Back in December, I was putting out feelers to members of my panel and a number of others regarding 2012. Depending on what markets they worked out of or what media they focused on, responses varied a bit. One thing, however, struck me. For the first time in 40 years, no one made more than a passing reference to the Summer Olympic Games that will be held in London this year from late July to early August. Hence this post. What has gone wrong with the Summer games to the point where they have become almost an afterthought to broadcast and cable salespeople, agency media executives, and some fairly high powered advertisers?
I went back to a few dozen people and probed. Was it the lack of competition with Soviet Russia, the presence of professionals in virtually every sport, TV fragmentation, the pulse of modern life or anything else they could dream up?
First, I quote a friend from my Boston College days. He does not work in broadcast or advertising but is in communications. His comments on sports, which he follows avidly, are always astute:
The Summer Olympic games have certainly lost their allure. Some factors:
1) The fall of the Soviet Union and the Eastern bloc.
Competition with them was a morality play: the good and free vs. the slave states, which were also excellent in athletics, because, we were assured, they cheated.
2) The drug scandals. People immediately question exceptional performances, even though the Olympics now probably have the most stringent anti-drug testing and standards of any sporting event.
3) Parity of competition-Track & Field is the symbol and centerpiece of the Olympics. Scientists say that the greatest reason for the lowering of world records is that many more people now compete and have access to modern training methods and equipment. Many, that is, very, very many of these people are from distant continents. Interest in individual competion necessitates the familiarity of the spectator with the main competitors. The PGA Tour suffers when Tiger is not a factor. People want to see Tiger vs. Phil; recently they have been getting some major wins by some fine young players who then fade back into the pack in later tournaments. (Remember how the press would criticize Tom Kite for making millions but not winning tournaments?) It is the same for Olympic Track & Field. Well-known American and British Empire runners would go into the Olympics with great public anticipation. Now, a casual glance at the list of men's record holders of non-hurdling races shows only one American, retired Michael Johnson. Most are from Africa. I couldn't name them, could you?
4) There are many more sports on TV now, with many more outlets, starting with ESPN and other cable outlets. Local news is more likely to lead with the score of a mid-season Red Sox game than with Olympic results.
Next, here are some comments from someone who has sold broadcast and cable for years, remains a knowledgeable fan, and always has his feet on the ground. To him, a big problem is what he dubs the “Dream Team effect.”
Dream Team effect:
When the NBA players participated for the first time in 1992 with the original “Dream Team,” it was fun to see these guys playing for our country but is did not seem so much like the Olympics as it was a basketball exhibition. Knowing that the U.S. and other countries are sending “professionals” in different sports seemed to lessen the perceived genuine competition of Faster, Higher, and Stronger – for those who were not getting paid. Baseball and Tennis players competing is somewhat strange to me as well.
24/7 today:
Now with full coverage on multimedia outlets, plenty on cable, of events, athletes and all different sports it reminds of the NBC Baseball Game of the Week impact. I truly enjoyed watching the sole Saturday telecast as appointment viewing and now the proliferation and availability makes it great to enjoy any game, any time but somehow it does not seem as special. There may be too much for even an ardent sports fan like me to catch all the action.
One of the smartest people that I know who has sold sports from time to time over the years weighed in this way:
To your “not being brought up” point…I’m hearing it lumped more with political, as the most common reason why some are staying away. First that it will be on the front end of political spends, but also…Political spending has become like the Super Bowl in that advertisers fear they can’t be on television. The only TV rates neophytes might hear is how much a :30 cost in the Super Bowl. So too…we spend so much time talking about Obama’s Billion that it scares some away from spending in September/October. Reality is the Late News doesn’t cost what it used too, and zoned cable options are available even more efficiently.
Some people have told you that it is “not worth the trouble”…this one I get. It’s a huge logistical nightmare on the front end, which only intensifies when they arrive. Live sports of any sort is always tricky, so compounding that tenfold only makes for more stress. Add in middle-of-the-night events, time zone peculiarities, language barriers, whether issues…it’s a wonder we can harness it well enough to sell. Have to package/sell the Olympic ideal, because the individual sporting aspects are too fluid to define. In the end…the Olympics are not about the competition, but much more so the personal narratives of those involved.
Others told you that the summer games are “losing their glow” which is an interesting take. On some level I agree, but it’s easy to say that in January. Come August I’ll be wrapped in it like many people, and it’s also one of a handful of programs you can watch with the family.
There is merit though to a lost glow …I blame first, the overall proliferation of sports available. In the 70’s we’d tune by Wide World of Sports for our only chance to watch Russian Vasily Alekseyev lift amazing weights over his head, and a year later remember the portly strongman in the next Olympiad. Were he around today, he might be a UFC fighter which means I could have watched all 37 of his matches on TV, while also being able to follow his eating, training and dating habits via the internet. Somewhere along the way he’d get a Nike deal and a Subway commercial. And eventually we’d learn through his reality show, that he and Vasily Jr. work as a Swamp Loggers during the day. We all have our saturation points.
A few people in their 20’s stunned me by saying that they will start watching the summer games when American football becomes an Olympic sport. One fellow said he was concerned that Olympic coverage could interrupt pre-season NFL and another said he will stick to MLB if his beloved home town team is in a pennant race.
Golf will appear in 2016 in Brazil and last week Jack Nicklaus, Annika Sorenstam, Gary Player, and Greg Norman among other luminaries all presented designs for an Olympic course that will break ground this fall near Rio de Janeiro. The addition of golf may add some new viewers for 2016.
What is my take? Viewing will be pretty good on a cumulative basis. In the heart of summer reruns, we will likely break the record of the Beijing games of over 200 million viewers during the two week run. NBC paid a lot for the rights so the profit picture is problematic. Times, however, have clearly changed.
When someone mentions the summer Olympics to me I think of one man—Al Oerter. He won the gold medal in the discus in 1956, 1960, 1964, and 1968. Al was a true amateur. He worked as an early professional in computers and arranged his training and meets around the Olympics. In 1964, he fell on a rainy day in the rink in Tokyo and was injured badly breaking some ribs. The US doctors urged him to drop out. He refused and won with his first toss. In 1968, as a college student, I was returning to my dorm late one morning when a guy poked his head out of the TV lounge and announced “Oerter is tossing.” Some 20 of us piled into the room to watch. One fool said “what is the big deal? He barely made the team this year.” After we all give him a dirty look, Big Al unleashed a mighty toss that put him in the lead. I had to leave and was stunned to hear on the radio a few hours later that he had his fourth consecutive gold medal and set his fourth consecutive Olympic record. Over the next nearly 40 years whenever I saw him interviewed he was modest, upbeat, and always positive. To me, he was the greatest competitor that I have ever seen. No one epitomized the Olympic spirit as much as Al Oerter did.
