA (Writers Guild of America) have been on strike against the AMPTP (Alliance of Motion Picture and Television Producers).

 

I have followed the action closely and see the arguments for both sides but do lean toward one position. What few seem to be discussing but is right in my wheelhouse is how the strike, if prolonged, will impact over the air and cable tv viewing levels.

 

To get a better handle on the viewing issues, for the first time in six months, I polled members of the dormant Media Realism panel to get the members take on this issue.

 

Here are some slightly edited responses:

 

Local TV station sales manager—“Don, this is the last thing that we needed. Ratings continue to erode and now the fall looks worse given the reruns that will dominate. The local economy is holding up, but I doubt if we will hit the revenue targets that our corporate office has set for us.”

 

Mid-Sized Agency Media Director—“We will cut back investment in local broadcast significantly for the rest of the year. Now, we would have lowered our commitment anyway but now digital will pick up more for the fall.

 

Independent Movie Theater Owner—“Covid really hurt us and now this. I hope that I make it through 2024.”

 

Local Cable Sales Manager—“We have some premium priced sports that will give us a bit of protection. Our packages to advertisers will be full of bonus units. Also, we will ramp up and enhance promotions to our valued clients.”

 

Where do I weigh in? I would say that streaming services should benefit for sure. While production of some popular series will be delayed, there is a great deal of content available across the menu of streaming services. There is a time-honored concept in broadcasting called Least Objectionable Programming (LOP). Basically, it states that when bored by a lineup in broadcast, people will watch what they find least objectionable, but THEY WILL WATCH! The idea got a lot of traction the 1960’s when there were few viewing options. With few exceptions, I do not think that millions of Americans will suddenly rediscover the joys of a good book during the length and immediate aftermath of the actors’ and writers’ strike. It is possible that most streaming services will see a modest increase in subscriptions but a measurable increase in viewing levels. Even You Tube should see a rise. People will watch something a la LOP and backfill some of the series that friends or critics have been recommending that they have yet to sample. Also, there likely will be a “stickiness” to streaming. Once some people ramp up their viewing of streaming programming, they may well stick to it long after the strike has been settled.

 

I feel a bit sorry for the SAG members in particular. The press is full of headlines how major stars get an eight figure fee for a role in a blockbuster film or a nice share of the box office while almost all card carrying members labor in low paying jobs while waiting for their break.

 

Your opinions would be most welcome. You may email me at doncolemedia@gmail.com or leave a message on the blog.

 

The Greatest Measure

 

As I get older, I suppose I am getting a bit wistful. Every now and then, someone asks me how I feel about my life. The answer may surprise you. If I had to sum it up in one word, it would be GRATITUDE.

 

Most of us have so much to be thankful for yet seem to focus on some negative issues. And millions compare themselves to others or talk about the dreams or possessions of others instead of their own. Whenever I get a bit down, I take an inventory which always leaves me feeling grateful.

 

For example:

 

I live in a century where medicine is many times greater than at any time in history. If I were born even 20 years earlier there is no way I would have made it to my present age.

 

I grew up in the 2^nd half of the 20^th century in the United States. I had supportive parents, was non-ethnic and I had a graduate degree from a good school. The runway was long and very clear compared to 98% of the people in the world. I was lucky.

 

Even though we were very different people, my father always gave me constant encouragement. Never once did he tell me I was a hopeless dreamer. His support sustained me through many rough patches. I was only 27 when he died; I still miss his kind words.

 

I live in a country which is still full of opportunity. Also, I can say and largely do what I want. Most of the seven billion people on earth are not so lucky.

 

My wife and children are the joy of my existence. I do not deserve them and my gratitude to them is boundless.

 

It amazes me how people measure their success vs. the material success of others. The measure should be yours –no one else. Each of us is unique and has unique experiences. We may have had to overcome obstacles that others did not. If you have gratitude, you may be the real winner for appreciating your life.

 

Young adults come under a lot of criticism. One area that I admire many of them for is their focus on experiential purchases. Many 20-somethings hop across the globe and examine other cultures. Some sample exotic foods and wines. They spend money on doing rather than on things (material things). I would bet that they will have far fewer regrets later in life than those who merely chased material things. The interaction with others, the understanding of those of different backgrounds, and the challenges they faced will leave them content.

