Real Media Riffs - Friday, Oct 20, 2006

THE 62.5/1 RULE -- Want to hedge your bets in an unpredictable media marketplace? Place them not on big media content creators and distributors, but on advertising agencies. At least that's the view from one of Wall Street's most influential trackers of the media industry, Merrill Lynch analyst Lauren Rich Fine. In an insightful overview of the marketing and media industries, Fine and her equities research team make a strong case for Madison Avenue's ability to weather fundamental shifts that are taking place in the economics of media, especially the shift from mass advertising strategies to finely targeted and interactive ones.

Fine describes the current state of media planning as a "polarization between targeting and mass reach," and we think she's right on the, er, money. In fact, this rift in media planning strategies could be contributing to an even more fundamental kind of division: The "polarization of marketing expenditure between the advertisers who can build one-to-one, interactive experiences with consumers (i.e., manufacturers/retailers of high-ticket items, financial services etc) and those who still need to hit mass audiences (i.e., CPG manufacturers)."



Fine doesn't think the mass market is dead, noting that it might be difficult if not impossible for big marketers like Coca-Cola and Anheuser-Busch to convert to one-to-one interactivity. "Hitting big audiences with branding messages will remain important" to them, she says, but the push of other brands toward more efficient digital media will begin to stratify the demand quotient in the advertising marketplace, making mass analog media look even more inefficient relative to micro-targeted digital media.

This could prove cataclysmic, Fine suggests, illustrating the point with a table showing one of our favorite imbalances: the relationship between the time consumers spend and the share of advertising reaped by each of the major media. Just in case you don't recall how that looks, we're reprinting it here, courtesy of Carat analysis:

Share Of Ad Spending Vs. Time


Ad Dollars




















Source: Aegis

The data explains a lot of what's going on with some media, especially print media like newspapers and magazines, which appear to have hit a digital wall. Well, if you look at this data, it's pretty apparent that they already were benefiting from some fairly significant disparities and that they were overdue for some kind of economic equation. What you don't see in the digital data row above, is how much of that time is coming from people using digital versions of those old print media. Clearly it's a significant amount. Of course, people are using digital media for all sorts of things that are not directly related to advertising or media content: communication (e-mail, chat, etc.), socializing, commerce, etc. But a significant part of it is people platform-shifting media content from analog to digital. The problem with that, say some leading industry economists, is the digital media currently reap fewer ad dollars and disproportionately cheaper ad rates than the traditional media. That's a problem because it's creating an economic disparity that will create the greatest disruption of advertising and media economies we have ever seen--at least until the marketplace readjusts itself.

You can see it in statements being made by old-line media companies such as Belo. You can hear it from industry pundits standing in front of conference podiums. The economics of media is in transition, and it's divided along two strategically opposed lines. Merrill Lynch's Fine sums it up pretty nicely in her new report. What she doesn't factor for, is the thing Madison Avenue and the big old media are throwing out as one last life line for the old economics: engagement. The reason why print media like newspapers and magazines get a disproportionate share of advertising dollar relative to the time consumers spend with them has nothing to do with the amount of time at all, say big magazine and newspaper publishers. It has to do with the quality of the time they spend with print media. To date, magazines have done a better job of delivering that message to Madison Avenue than has the newspaper industry. And while there is a great deal of truth in it, we suspect the logic of that message will be increasingly challenged over time.

None of that explains Madison Avenue's hard-on for engagement, does it? We suspect that at least part of that is the basic human desire to preserve status quos. It's a media card Madison Avenue is used to playing. But another big driver behind the engagement push is that big agencies simply don't want to be held accountable to pure ROI of interactive media. And there are a lot of good reasons for that. Aside from the obvious human nature ones, digital media still haven't done a great job of proving their long-term effectiveness. By that we mean their ability to build long-term brand equity. Online is great at driving people to do something immediately. It's like direct mail or direct response TV on steroids. But what's the long-term effect? We know there has to be some, but we don't' know exactly what it is.

But here's a stat worth considering. And it comes from Joe Marchese, an industry consultant who is hatching a plan to help online media prove its long-term branding effectiveness. "It takes 62.5 text search ads to equal the brand impact of one image ad," Marchese told us recently, making us think that there's a far bigger problem afoot than some people in the business want to acknowledge.

We're not sure where Marchese gets that number. We're not even sure if it's 100% right. But we think there's enough truth in it that everyone should stop, think, and then start running really quickly in pursuit of a solution.

Don't get us wrong. We don't think the engagement thing is a complete dodge. We think there's a lot of good to be had from understanding when, where and what type of media and advertising content turn people's minds on to a brand message or idea. And that work should continue. But it will never be a replacement for real media planning combining the science or reach and targeting with the art of consumer context. That's always been the game. And it always will.

Meanwhile, analog and digital worlds will collide. Tectonic shifts will open a humongous economic divide between new and old media. But as Merrill Lynch's Fine suggests, there is at least one safe place to ride it out. Yeah, surprisingly, it is Madison Avenue. But Fine makes a good case, noting that while these economic pressures are slowing down the rate of organic growth at major ad shops, the shifts in agency compensation that have occurred over the past couple of decades makes agencies "relatively protected from the pressure on traditional media prices." Who would've thought it? Couple that with the fact that agencies are also building out their interactive and digital media capacity, and all things considered, we'd rather be on Madison Avenue.

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