Will I watch some? Of course. But, like many things, the landscape has changed and, in this case, I am not sure for the better.
If you would like to contact Don Cole directly, you may reach him at doncolemedia@gmail.com
Sunday, February 5, 2012
Tuesday, January 24, 2012
A Return to Media Normalcy?
Way back in 1920, the U.S. economy was in shambles. Unemployment was over 10% and inflation in some parts of the country was running at 20%. That year, the Republicans nominated Warren G. Harding, an Ohio Senator for president. Easily the handsomest man ever to run for the White House prior to Ronald Reagan and Mitt Romney, Harding had been a strong supporter of giving women the right to vote. That August, when women received the franchise, was only 10 weeks prior to the election. He and his running mate, Massachusetts’s governor Calvin Coolidge campaigned on the theme of a “A Return to Normalcy.” The idea was to correct things at home and stop being the savior of the world. Their predecessor, Woodrow Wilson, had tried to be just that when he entered World War I saying that he “was keeping the world safe for democracy. The return to normalcy was putting America back to pre-World War I conditions.
Harding and Coolidge won in a landslide. The handsome Senator garnered a huge majority of both the male and female vote. Immediately on being inaugurated, he cut taxes, played ball with business interests, and inflation fell sharply and unemployment dropped to 3.5% (most economists define full employment as 4.0%). A few years later Harding died in office with a scandal overhanging him. His Secretary of the Interior had awarded oil leases to friends in exchange for $400,000, an enormous sum in 1923. But the economy rolled on and the “Roaring 20’s” were quite a decade.
Today, many media executives, especially on the sales side, tell me that they just want things to return to normal. Who can blame them for the desire of a “2012 return to normalcy”? From my vantage point, it is simply not going to happen.
Several people tell me that the next couple of years will be won or lost depending on auto sales. There is stunningly good news here. Last week, the automobile research company R.L. Polk released data indicating that the average age of the U.S. car/light truck fleet is 10.8 years. This is the highest level in history. True, cars are made to last longer today than in the past but during 2008-2010 many kept their older cars as they were afraid to take out a loan on a new one. This past year, 2011, saw a 10% uptick in car sales. Given the slightly improving economy plus the age of the fleet requiring significant replacement, 2012 should be another solid year of advancement in car sales in the U.S.
But hanging the year solely on the automobile statistic is way too simplistic. As I look at both the economy and the media market, I don’t really know what normal is anymore. For the last two decades, American consumers went on a buying binge and the national savings rate went to zero. When bad times hit, the savings rate jumped to about 6% by spring 2009. Now, it appears that short-term enthusiasms have grabbed the national psyche once again and people are spending. Or, is it simply because the unemployment rate is high and millions of others are under-employed that people are tapping into savings to maintain a middle class lifestyle? Somehow we need to find a balance between buy now versus save and buy later with cash.
In the media world, something seems to be brewing and I have few allies when I talk or write about it. We are in the 5th year of weak media billing. It varies by medium and by market, of course. But, most media executives would love to see a return to the business they wrote and particularly, the ease of getting it, that they had in 2007. Some have literally referred to that period as the “good old days.”
Here is why I do not see a return to 2007. Is the economy improving? It appears to be moving steadily upward but at a very slow pace. If we grow 2% in 2012, we are on a track that will double the size of our economy in 36 years. Singapore is doubling every six and China every 8 years at current growth rates.
But more importantly, the media landscape has changed significantly since 2008 when people first saw advertisers begin to pull in their horns. Let us say that things are back on track by late 2013 or early 2014. That would be great and we all have to hope for it with so many Americans suffering and millions of others nervous about their prospects.
Let us assume that things are back to “normal” in the 1st quarter of 2014. Will any advertiser worth his salt execute the kind of plan that they would have in 2008? Of course not! Social media was but a gleam in the eye of cutting edge media planners then. Commercial avoidance via DVR’s existed but was half of what it was is now, and Hulu.com, instant Netflix and other alternatives to live commercial TV were just getting started.
Yes, my friends, the U.S. economy will get better. When, is not certain. It is certain, however, that the media mix, for that happy day, will be demonstrably different than what it was in the sunny days of 2007.
If you would like to contact Don Cole directly, you may reach him at doncolemedia@gmail.com
Harding and Coolidge won in a landslide. The handsome Senator garnered a huge majority of both the male and female vote. Immediately on being inaugurated, he cut taxes, played ball with business interests, and inflation fell sharply and unemployment dropped to 3.5% (most economists define full employment as 4.0%). A few years later Harding died in office with a scandal overhanging him. His Secretary of the Interior had awarded oil leases to friends in exchange for $400,000, an enormous sum in 1923. But the economy rolled on and the “Roaring 20’s” were quite a decade.
Today, many media executives, especially on the sales side, tell me that they just want things to return to normal. Who can blame them for the desire of a “2012 return to normalcy”? From my vantage point, it is simply not going to happen.
Several people tell me that the next couple of years will be won or lost depending on auto sales. There is stunningly good news here. Last week, the automobile research company R.L. Polk released data indicating that the average age of the U.S. car/light truck fleet is 10.8 years. This is the highest level in history. True, cars are made to last longer today than in the past but during 2008-2010 many kept their older cars as they were afraid to take out a loan on a new one. This past year, 2011, saw a 10% uptick in car sales. Given the slightly improving economy plus the age of the fleet requiring significant replacement, 2012 should be another solid year of advancement in car sales in the U.S.
But hanging the year solely on the automobile statistic is way too simplistic. As I look at both the economy and the media market, I don’t really know what normal is anymore. For the last two decades, American consumers went on a buying binge and the national savings rate went to zero. When bad times hit, the savings rate jumped to about 6% by spring 2009. Now, it appears that short-term enthusiasms have grabbed the national psyche once again and people are spending. Or, is it simply because the unemployment rate is high and millions of others are under-employed that people are tapping into savings to maintain a middle class lifestyle? Somehow we need to find a balance between buy now versus save and buy later with cash.
In the media world, something seems to be brewing and I have few allies when I talk or write about it. We are in the 5th year of weak media billing. It varies by medium and by market, of course. But, most media executives would love to see a return to the business they wrote and particularly, the ease of getting it, that they had in 2007. Some have literally referred to that period as the “good old days.”
Here is why I do not see a return to 2007. Is the economy improving? It appears to be moving steadily upward but at a very slow pace. If we grow 2% in 2012, we are on a track that will double the size of our economy in 36 years. Singapore is doubling every six and China every 8 years at current growth rates.