So, to me, the greatest game of all is gratitude.

 

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

 

Demographics, the Media and the Fed

 

Clearly, this may be the most unusual MR post that you will ever read. It concerns some, to me, strange actions by the Federal Reserve in the U.S. that appear to have been ignored by the major media for years.

 

A quick word of warning. This is a bit wonky. It is very unlikely that any of you discussed this over a drink with cronies or with your fellow professionals regardless of your discipline.

 

Here goes:

 

In late 2008, we had a financial crisis that ushered in what is now known as The Great Recession. There was panic in the financial markets across the globe. To help stem the fears, the US central bank, better known as the Federal Reserve, stepped in with boatloads of cash to quiet the markets somewhat. They also cut interest rates very quickly to the point where they approached zero. This new policy, often referred to as ZIRP (Zero Interest Rate Policy) helped to calm things down by acting as something of an economic stimulant.

 

Some weird things began to happen that really got my attention. I began getting solicitations to borrow $1-2 million at absurdly low interest rates of about 1.5%. For someone who considers himself to be modestly affluent, this was a bit shocking. I worked some math and saw that if I purchased a few stocks with high yields, I could easily cover the interest payments (and deduct them) as well as pay off much of the principal with dividends alone. If the securities raised their dividends each year, I could knock my loan down even faster.

 

I then began to see TV commercials on CNBC and Bloomberg for these types of loans. There was still much fear in the air, and I did not try to take out such a loan. I did, however, buy a car a few years later with ZIRP still rolling along. The interest rate and monthly was absurdly low. Being a child of rural New England, I have always hated debt and made extra payments for several months and paid off the vehicle quickly.

 

Okay, why did this concern me? As a media professional, demographics have been my beat for entire career. And being trained in economics academically, I realized that a ZIRP policy would have some winners and losers. Around 50% of American credit card holders carry a balance each month and pay annualized interest rates of 12-21% per year depending on their card selected and credit worthiness. With ZIRP, credit card balances were not slashed. They stayed largely intact.

 

To those with a substantial asset base, ZIRP was a windfall. To those struggling, it was business as usual except for mortgage rates which fell dramatically. Companies benefited mightily by borrowing money to buy back their stock at very low interest rates and thus pumping up their share prices as earnings rose due to a smaller float (share base).

 

By keeping ZIRP in place, there was an “Allocative effect” where certain parts of the economy benefited. It shifted money to wealthy people and larger corporations. I thought about this a great deal but could find nothing to confirm my suspicions. Finally, after some digging, I found an interview in the Wall Street Journal in May 2010 with Thomas Hoenig, a Federal Reserve regional president who articulated the “Allocation effect.” Hoenig was often the lone dissenter on policy matters during the Ben Bernanke era at the Federal Reserve. He was a “hawk” who did not think rates needed to drop as quickly as the Fed chairman did.

 

Finally, last year, Christopher Leonard, a financial writer wrote a book entitled The Lords of Easy Money (Simon & Schuster, 2022). He interviewed Hoenig extensively and covered the Fed’s handling of ZIRP in great detail.

 

My question is simple: How did I spot this back in 2009-10 and the media did not give it much attention? I am business news junkie but the Allocation effect did not surface clearly to me except from Leonard’s book.

 

I am not trashing the Fed. They are smart folks but also human. We did have a crisis in 2009 and things had to move fast. My personal feeling is that rates came down too fast and were kept too low for too long. We needed see how the initial rate cuts worked before going to zero. Younger people complain to me about high interest rates today.  For much of my life, 5% on a passbook savings account was the norm. The 3.5% mortgages that many received in recent years struck me as artificially low. I vividly remember telling people close to me that bankers would have to be crazy to give a fixed 30-year mortgage at 3.5%. Who knows what things will be like in 10 years, let along 30? The response was the usual, “Don, you just do not understand.”

 

At least we did not go the European route of negative interest rates. When I first read about them, I felt they were insane. How can you have a market economy with negative interest rates? The idea appears to have been to get people to spend so they made sitting on cash in savings accounts unattractive. A few Danish banks even wrote mortgages for a time with a negative rate handle. Don’t believe me? Read--https://www.theguardian.com/money/2019/aug/13/danish-bank-launches-worlds-first-negative-interest-rate-mortgage

 

I love the financial press and devour their offerings daily. Why was the “Allocation effect” not covered adequately? It gives left wingers more ammo to claim that the rich always get richer. Actions have consequences and many had to see this coming.

