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Published: November 18, 2009 at 02:40 PM GMT
Last Updated: November 17, 2009 at 02:40 PM GMT
Behind the scenes at the recent Monaco Media Forum, at this month's Association of National Advertisers Conference, and at other industry events, the search for the soul of marketing is on display. In Monaco, Publicis CEO Maurice Levy, commenting on the many early-stage digital companies in attendance (although both Google and Microsoft were event sponsors), pointed out that advertising cannot be depended upon to fund an endless supply of companies and services. He estimated that advertising can support only 15% to 20% of the opportunities. The Forum offered compelling evidence that we are at a turning point in the advertising industry – and the decisions being made by major marketers and media companies over the next two to three years will define the fundamental future of media throughout the world. At MMF, Rishad Tobaccawala, CEO of the Denuo division of Publicis' VivaKi group, argued that the business structures of the future do not fit into the containers of the past. "All our businesses and clients' businesses have been optimized for the past. How," he asked, "do we optimize businesses, structures, talent and systems for the future?" Today's special Jack Myers Media Business Report offers a response to Rishad's question and a path for the future that requires a bold re-envisioning of the relationships among marketers, retailers, media distributors and media content producers.
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Monte Carlo is an appropriate venue for the annual MMF gathering of senior media agency executives and leading digital media figures ranging from Arianna Huffington and her new CEO Eric Hippeau to Publicis' Levy (one of the event's hosts); from Group M COO Rupert Day to Wikipedia founder Jimmy Wales. From Microsoft's Darren Huston to Fox's Jon Miller. From Michael Wolff to Michael Wolf. Hosted formally and underwritten by His Serene Royal Highness Price Albert (Princess Caroline of Hanover stepped in this year), the forum is a neat package of interesting – and occasionally news-making – content with excellent executive networking.
Since 1993, when Mosaic was introduced as the first Internet browser, an intricate mosaic of media advances has created a veritable feast of new options for marketers, several of which were on display at MMF. Underwritten by equity funds, public markets, venture capital firms, distributors, content producers and agency holding companies, an infrastructure has been built with a vision of supplying advertisers with an endless array of digital communications options, tools and resources to serve the most specific of communications requirements. The blind expectation was that advertisers would step up and pay the freight.
To the industry's surprise, that has not happened. Instead, the new opportunities pushed the Humpty Dumpty of advertising off the wall, and the industry is having one hell of a time trying to put all the fragmented pieces together again. Well before mass marketers were prepared to discard it, new media technologies have torn mass media apart. Wal-Mart, Coca-Cola, Unilever, Procter & Gamble, General Motors and the vast majority of the world's leading brands would still much prefer the media landscape of ten and even twenty years ago than the one they are confronted by today.
In the last decade, media cost-models have deteriorated as the traditional mass market supply-demand chain was thrown out of whack. Mass media is being hit with the perfect storm of product consolidation, erosion of consumer credit and confidence, declining demand, dramatically increasing supply, enhanced tools for media commoditization, and a boundless number of investor-funded companies that are prepared to virtually give away their services in return for psychic support and a hope of future financial return.
Not only are advertisers not stepping up to pay the freight for the billions of dollars poured into the media infrastructure since 1993, but it seems they are pushing media further down in their marketing priorities. Today, advertising and the media that are dependent on it receive only a fraction of corporations' total investments in marketing communications. For companies like Coca-Cola, it could be as low as eight percent globally of their marketing budgets. For almost all large marketers, advertising investments represent less than 30% of their marketing communications expenditures.
Jack Myers Media Business Report projects total advertising investments in 19 media categories will be $187.1 billion. Non-advertising marketing budgets will generate a projected $697.2 billion. This $700 billion consists of trade incentives, slotting allowances, consumer sales promotion, direct marketing, point-of-purchase, events, conversational and word-of-mouth, customer relations, public relations and affairs, search engine marketing and other non-advertising techniques. Media technologies enable traditional media to target these below-the-line budgets yet these companies have no coherent strategy, business model or organizational structure that focuses on how to attract the nearly $700 billion available to them.
Almost all the $200 billion in advertising budgets are focused on mass reach metrics, with media performance currencies still dependent on age-old methodologies such as Nielsen, Arbitron, usage data, MRI and distribution audits. Marketers continue to support mass media and its infrastructure, but the ability of media to communicate on a mass scale is deteriorating and, with it, advertising's share of the marketing spend is shrinking – and will continue to shrink. The industry is desperately trying to elevate its game by shifting an estimated $25 billion to interactive media, but the basic underlying principles of display and online video advertising remain locked into the model of embedding commercial messages intrusively into pre-packaged content and paying on a per-impression (or per click) basis.
The media and advertising industry has not provided marketers with the relevant incentive to fund the growing opportunities technology has spawned. "For as long as I have been in the business we have actually not done marketing," commented Denuo's Tobaccawala. "We have done logistics and distribution and a lot of other things. We are in the age of transformation and everyone wants innovation but they are not willing to fund innovation."
The media industry has failed to define a compelling business model for the future. The few marketers who make a case for increasing their investments in traditional media (including online) are outliers. The shift away from advertising is as inevitable as it is obvious. "The amount of money responding to reach media in the U.S. peaked in 2007 and will never go back," says Tobaccawala.
But MEDIA, especially branded media, can thrive even as mass media advertising models decline. They can generate new revenues by exploiting the interactive infrastructure built since 1993 to attract non-advertising promotional and non-advertising marketing budgets.
Tobaccawala and I agree that a successful renewal of the media business requires massive structural and cultural change focused on integration. But integration is not just of digital and non-digital media. Integration of advertising and non-advertising budgets is equally critical. Media companies and media agencies need to acknowledge the bifurcation of the industry into advertising (awareness and reach) and retail (sales-centric) marketing, define their own strategic capabilities and assets, identify the partners and clients that are best positioned to capitalize on these assets, and reorganize to optimize their growth. Additional commentaries expanding on this subject are available at:
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