But more importantly, the media landscape has changed significantly since 2008 when people first saw advertisers begin to pull in their horns. Let us say that things are back on track by late 2013 or early 2014. That would be great and we all have to hope for it with so many Americans suffering and millions of others nervous about their prospects.
Let us assume that things are back to “normal” in the 1st quarter of 2014. Will any advertiser worth his salt execute the kind of plan that they would have in 2008? Of course not! Social media was but a gleam in the eye of cutting edge media planners then. Commercial avoidance via DVR’s existed but was half of what it was is now, and Hulu.com, instant Netflix and other alternatives to live commercial TV were just getting started.
Yes, my friends, the U.S. economy will get better. When, is not certain. It is certain, however, that the media mix, for that happy day, will be demonstrably different than what it was in the sunny days of 2007.
If you would like to contact Don Cole directly, you may reach him at doncolemedia@gmail.com
Monday, January 16, 2012
We First, A Review
There is a new book out about social media that appears to be getting some buzz. Three readers on two continents have written to me in the last 10 days asking my opinion. The book is WE FIRST by Simon Mainwaring (Palgrave Macmillan, 2011).
It is an interesting book that gives a passionate litany of examples of how social media is changing and will impact both the world of advertising and politics. His vigorous endorsement of social media sometimes borders on the breathless. At one point he writes, “Use social media to build communities, projects and create positive impact.” The title says that we must redefine goals both personal and corporate from “I first” to “We first”.
He later talks of a global brand initiative that will “associate corporate brands and competitors that willingly work together to advance corporate social responsibility and charitable donations”. This can cross corporate lines, Non-profits, and countries. Some examples that he envisions are Coke and Pepsi, Greenpeace and the World Wildlife Fund, and the United States with China. This seems to be a bit of a stretch especially the Coke and Pepsi collaboration.
Mainwaring also states that consumers will pay more if they see a brand selling based on an eye toward common prosperity. Social media, then, in his view, can actually transform capitalism. As an environmentalist he makes a nice case that we are consuming the earth’s resources faster than they can be regenerated.
His politics and idealism get in the way of things to me. Also, he strikes me as someone, who is an experienced marketer, but is getting detached from the real world. It was as if I were reading a liberal Mitt Romney.
Do people really pay more for a socially responsible brand? Mr. Wainwaring should do what I do. Twice a year, I monitor Wal-Mart prices vs. drug stores, grocery stores, and other mass merchants. I must stick out like a sore thumb with my heavily starched shirt and gold cufflinks as I move through the big box store with a clipboard (last time I heard two clerks whisper, “who is that old guy?” The other responded “look busy. He is probably from headquarters"). What I see on those trips are struggling people who buy the cheapest products and pounce on specials. They are fighting to survive and are not dwelling on corporate or brand social responsibility.
Or how about the 64 million who visit a McDonald’s every day? Would they pay more if they thought McDonald’s was working for social justice? I have visited a Ronald McDonald house during my days on the business and the charitable work they do there is both touching and important but I doubt if many customers dwell on it in the drive-thru lane.
Mr. Wainwaring seems to be talking to customers of Patagonia and Whole Foods. He mentions Patagonia in the text very positively and there is no question that much of their customer base loves the fact that they make sustainable products. But, visit a store, as I often have, and the customer base is upper-middle class and unusually well educated. They do not represent American as a whole.
When he sticks to how social media can make your brand look better and communicate more effectively and less expensively, the book sings. In the next breath, he says that he is not anti-capitalist but sometimes, his speech betrays him.
This is a good read but you may, as I, wrestle some of his proposals to the ground.
If you would like to contact Don Cole directly, you may reach him at doncolemedia@gmail.com
It is an interesting book that gives a passionate litany of examples of how social media is changing and will impact both the world of advertising and politics. His vigorous endorsement of social media sometimes borders on the breathless. At one point he writes, “Use social media to build communities, projects and create positive impact.” The title says that we must redefine goals both personal and corporate from “I first” to “We first”.
He later talks of a global brand initiative that will “associate corporate brands and competitors that willingly work together to advance corporate social responsibility and charitable donations”. This can cross corporate lines, Non-profits, and countries. Some examples that he envisions are Coke and Pepsi, Greenpeace and the World Wildlife Fund, and the United States with China. This seems to be a bit of a stretch especially the Coke and Pepsi collaboration.
Mainwaring also states that consumers will pay more if they see a brand selling based on an eye toward common prosperity. Social media, then, in his view, can actually transform capitalism. As an environmentalist he makes a nice case that we are consuming the earth’s resources faster than they can be regenerated.
His politics and idealism get in the way of things to me. Also, he strikes me as someone, who is an experienced marketer, but is getting detached from the real world. It was as if I were reading a liberal Mitt Romney.
Do people really pay more for a socially responsible brand? Mr. Wainwaring should do what I do. Twice a year, I monitor Wal-Mart prices vs. drug stores, grocery stores, and other mass merchants. I must stick out like a sore thumb with my heavily starched shirt and gold cufflinks as I move through the big box store with a clipboard (last time I heard two clerks whisper, “who is that old guy?” The other responded “look busy. He is probably from headquarters"). What I see on those trips are struggling people who buy the cheapest products and pounce on specials. They are fighting to survive and are not dwelling on corporate or brand social responsibility.
Or how about the 64 million who visit a McDonald’s every day? Would they pay more if they thought McDonald’s was working for social justice? I have visited a Ronald McDonald house during my days on the business and the charitable work they do there is both touching and important but I doubt if many customers dwell on it in the drive-thru lane.
Mr. Wainwaring seems to be talking to customers of Patagonia and Whole Foods. He mentions Patagonia in the text very positively and there is no question that much of their customer base loves the fact that they make sustainable products. But, visit a store, as I often have, and the customer base is upper-middle class and unusually well educated. They do not represent American as a whole.
When he sticks to how social media can make your brand look better and communicate more effectively and less expensively, the book sings. In the next breath, he says that he is not anti-capitalist but sometimes, his speech betrays him.
This is a good read but you may, as I, wrestle some of his proposals to the ground.
If you would like to contact Don Cole directly, you may reach him at doncolemedia@gmail.com
Wednesday, January 4, 2012
2012 Media Forecast
As we begin 2012, a number of people have requested a forecast post on the U.S. media scene. I canvassed dozens of people and went to a large number of new sources beyond my normal panel to make sure the thinking was fresh and geographically balanced.
Overview
If you have read the trade press in recent weeks, some very similar forecasts have emerged. Globally, advertising will be up in the 4.7% range and would have been over 5% had worries over European debt and currency threatened a severe recession there. In the U.S. things will move up fairly well with billing growth in the 3-4% range but pre-recession levels of spending (from 2007) will not be matched across the board until maybe 2015-2016. I have no real issues with any of those prognostications. My point in this post is that if you dig a bit deeper things are significantly different market to market and medium to medium.