 

If you would like to contact Don Cole directly, you may reach him at doncolemedia@gmail.com or leave a message on the blog.

 

 

Reach & Frequency--2023

 

I started in the ad agency business some 49 years ago as a Media Research Analyst. One of my jobs was to provide Reach & Frequency Analyses for TV campaigns, radio schedules and magazine buys. Media Planners and senior staffers would look at the results and decide where to put the funds. The most cerebral efforts tended to be with magazine selection as editorial content of a publication was as important as the number of people being reached by the message.

 

Reach simply meant the number of people who were exposed to the advertising message. Frequency was of those reached, how many times they were they exposed to it.

 

I dutifully did the analyses and learned a lot about daypart mix in TV, radio station formats and print pluses and minuses. One thing always gnawed at me. All the models provided EXPOSURE OPPORTUNITIES not actual delivery of the message. So, the numbers that we told the client that as many as 90% of the target will see the message an average of a dozen times had to be way too high and never correlated with recall scores or product awareness levels. Frustrated, I went to my boss’s boss who struck me as being more pensive than others in top management. He listened carefully, smiled, and said: “Don, you are correct. You need to realize that we need to have some means of comparison and clients need something to hold onto regarding performance of their large advertising investment. In a few years you will be speaking at client sales meetings (he was right) and these numbers play a small role in firing up a sales team at a convention”.

 

Another problem I asked at the same session was about trying to provide delivery across media. All media are used and perceived differently and very importantly are measured differently. Different methodology yields different results so how can we mix TV, radio, magazine, newspaper and outdoor together and provide a clear estimate? He agreed that intermedia estimates were shaky and too high and only used them when clients requested them.

 

Okay, a lot has happened in the past 49 years. When I think of how many hours I spent with people looking at the pattern of frequency distributions, it makes me laugh. We tried to reach people from somewhere to 3-12 times during a purchase cycle for a brand. You did not want to reach the same people again and again so we did quintile distributions. Invariably, the heaviest 20% of TV viewers would get 40-50% of the potential ad impressions. So, we tried very hard at times to structure buys that reached light users of media who may have been good prospects for our brand or service. We even looked at research studies on attentiveness and weighted TV dayparts by effectiveness. Primetime (8-11 pm, EST) and Prime Access (7-8 pm) scored higher than late night when many were asleep in front of Carson or Letterman (but the Nielsen meter kept rolling) or early morning (7-9 am) when people were in a rush to get the kids fed, lunches packed and also get themselves dressed and out the door.

 

Nowadays, the game is starkly different. Nielsen reports that in the season just finished over the air TV viewing declined 9% and many primetime shows delivered a 1 rating or less. Streaming services continue to gobble up more viewing, much of which is commercial free. Local TV weather is picked by going to the station’s website at any time of day. And, in a digital age, advertisers know how many people are buying their products, what they are willing to pay and how often they visit their companies’ sites. Big Brother truly is watching as they are smoking out your pain or opportunity thresholds for price of a unit and they know what styles you like.

 

These types of data are not exposure opportunities—they are empirical, i.e., real.

 

So, clearly we are seeing a trend away from a huge reliance on conventional media (TV, Radio, Magazine, and Newspaper) as their delivery keeps shrinking. A small market TV broadcaster told me off the record—“we sell to local players. Our audience is downscale and old. Some of the advertisers get it but others are slow to use 21^st century options. This cannot go on much longer.”

 

When I polled some agency people about R&F’s, a few got defensive but others were realistic about it. A few samples of edited quotes:

 

--we cut back conventional media each year. Digital will keep growing.

 

--clients love the accountability of digital and social media.

 

--our smartest client is always introducing new products that are not line extensions. She uses conventional media to introduce new products but does not go overboard.

 

--we do R&F’s if the clients ask for them. It is not a dealbreaker for most of them. Perhaps it is a security blanket as the world keeps changing.

 

--I would not say that that they are meaningless statistics but how do you aggregate the 100 things that we do across so many platforms into a solid unduplicated number? Sales are strong so people are happy at present.