In no specific order, here goes:
Network TV—the king will remain king as large brands seeking awareness will continue to flock to it and bid up prices despite declining ratings and continued growth in commercial avoidance. The upfront marketplace will continue for another year for sure. Depending on the economy, a 5-6% gain seems likely.
Network Cable—growth will be nice here but more in line with network TV than the double-digit gains of recent years. As the medium has grown, it is coming off a larger base each year so jumps in billing and pricing will be smaller but still good in a flat-lined economy.
Spot TV—this one will require a lot of attention from media planners this year. Virtually every forecast out there says expect a 4% billing gain for 2012 with a 2.5% uptick if you take out the impact of political advertising. Next year will bring new meaning to the old statistical saw that “you can drown in a river with an average depth of six inches.”
Some markets have come back nicely from the 2008-2009 recession (economists claim that we pulled out of recession in 2009. Tell that to some of the broadcasters whom I interviewed!) . Other markets are really struggling and expect another poor year. One Midwestern TV G.M. told me, “We expect no political billing of note. This is not a battleground state for the presidency and we have no Senate race. I try to explain to headquarters that we have absolutely no pricing power. Good clients come in and want pricing from years ago and we have to give it to them. If not they will go to someone who will meet their demands or load up on radio and local cable. Will we ever return to normal?”
The epicenter of America’s boomtowns is now amazingly Williston, North Dakota. Hiring is so robust that fast food outlets are now paying $15 for counter help. As long as the oil and gas boom continues there, things will be fine. But, most Americans are not willing to spend a winter in Williston. And, if you have a mortgage that is underwater (like 24% of mortgage holders), you cannot leave even if you wish. Conversely, Cleveland and Youngstown, Ohio are bulldozing foreclosed or abandoned homes to provide green space in their cities and prop up sagging property values.
With both parties possibly having a billion dollar war chest for advertising next year one would think the networks would get the brunt of it. Not so. Both sides will run on both network TV and national cable but much of the money will be spent in 10-12 battleground states. Topping the list will be Florida and Ohio (natch), along with Pennsylvania, Iowa, Wisconsin, Nevada, Colorado, and Virginia. This list will change a bit as we move through fall 2012.
With the GOP a few seats away from recapturing the Senate, look for huge spending in local races in the following states—Massachusetts, Montana, Nevada, New Mexico, Wisconsin, Missouri, and Virginia.
Candidly, next October will be a bad time to turn on the TV set in either Ohio or Wisconsin. Being battlegrounds for both the presidential race plus hot and well-funded Senate contests, it might be a good time to stick to PBS, C-Span, or HBO.
Auto and truck sales were up a solid 10% from 2010 to 2011 and that clearly helped some spot markets and will likely do it again in 2012. Please remember that when unemployment is over 10% and housing still tanking, some markets will not sell many cars nor see much local vehicle advertising.
The whole political situation raises a core question that a few people were willing to discuss with me. The parent company wants dollars. As a rule, they do not care where they come from client wise. Twenty-five years ago, stations hated political advertising. They had to charge a low fixed rate, could not pre-empt the politicians and they had to offer good inventory to all candidates. Now, they look forward to it. Across many markets, it has become the mother’s milk of local TV advertising. Without political money, many stations would be down in billing for 2012 and some fairly significantly. This is not a good long-term trend for the medium.
Local Cable—with the ability to sell zones or portions of a cable interconnect, this medium with some hustling has been able to bring many small local retailers on to TV over the last few years. Also, they can handle congressional districts or state senate races with far less waste than over the air TV. Growth here will vary depending on the strength of the local economy and the heat of political races. They should do better than local TV stations in most cases.
Radio—most see gains of approximately 2% but, again, it will vary by market. In mid-sized and smaller markets, I am told that collection problems are still a big issue as more and more small retailers are struggling or closing their doors in economically challenged metros. This has always been a problem with local radio but seems to not be improving much even as the economy is inching up.
Certain formats lend themselves well to political advertising. Sports formats continue to do well even in some areas where the economy is not particularly strong. A big development in the last year has been that local radio has been developing digital products for advertisers. They are even elbowing their way in on the daily deal business in certain larger markets.
Outdoor—a 4-5% gain seems likely. Digital boards remain popular and they will benefit from political spending as well. Keep in mind that outdoor remains the last mass medium.
Newspaper—the downward spiral will continue. An optimistic outlook would say that they would be down 9% after strong double digit declines of recent years. Most papers have not been able to convert many readers to their digital product and the under 40’s continue to avoid it. When I travel, it stuns me how weak the products are and how much wire service copy that they all use. Sad, but this is the reality of the 2012 world.
Magazines—they get thinner and thinner except for a few trendy titles and some beauty books. Some well known titles will die this year. It is a shame but most do not fit in to today’s lifestyle all that well. Pricing is often wide open—negotiations should be fun again this year.
On-Line—double digit year over year gains will be found here. And, there is room for growth! They may get 15% of billing next year but we spend 36% of our media time online. As print falters, more players of all sizes will shift money here.
Daily Deals—this business usually means Groupon or Living Social to most people. Actually, there are hundreds of entrants in the category and broadcasters, especially smart radio operators, are getting in to the act via their websites. Groupon timed their Initial Public Offering (IPO) perfectly. To me, their business model seems way too labor intensive and retailers complain that people who use Groupon coupons do not “stick” and return again and again. This could be an area with a shakeout as many daily deal players, especially the under-capitalized, fall to the wayside.
Social Media—this one had the entire buzz last year but may generate more in 2012. Facebook will have 1 billion users this year and should become a public company by year-end. What will they do with all that capital? Acquisitions would make sense but I think that they will use new technology to really heat up social commerce. So will others in the space. There is talk of an Apple TV set that will blend on-line with more conventional TV properties with opportunities for sales.
Major companies have piled in to social media and they are getting a decent handle on it and integrating it with varying degrees of success in to their marketing communications programs. But, small retailers seem to hate it or are afraid of it. Why? They do not devote enough time to it nor do they have the staff on hand to maximize its usefulness. There is still a bit of hocus-pocus here but the big players are getting more accountable and the big spenders are getting more imaginative and are hedging their bets more shrewdly with it.
The Wild Card—Oil Prices. As an economy grows, demand for petroleum-based products, particularly gasoline, goes up. So, as we write, oil is approximately $100 a barrel. The economy can handle that easily and even more if the economy improves modestly throughout 2012. If we get to $130+ a barrel, that would translate to about $4 per gallon at the gasoline pump. At that point, the economy begins to tank. If people are spending $80 twice a week to fill their gas-guzzlers, they have to cut back on other purchases, as they still have to drive to and from work. “Demand destruction” will kick in and people will find a way to drive less and consolidate errands when they do. Gasoline prices will then come back to earth. A geo-political event such as military action by or against Iran could send prices sky high for a brief period and hurt the economy and devastate advertising. Over time, keep in mind that oil prices will likely rise, as overseas demand will continue to grow.
That is how we see 2012. It will likely be a year of incremental growth for many media types but much will be determined by specifically where you live.
If you would like to contact Don Cole directly, you may reach him at doncolemedia@gmail.com
Overview
If you have read the trade press in recent weeks, some very similar forecasts have emerged. Globally, advertising will be up in the 4.7% range and would have been over 5% had worries over European debt and currency threatened a severe recession there. In the U.S. things will move up fairly well with billing growth in the 3-4% range but pre-recession levels of spending (from 2007) will not be matched across the board until maybe 2015-2016. I have no real issues with any of those prognostications. My point in this post is that if you dig a bit deeper things are significantly different market to market and medium to medium.
In no specific order, here goes:
Network TV—the king will remain king as large brands seeking awareness will continue to flock to it and bid up prices despite declining ratings and continued growth in commercial avoidance. The upfront marketplace will continue for another year for sure. Depending on the economy, a 5-6% gain seems likely.
Network Cable—growth will be nice here but more in line with network TV than the double-digit gains of recent years. As the medium has grown, it is coming off a larger base each year so jumps in billing and pricing will be smaller but still good in a flat-lined economy.
Spot TV—this one will require a lot of attention from media planners this year. Virtually every forecast out there says expect a 4% billing gain for 2012 with a 2.5% uptick if you take out the impact of political advertising. Next year will bring new meaning to the old statistical saw that “you can drown in a river with an average depth of six inches.”
Some markets have come back nicely from the 2008-2009 recession (economists claim that we pulled out of recession in 2009. Tell that to some of the broadcasters whom I interviewed!) . Other markets are really struggling and expect another poor year. One Midwestern TV G.M. told me, “We expect no political billing of note. This is not a battleground state for the presidency and we have no Senate race. I try to explain to headquarters that we have absolutely no pricing power. Good clients come in and want pricing from years ago and we have to give it to them. If not they will go to someone who will meet their demands or load up on radio and local cable. Will we ever return to normal?”
The epicenter of America’s boomtowns is now amazingly Williston, North Dakota. Hiring is so robust that fast food outlets are now paying $15 for counter help. As long as the oil and gas boom continues there, things will be fine. But, most Americans are not willing to spend a winter in Williston. And, if you have a mortgage that is underwater (like 24% of mortgage holders), you cannot leave even if you wish. Conversely, Cleveland and Youngstown, Ohio are bulldozing foreclosed or abandoned homes to provide green space in their cities and prop up sagging property values.
With both parties possibly having a billion dollar war chest for advertising next year one would think the networks would get the brunt of it. Not so. Both sides will run on both network TV and national cable but much of the money will be spent in 10-12 battleground states. Topping the list will be Florida and Ohio (natch), along with Pennsylvania, Iowa, Wisconsin, Nevada, Colorado, and Virginia. This list will change a bit as we move through fall 2012.
With the GOP a few seats away from recapturing the Senate, look for huge spending in local races in the following states—Massachusetts, Montana, Nevada, New Mexico, Wisconsin, Missouri, and Virginia.
Candidly, next October will be a bad time to turn on the TV set in either Ohio or Wisconsin. Being battlegrounds for both the presidential race plus hot and well-funded Senate contests, it might be a good time to stick to PBS, C-Span, or HBO.
Auto and truck sales were up a solid 10% from 2010 to 2011 and that clearly helped some spot markets and will likely do it again in 2012. Please remember that when unemployment is over 10% and housing still tanking, some markets will not sell many cars nor see much local vehicle advertising.
The whole political situation raises a core question that a few people were willing to discuss with me. The parent company wants dollars. As a rule, they do not care where they come from client wise. Twenty-five years ago, stations hated political advertising. They had to charge a low fixed rate, could not pre-empt the politicians and they had to offer good inventory to all candidates. Now, they look forward to it. Across many markets, it has become the mother’s milk of local TV advertising. Without political money, many stations would be down in billing for 2012 and some fairly significantly. This is not a good long-term trend for the medium.
Local Cable—with the ability to sell zones or portions of a cable interconnect, this medium with some hustling has been able to bring many small local retailers on to TV over the last few years. Also, they can handle congressional districts or state senate races with far less waste than over the air TV. Growth here will vary depending on the strength of the local economy and the heat of political races. They should do better than local TV stations in most cases.
Radio—most see gains of approximately 2% but, again, it will vary by market. In mid-sized and smaller markets, I am told that collection problems are still a big issue as more and more small retailers are struggling or closing their doors in economically challenged metros. This has always been a problem with local radio but seems to not be improving much even as the economy is inching up.
Certain formats lend themselves well to political advertising. Sports formats continue to do well even in some areas where the economy is not particularly strong. A big development in the last year has been that local radio has been developing digital products for advertisers. They are even elbowing their way in on the daily deal business in certain larger markets.
Outdoor—a 4-5% gain seems likely. Digital boards remain popular and they will benefit from political spending as well. Keep in mind that outdoor remains the last mass medium.
Newspaper—the downward spiral will continue. An optimistic outlook would say that they would be down 9% after strong double digit declines of recent years. Most papers have not been able to convert many readers to their digital product and the under 40’s continue to avoid it. When I travel, it stuns me how weak the products are and how much wire service copy that they all use. Sad, but this is the reality of the 2012 world.
Magazines—they get thinner and thinner except for a few trendy titles and some beauty books. Some well known titles will die this year. It is a shame but most do not fit in to today’s lifestyle all that well. Pricing is often wide open—negotiations should be fun again this year.
On-Line—double digit year over year gains will be found here. And, there is room for growth! They may get 15% of billing next year but we spend 36% of our media time online. As print falters, more players of all sizes will shift money here.
Daily Deals—this business usually means Groupon or Living Social to most people. Actually, there are hundreds of entrants in the category and broadcasters, especially smart radio operators, are getting in to the act via their websites. Groupon timed their Initial Public Offering (IPO) perfectly. To me, their business model seems way too labor intensive and retailers complain that people who use Groupon coupons do not “stick” and return again and again. This could be an area with a shakeout as many daily deal players, especially the under-capitalized, fall to the wayside.
Social Media—this one had the entire buzz last year but may generate more in 2012. Facebook will have 1 billion users this year and should become a public company by year-end. What will they do with all that capital? Acquisitions would make sense but I think that they will use new technology to really heat up social commerce. So will others in the space. There is talk of an Apple TV set that will blend on-line with more conventional TV properties with opportunities for sales.