 

 

So, is Reach & Frequency dead? Not yet, but when blended with actual performance estimates in digital, their role in media strategy and analysis is much diminished.

 

If you would like to contact Don Cole directly you may reach him at doncolemedia@gmail.com or leave a message on the blog.

 

 

 

 

The Open-Minded Myth

 

One lesson that I have finally learned in my long life is to question whether an opinion that I have is mistaken and, equally importantly, have facts surrounding the issue changed? Another way to look at it is to keep what is known as an open mind.

 

As I look back, I realize that very few people whom I knew, worked with or for or sold to were truly open-minded. Those who began a meeting with “I have an open mind about what you are proposing” were almost always really saying, “don’t confuse me with facts, my mind is made up.”

 

If the topic is a minor one or in an area with no big downside or emotional wallop, many of us can be quite open-minded. In other, more substantive areas, closed minds reign way too much.

 

In the media world, things have changed remarkably over the last 40 years. Getting people to test cable TV as it broke out as an advertising medium was an uphill slog. That was nothing compared to selling people on very modest digital tests over the last 20 years. The “facts” or media landscape had changed but people clung to their beliefs even though their business franchise seemed to be eroding.

 

On a personal note, looking clearly at facts has shifted some of my political beliefs somewhat toward the center. As a young man, I identified very clearly as a libertarian. I had a live and let live approach toward others but felt that when government got involved in many issues things got pretty screwed up. That is still largely true but, as a marketer, I was always observing demographic shifts. As the US and the western world has gotten older, I see the need for maintaining a strong social safety net. Each month some 71 million people in the US will receive Social Security or disability checks. By 2033, projections are that the Social Security “trust fund” will run dry and benefits under the existing structure will need to be cut by 24%. Most of you reading this post could deal with that, but a strong majority of the 71 million receiving checks could not. It would be a body blow to them and reduce some to horrible poverty. So, while I still believe in personal responsibility and for lawmakers to stop spending so much, something needs to be done (and soon) to protect the elderly. Facts changed my opinion once I saw how my simplistic prior view was mistaken.

 

The great economist John Maynard Keynes was a great example of someone who kept an open mind. In charge of King’s College investments after World War I, he began investing based on business cycle forecasts. He was nearly personally wiped out in the British calamities of the early 1920’s. The great man regrouped, dodged some of the 1929 crash and took a new approach. A man recognized by many as the greatest expert on macroeconomics at the time, abandoned that sophisticated thinking and invested in large, strong companies with good management. He said it was good to not try to be too clever.**  When then Lord Keynes died a multi-millionaire in 1946 (a million went pretty far then), his King’s College fund had also grown exponentially as well. He once said, “When my information changes, I alter my conclusions. What do you do, sir?***

 

My path to being open-minded is still a work in progress. May I ask that you join me?

 

 

**Notice how similar this is to the practices of Berkshire Hathaway’s wildly successful Warren Buffett and Charlie Munger. Charlie has said that he never considers macroeconomic variables in making an investment.

***For a different spin on Keynes, read Media Realism, 2/11/2011—“Would Keynes Still Be a Keynesian?”

 

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

My Favorite Governmental Department

 

From the time that I was about 19 years old, I have been a rather enthusiastic believer in the free market system. So, it might surprise long time readers of this blog to see me entitle a post, “My Favorite Governmental Department.” I generally like a light cloak of regulation in many areas.

 

What I am I writing about? The Congressional Budget Office. Sound as exciting as watching paint dry? Bear with me a few moments and read on. It has a very interesting history.

 

In the later days of the Nixon presidency Congress was concerned about the White House overreaching a bit into things on Capitol Hill. So, they wanted a new agency that would provide objective advice based on data about the impact on the federal budget on various policy proposals. With Nixon gone in August, 1974, The Congressional Budget Office (CBO) was established. Its first head was a dedicated and straight arrow pro named Alice Rivlin. Her resume later included being a deputy at the Federal Reserve, president of the American Economics Association, and Director of the Office of Management and Budget.

 

Under her leadership and that of her successors, the CBO became perhaps the most respected and influential institution in the DC swamp. Independent statistical agencies such as the CBO are important and need to be protected. They realize that much of their job is providing simple arithmetic which most politicians of both major stripes do not always want to accept.