Major companies have piled in to social media and they are getting a decent handle on it and integrating it with varying degrees of success in to their marketing communications programs. But, small retailers seem to hate it or are afraid of it. Why? They do not devote enough time to it nor do they have the staff on hand to maximize its usefulness. There is still a bit of hocus-pocus here but the big players are getting more accountable and the big spenders are getting more imaginative and are hedging their bets more shrewdly with it.
The Wild Card—Oil Prices. As an economy grows, demand for petroleum-based products, particularly gasoline, goes up. So, as we write, oil is approximately $100 a barrel. The economy can handle that easily and even more if the economy improves modestly throughout 2012. If we get to $130+ a barrel, that would translate to about $4 per gallon at the gasoline pump. At that point, the economy begins to tank. If people are spending $80 twice a week to fill their gas-guzzlers, they have to cut back on other purchases, as they still have to drive to and from work. “Demand destruction” will kick in and people will find a way to drive less and consolidate errands when they do. Gasoline prices will then come back to earth. A geo-political event such as military action by or against Iran could send prices sky high for a brief period and hurt the economy and devastate advertising. Over time, keep in mind that oil prices will likely rise, as overseas demand will continue to grow.
That is how we see 2012. It will likely be a year of incremental growth for many media types but much will be determined by specifically where you live.
If you would like to contact Don Cole directly, you may reach him at doncolemedia@gmail.com
Thursday, December 15, 2011
No Advertising; Not Much Media
Very recently, I was in a library doing some research. On the table in front of me I had several books out with topics including branding, growth of media, social media, and advertising history. A young man perhaps in his early thirties walked by, stopped for a minute and said, “Are you some type of ad guy.”
I smiled, stood up, offered my hand and said, “Guilty.” We shook hands but he then asked me “don’t you feel guilty about it.” If you were expecting me to get upset, forget it. No one can spend decades in advertising without at some time being referred to either directly or subtly as a huckster, immoral/amoral, snake oil salesman, exploiter, and other names not fit to print. Even David Ogilvy said that Queen Elizabeth was not excited at his knighthood ceremony when she found out his occupation. So I simply let the young fellow fire a few verbal bullets.
But then he said something that did annoy me. He stated, “What I hate about advertising the most is that it has ruined the media”. Well, that was a bit much even for me. As he walked away, my mind began racing at the breathtaking ignorance of his statement.
Simply put, without advertising, there would be very little media as we know it in existence. Woodward and Bernstein were able to bring down the Nixon White House because Katharine Graham’s Washington Post was an enormous advertising cash cow and she could therefore afford to pay a few young reporters to track down a story over many months and pay travel expenses for the young team as well. Without advertising revenue, most media, as we know it, would go kaput pretty fast.
About 40 years ago, as a student, I came across an amazing book by David Potter. Written in 1954, it was out of print when I found it in a used bookstore. There is a passage which sums up my feelings beautifully. In PEOPLE AND PLENTY: ECONOMIC ABUNDANCE AND THE AMERICAN CHARACTER he writes: “Students of the radio and the mass circulation magazines frequently condemn advertising for its conspicuous role, as if it were a mere interloper in a separate, pre-existing, self-contained aesthetic world of actors, musicians, authors, and script-writers; they hardly recognize that advertising CREATED modern American radio and television, TRANSFORMED the modern newspaper, EVOKED the modern slick periodical, and remains the VITAL ESSENCE of each of them at the present time.”
Amazing! He published those words in 1954! Just the year before, 1953, we crossed the threshold where 50% of American households had television sets. Yet, in many ways, I could argue that no one has articulated the role of advertising in the media world better than Potter did in the 57 years since then. He understood the symbiotic relationship between advertising and virtually all forms of mass communication very clearly.
Think about today. Everyone talks (rightly) about Google being the game-changer in the communications world. But how can it afford to continually innovate or buy existing companies? It is pretty simple. Much of their projected $40 billion in revenue comes from advertising. Without advertising dollars, Google could never have been Google. And virtually every little website in existence is looking for ways to monetize via some form of advertising revenue.
So if you are ever accosted as I was this past week, let the naïve ill-informed bozo talk but do not let him raise your blood pressure. Without advertising, the media choices that we have in abundance here in the US and on the Web would simply not exist.
If you would like to contact Don Cole directly, you may reach him at doncolemedia@gmail.com
I smiled, stood up, offered my hand and said, “Guilty.” We shook hands but he then asked me “don’t you feel guilty about it.” If you were expecting me to get upset, forget it. No one can spend decades in advertising without at some time being referred to either directly or subtly as a huckster, immoral/amoral, snake oil salesman, exploiter, and other names not fit to print. Even David Ogilvy said that Queen Elizabeth was not excited at his knighthood ceremony when she found out his occupation. So I simply let the young fellow fire a few verbal bullets.
But then he said something that did annoy me. He stated, “What I hate about advertising the most is that it has ruined the media”. Well, that was a bit much even for me. As he walked away, my mind began racing at the breathtaking ignorance of his statement.
Simply put, without advertising, there would be very little media as we know it in existence. Woodward and Bernstein were able to bring down the Nixon White House because Katharine Graham’s Washington Post was an enormous advertising cash cow and she could therefore afford to pay a few young reporters to track down a story over many months and pay travel expenses for the young team as well. Without advertising revenue, most media, as we know it, would go kaput pretty fast.
About 40 years ago, as a student, I came across an amazing book by David Potter. Written in 1954, it was out of print when I found it in a used bookstore. There is a passage which sums up my feelings beautifully. In PEOPLE AND PLENTY: ECONOMIC ABUNDANCE AND THE AMERICAN CHARACTER he writes: “Students of the radio and the mass circulation magazines frequently condemn advertising for its conspicuous role, as if it were a mere interloper in a separate, pre-existing, self-contained aesthetic world of actors, musicians, authors, and script-writers; they hardly recognize that advertising CREATED modern American radio and television, TRANSFORMED the modern newspaper, EVOKED the modern slick periodical, and remains the VITAL ESSENCE of each of them at the present time.”
Amazing! He published those words in 1954! Just the year before, 1953, we crossed the threshold where 50% of American households had television sets. Yet, in many ways, I could argue that no one has articulated the role of advertising in the media world better than Potter did in the 57 years since then. He understood the symbiotic relationship between advertising and virtually all forms of mass communication very clearly.
Think about today. Everyone talks (rightly) about Google being the game-changer in the communications world. But how can it afford to continually innovate or buy existing companies? It is pretty simple. Much of their projected $40 billion in revenue comes from advertising. Without advertising dollars, Google could never have been Google. And virtually every little website in existence is looking for ways to monetize via some form of advertising revenue.
So if you are ever accosted as I was this past week, let the naïve ill-informed bozo talk but do not let him raise your blood pressure. Without advertising, the media choices that we have in abundance here in the US and on the Web would simply not exist.
If you would like to contact Don Cole directly, you may reach him at doncolemedia@gmail.com
Friday, December 9, 2011
The Mirage of the Global Middle Class
On October 31st, the United Nations announced that the global population was projected to be at seven billion people. Right after that, many of us began to see and hear financial prognosticators talk about how, due to economic growth, some 850 million people were now middle class. So, in other words, 12.1% of the world in late 2011 could be described as middle class.
A recently released book puts these and other relative wealth factoids in sharp perspective. It is entitled THE HAVES AND THE HAVE NOTS with the subtitle “a brief and idiosyncratic history of global inequality” (Basic Books, 2011). The author is Branko Milanovic who is the lead economist at the World Bank’s research division. He also does double duty as a professor at the University of Maryland.
Milanovic breathes life into global demographics, which, if not handled adroitly, can be a breathtakingly boring subject. In the book’s best chapter, he questions the concept of a global middle class. Oh yes, it exists but not necessarily in terms that a U.S. marketer or private investor would see it.
The problem is that middle class is a term that tends to be defined LOCALLY. Most nations use it as plus or minus 25% of the countries median income (to refresh the memory of some of you 40 years away from a statistics course, the median is the 50th percentile; approximately half of the population is above that statistic and half below).
So, India has a median income which is somewhere between one 15th and one 17th of the United States. Middle class in India, thus, would translate to dire poverty in the U.S. Adding more fuel to the demographic fire is that the cost of living, especially housing, varies widely across the globe.
Milanovic makes a marvelous point about many in the financial world who use superficial analyses to measure a middle class lifestyle. He rails against those who look at cell phone penetration as the silver bullet to determine entry into a middle class existence. I am told that in parts of West Africa, for example, many have cell phones. But, their villages have no electricity. So, when the phone runs down, they have to travel to a city to re-charge it. They do not have the $100 to buy a solar phone charger. They are hardly middle class.
So, what does this mean to you? If you are brand manager and your boss wants you to go hell bent for leather in Latin America, be careful where you place your media dollars. If the product has broad appeal such as Tide, you may do fine. But, if you are selling dishwasher detergent, the odds are good that a Brazil or Chile, for example, will generate per household sales five to seven times most other countries on the continent. Should you be a private investor, just be careful period. Yes, the middle class is growing and certainly faster than in the United States these days. Just keep in mind that there is no way that one eighth of the world is what we consider to be middle class yet. Caveat emptor!
If you would like to contact Don Cole directly, you may reach him at doncolemedia@gmail.com
A recently released book puts these and other relative wealth factoids in sharp perspective. It is entitled THE HAVES AND THE HAVE NOTS with the subtitle “a brief and idiosyncratic history of global inequality” (Basic Books, 2011). The author is Branko Milanovic who is the lead economist at the World Bank’s research division. He also does double duty as a professor at the University of Maryland.
Milanovic breathes life into global demographics, which, if not handled adroitly, can be a breathtakingly boring subject. In the book’s best chapter, he questions the concept of a global middle class. Oh yes, it exists but not necessarily in terms that a U.S. marketer or private investor would see it.
The problem is that middle class is a term that tends to be defined LOCALLY. Most nations use it as plus or minus 25% of the countries median income (to refresh the memory of some of you 40 years away from a statistics course, the median is the 50th percentile; approximately half of the population is above that statistic and half below).
So, India has a median income which is somewhere between one 15th and one 17th of the United States. Middle class in India, thus, would translate to dire poverty in the U.S. Adding more fuel to the demographic fire is that the cost of living, especially housing, varies widely across the globe.
Milanovic makes a marvelous point about many in the financial world who use superficial analyses to measure a middle class lifestyle. He rails against those who look at cell phone penetration as the silver bullet to determine entry into a middle class existence. I am told that in parts of West Africa, for example, many have cell phones. But, their villages have no electricity. So, when the phone runs down, they have to travel to a city to re-charge it. They do not have the $100 to buy a solar phone charger. They are hardly middle class.
So, what does this mean to you? If you are brand manager and your boss wants you to go hell bent for leather in Latin America, be careful where you place your media dollars. If the product has broad appeal such as Tide, you may do fine. But, if you are selling dishwasher detergent, the odds are good that a Brazil or Chile, for example, will generate per household sales five to seven times most other countries on the continent. Should you be a private investor, just be careful period. Yes, the middle class is growing and certainly faster than in the United States these days. Just keep in mind that there is no way that one eighth of the world is what we consider to be middle class yet. Caveat emptor!
If you would like to contact Don Cole directly, you may reach him at doncolemedia@gmail.com
Friday, December 2, 2011
Are Companies More Powerful Than Countries?
Lately, many of us are seeing and hearing people comment on how big multi-national companies are simply too powerful. Some are said to have bigger revenues than the Gross Domestic Product (GDP) of some fairly large countries. Recently, I have seen that McDonald’s $24 + billion in sales is larger than the Latvian economy. Exxon Mobil with over $35 billion in revenue is larger than Thailand’s GDP and would be the 30th country in the world were it a sovereign economy. Finally, Wal-Mart with over $42 billion in sales is larger than oil rich Norway and would be the 25th largest economy in the world were it a free standing nation.
Does it really matter? Some say yes; others no. Companies have influence but they do not carry weapons and, other than a handful of security guards, they do not have anything resembling a standing army. One difference is that of leadership—if people in a free society do not like a leader’s positions or policies they can vote him or her out of office. Most CEO’s tend not to be subject to a similar democratic mandate. Yes, they answer to their boards and shareholders but, if they keep earnings and a stream of dividends growing, most can have pretty long tenures on top.
Capital always has and I believe always will move to where it can earn the best return. That is why developing countries often work very hard to make themselves attractive to foreign investment. Money truly talks and many a non-democratic regime has been “told” to establish a more stable government, encourage rule of law and have accounting practices that are transparent and honest. In short, the country should be a place where international businesses can operate and are comfortable doing so.
So, why do big companies continue to get bigger? Is it because they are all sinister? I feel that the power often attributed to them is really not there. Today, we have a globally competitive economy and companies are constantly and ruthlessly pursuing efficiency. As they improve their performance they reward thousands with jobs and benefit stakeholders with higher dividends and eventually rising share prices. This focus on constantly striving for efficiency is significantly different than most governments around the world.