 

Things went okay under Jerry Ford but Jimmy Carter did not approve when Rivlin & Co. did not accept the president’s plan for improving energy efficiency. Speaker Tip O”Neill, Speaker of the House, said the CBO ”was not helping.” My fellow Boston College alum did not get it. The goal and value of the CBO was to be impartial and Rivlin made sure that it was.

 

The genial Ronald Reagan who succeeded Carter also had issues with the CBO. In 1981, Reagan’s first year, the CBO projected that the budget deficits over the next several years would be far higher than the White House projected (sound familiar?). Reagan dubbed the CBO numbers as “phony.”

 

Is the CBO perfect? Of course not. What I respect is that they do not appear to make politically expedient errors in their calculations. Most of the time they focus on the gap between spending and tax revenue going out a few years. To my cynical eye on governmental projections, they strike me as unbiased.

 

There are other groups in DC that provide statistics. At the top of the list is the Census Bureau, the Federal Reserve, the Bureau of Economic Analysis, and the Department of Agriculture. All have some fine people on board.

 

Politicians do not like these purveyors of official statistics. When running for president in 2016, Donald Trump talked about how weak the US economy was. Officially the unemployment rate was pegged at about 5%. Trump said in speeches that it was 35%. I found that laugh out loud funny as in the Great Depression of the 1930’s unemployment peaked in 1933 at around 25%.

 

The absurdity gets better. When Trump took office in 2017, the official unemployment rate continued to ratchet down. His then spokesmen, Sean Spicer, said without winking, “I talked to the president prior to this, and he said to quote him very clearly. They may have been phony in the past, but they are very real now.”**  Clearly, he was manipulating data for his own purposes.

 

We need some grownups such as the statisticians at the CBO and other departments to give the politicians and the public a dose of reality. The media does not address this as clearly as they should.

 

As the fight over the debt ceiling goes on as I write, I wonder how many in congress have truly wrapped their heads around what $31 Trillion means and what the debt will be a decade from now.

 

If you would like to contact Don Cole directly, you may reach him at doncolemedia@gmail.com or leave a message on the blog.

 

 

**Source, The Atlantic, March 2017

 

 

Be Curious

 

Several years ago, I was on a panel at a conference and a question came up for all of us. It was “what advice would you give a young person starting their first job?”

 

As we went around the horn, people said things to the effect as learn all cutting edge computer skills, find a good mentor or two, work harder than your colleagues, and always keep your resume updated.

 

When they at last came to me, I said that I do not like to give advice as it reeks of telling others how to live but I followed with, if pressed, I would simply say, “Be Curious.”

 

This got a few smiles from the attendees but, as I think back, it may well be the best advice that I have ever given to anyone.

 

Think about it for a moment. So many people seem to amble through life rarely asking why. Others are so superficial it is frightening. Many times, I was asked to brief someone for a meeting. The request would go something like “Make me smart on this topic. I have five minutes.”

 

I would try to be succinct but was always stunned at the request. Also, people working on a piece of business would not be willing to read a FORBES, FORTUNE or BUSINESS WEEK article about a company that was a direct competitor to their client. One person told me, “You are not my direct boss, and I am not giving up a half hour of my weekend to read that. I do enough here.” Pathetically, the direct boss did not encourage his team to read the article, but I had my team read it and we discussed it at length over a lunchtime pizza.  Everyone left knowing their client a bit better and what challenges it faced.

 

I understand that I am more curious about some topics than most. If it is something that I am very interested in such as markets, economic thought, certain areas of history, or foreign lifestyles I am all over it and read all that I can about it.

 

The issue is that curiosity is very valuable. I find that asking questions or reading about a topic in detail opens my mind up to different points of view. I rarely will argue directly with someone about politics or the economy but do probe a bit. 

 

As I get older I understand that dwelling on the past goes little good, I have to live in the present and always use the here and now to plan for the future.

 

Finally, do not confuse real curiosity with nosiness. When people start a sentence with: Tell me, I am curious about …. my antennae go up and I generally dodge giving an answer.

 

So, my unsolicited advice is keep asking why and dig a bit. Be curious!

 

If you would like to contact Don Cole directly, you may reach him at doncolemedia@gmail.com or leave a message on the blog.