Governments, on the other hand, are often at the mercy of the tyranny of various special interest groups and to keep their political lives intact, many representatives vote the way the special interests want them to lean. Yet, big companies are often largely where they are due to the power of consumers—they got big by listening to customer needs and meeting their wants at a competitive price.
There is no question that corporations have had their way with Washington, DC in recent years. And, the rants of the Occupy Wall Street crowd make a wonderful criticism of “crony capitalism” and institutions that have become too big to fail. If they are too big to fail, then they are simply too big in an authentic free market model.
For a moment, let us look at two huge multi-national companies, not in energy or finance where influence can be outsized, and see how they have grown.
Henri Nestle was a pharmacist in tiny Vevey, Switzerland. In 1867, he came up with an infant formula. With steady even plodding growth it is now the largest food company in the world. After several decades of slow growth, they merged with the Anglo-Swiss Milk Company in 1905. During World War I, they provided canned and powdered milk to troops. After World War I, flush with cash (Switzerland had been neutral), they branched out into chocolate. World War II was rough on business but by then they had invented instant coffee that became wildly popular.
After World War II, they bought British company Crosse and Blackwell. They then added Libby’s, Carnation, Ovaltine, and Dreyer’s Ice Cream. Water became a hot item and they scooped up Perrier, San Pellegrino, Poland Springs and dozens of smaller players. They continue to buy up companies around the globe and now that the west has an aging population, they are looking at “wellness” as a big growth area.
Several years after Henri Nestle got started, Dr. John Pemberton, an Atlanta physician known for selling patent medicines began selling Coca-Cola (Coke) out of his drugstore. Sales were slow for a few decades and several people sold different versions under the same name. A local businessman, Asa Candler, saw big potential in the product and bought out all parties and consolidated all claims on the product, the name, and the now magic formula. Sales took off and they began a slow steady build across the U.S. For years, they fought back competitors who tried to ape the name. They won most of the suits but lost one against an upstart called Pepsi-Cola.
Today, Coke is sold in over 200 countries. Recently, I read an interview with a financial analyst who said that Coke even makes money in Zimbabwe, arguably the world’s greatest economic basket case. How do they do it? I am not sure but one reader of the blog tells me that they probably deliver to retailers in Zimbabwe who pay with an American Express card issued from a foreign country. They get their money instantly and the local retailer then takes responsibility for making money in a country with the highest inflation rate in the world.
I do not own shares in either of these global giants and have no plan to do so. My point is simply that private companies that are focused on growth and efficiency will likely continue to get larger no matter what happens to the American or European economies. They are not as powerful as some alarmists say but many will likely get a lot bigger as many Asian countries and Latin America emerge as economic powerhouses.
As an old acquaintance one said to me, “Conservative investors, you will sleep well.”
If you would like to contact Don Cole directly, you may reach him at doncolemedia@gmail.com
Does it really matter? Some say yes; others no. Companies have influence but they do not carry weapons and, other than a handful of security guards, they do not have anything resembling a standing army. One difference is that of leadership—if people in a free society do not like a leader’s positions or policies they can vote him or her out of office. Most CEO’s tend not to be subject to a similar democratic mandate. Yes, they answer to their boards and shareholders but, if they keep earnings and a stream of dividends growing, most can have pretty long tenures on top.
Capital always has and I believe always will move to where it can earn the best return. That is why developing countries often work very hard to make themselves attractive to foreign investment. Money truly talks and many a non-democratic regime has been “told” to establish a more stable government, encourage rule of law and have accounting practices that are transparent and honest. In short, the country should be a place where international businesses can operate and are comfortable doing so.
So, why do big companies continue to get bigger? Is it because they are all sinister? I feel that the power often attributed to them is really not there. Today, we have a globally competitive economy and companies are constantly and ruthlessly pursuing efficiency. As they improve their performance they reward thousands with jobs and benefit stakeholders with higher dividends and eventually rising share prices. This focus on constantly striving for efficiency is significantly different than most governments around the world.
Governments, on the other hand, are often at the mercy of the tyranny of various special interest groups and to keep their political lives intact, many representatives vote the way the special interests want them to lean. Yet, big companies are often largely where they are due to the power of consumers—they got big by listening to customer needs and meeting their wants at a competitive price.
There is no question that corporations have had their way with Washington, DC in recent years. And, the rants of the Occupy Wall Street crowd make a wonderful criticism of “crony capitalism” and institutions that have become too big to fail. If they are too big to fail, then they are simply too big in an authentic free market model.
For a moment, let us look at two huge multi-national companies, not in energy or finance where influence can be outsized, and see how they have grown.
Henri Nestle was a pharmacist in tiny Vevey, Switzerland. In 1867, he came up with an infant formula. With steady even plodding growth it is now the largest food company in the world. After several decades of slow growth, they merged with the Anglo-Swiss Milk Company in 1905. During World War I, they provided canned and powdered milk to troops. After World War I, flush with cash (Switzerland had been neutral), they branched out into chocolate. World War II was rough on business but by then they had invented instant coffee that became wildly popular.
After World War II, they bought British company Crosse and Blackwell. They then added Libby’s, Carnation, Ovaltine, and Dreyer’s Ice Cream. Water became a hot item and they scooped up Perrier, San Pellegrino, Poland Springs and dozens of smaller players. They continue to buy up companies around the globe and now that the west has an aging population, they are looking at “wellness” as a big growth area.
Several years after Henri Nestle got started, Dr. John Pemberton, an Atlanta physician known for selling patent medicines began selling Coca-Cola (Coke) out of his drugstore. Sales were slow for a few decades and several people sold different versions under the same name. A local businessman, Asa Candler, saw big potential in the product and bought out all parties and consolidated all claims on the product, the name, and the now magic formula. Sales took off and they began a slow steady build across the U.S. For years, they fought back competitors who tried to ape the name. They won most of the suits but lost one against an upstart called Pepsi-Cola.
Today, Coke is sold in over 200 countries. Recently, I read an interview with a financial analyst who said that Coke even makes money in Zimbabwe, arguably the world’s greatest economic basket case. How do they do it? I am not sure but one reader of the blog tells me that they probably deliver to retailers in Zimbabwe who pay with an American Express card issued from a foreign country. They get their money instantly and the local retailer then takes responsibility for making money in a country with the highest inflation rate in the world.
I do not own shares in either of these global giants and have no plan to do so. My point is simply that private companies that are focused on growth and efficiency will likely continue to get larger no matter what happens to the American or European economies. They are not as powerful as some alarmists say but many will likely get a lot bigger as many Asian countries and Latin America emerge as economic powerhouses.
As an old acquaintance one said to me, “Conservative investors, you will sleep well.”
If you would like to contact Don Cole directly, you may reach him at doncolemedia@gmail.com
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