Chaos 2.0

I’m late to this since my AdAge subscription lapsed, but Bob Garfield (of On the Media and Ad Age) has written an important followup to his seminal Chaos Scenario two years ago. In the original, he argued that advertisers saw the decline of old media but that new media weren’t ready for them (as we indeed are not — see my AdAge column on the topic) — and so the advertisers are left without the means to market. In Chaos Scenario 2.0, Garfield argues that marketers have new ways to do their business directly with customers that no longer require advertising. He warns of “the post-advertising age.”

This is fundamental and important. In media, we have long argued that a new medium does not replace the old one and that ad spending may shift around in new mixes but do not decrease. No more. Now marketers and customers can have their transactions and conversations directly. That is to say, we the customers can get the information we want about products straight from sellers and the more that happens, the less those sellers need to waste money on giving us messages we did not ask for and do not want (aka, advertising). The more that happens, the less money they will spend on ads. Total ad spending will, indeed, decline.

That horrible crashing sound you hear is a gravy train derailing.

Media — news and entertainment — have long been supported by advertising and by the faith that even though it may be a zero-sum game, at least there were billions of dollars of support there for the earning. And profitability for those who got those dollars was very high because of scarcity: scarce space, scarce time, and now scarce consumers. What if there is less? What happens in post-scarcity world? What happens to the media economy? What happens to us?

I’d say that depends on who the “us” is. If it’s big, expensive, monopolistic, overpriced media giants — TV networks, TV studios, radio companies, newspaper companies — they are guaranteed to shrink radically and rapidly. They are screwed. But if “us” is new, small guys who are not addicted to big production luxuries — for whom the definition of big enough is many, many times smaller — there is still plenty to go around — but only if, again, we have the infrastructure in place to make it make it easy for advertisers to support us. We little guys are stuck in Chaos 1.0; we’re not ready for the advertisers. The big guys are stuck in Chaos 2.0; they’re seeing advertisers find better alternatives. And if we’re all not careful, the pie will, in fact, shrink. That’s new.

Says Garfield:

It’s a world in which Canadian trees are left standing and broadcast towers aren’t. It’s a world in which consumer engagement occurs without consumer interruption, in which listening trumps dictating, in which the internet is a dollar store for movies and series, in which ad agencies are marginalized and Cannes is deserted in the third week of June. It is a world, to be specific, in which marketing — and even branding — are conducted without much reliance on the 30-second spot or glossy spread.

Because nobody is much interested in seeing them, and because soon they will be largely unnecessary. . . .

He recites a requiem litany in the media business since his first chaos piece: MTV, Time Inc laying off. . . CBS spun off from Viacom “lest the broadcast business impede growth and depress shareholder value” . . . broadcast networks shutting out their distribution partners to give us shows directly online. . . NBC giving up on the 8 p.m. hour to give us dreck . . . big, bad Clear Channel doesn’t take over the world but is taken over by private equity. . . Knight Ridder and Tribune melt like witches on water and McClatchy doesn’t turn out to be in Oz. . . DVRs will reach half of U.S. households in three years and once we’re all skipping ads, advertisers say they’ll skip TV. . . TV upfront is down. . . Coke and J&J pull out of upfront. . .

Yup, screwed.

But marketers aren’t crying, or shouldn’t be. He continues:

What is certain is that the Brave New World, when it emerges, will be far better for marketers than the old one. What is nearly as certain is that many existing ad agencies and some media agencies will be left behind. And the reason they will be left behind is their stubborn notion that they can somehow smoothly transition to a digital landscape.

He argues that TV has been kept afloat artificially:

But TV isn’t really in the program-distribution business. It’s in the audience-selling business, and there the economics of scarcity still stubbornly reign. Because no other medium offers the reach of TV, advertisers have continued to pay more and more per thousand viewers — which is why Mr. Moonves is commanding higher CPMs; the upfront market has not yet plummeted; and video advertising on the internet, according to eMarketer, will amount to a paltry $775 million in 2007. On TV, it is $65 billion.

But economics will have its due. The law of diminishing returns will eventually prevail. Those who have perennially spent more and more for less and less will finally say, “No more,” and take their money online — whether there is sufficient ad inventory or not. . .

Mass advertising flourished in the world of mass media. Not because it was part of God’s Natural Order but because the two were mutually sustaining. . . . So why assume that either must transition to the new model? Not only is it economically nonsensical, it squanders the very nature of the digital universe, the ability to speak with — not to, but with — the narrowest communities and individuals themselves.

And they will use new methods that have nothing to do with advertising: Word-of-mouth, social, or just direct contact with customers who want information and can now get it from the marketer or — see my favorite example, my Treo — from fellow customers.

Garfield cites the story of an OgilvyInteractive creative director who didn’t buy ads to give away 45,000 tockets for Six Flags’ 45th anniversary; he posted on Craigs List and after five hours, the tickets were taken. But who gets paid for that? Not even Craig.

Garfield predicts some of the means of death of old media and agencies. I’m not sure he’s right about them all. He heralds — as I’ve heard heralded for more than a decade now — that we’ll watch a TV show and click on a car to buy it. I don’t buy that. He argues that we’ll end up paying for more content, supporting it with our money instead of advertisers’. Not sure I buy that, either. But I do agree with this arguments that we don’t like ads, we do want information, and we are in control.

And what he’s really saying behind all that is that the fundamental economics of media are, if not imploding, deflating. That is a big deal and has implications we can’t yet imagine in media and marketing as well as in the proliferation of small media that can afford to live without big marketing — if it’s ready. Hang on. It’s going to be a bumpy ride. Downhill.

  • http://www.ktvz.com Barney Lerten

    Wow. I couldn’t have said it better myself – and I tried, years ago, in a site called “Please Release Me,” http://releaseme.squarespace.com.
    The plus side is that companies have new ways to communicate directly with customers. The plus side, for mainstream media so far, is that many companies haven’t figured out how to do that yet.
    But they will. And then they not only won’t need old-style ads so much – I’m not so sure broadcasting goes away completely – but they also don’t need to send out news releases and beg for space in dead-trees publications (or broadcast or even online). It’s a purer thing – advertising and marketing as conversation, not just news as conversation.
    We may not know where we’ll end up, but we’re sure leaving behind the way things used to be. Hopefully we’ll all still have a job when we reach our destination – and just maybe, one that’s more enjoyable, fulfilling and effective, too.

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  • Paw

    Ho Hum. Another genius prognosticator sounding the death knell for the “traditional” advertising/marketing model. Let’s tackle some of his points:

    - Viacom/CBS split – in the last 12 months, the so called old media company stock (CBS) has grown from around $25.00 to $31.00. The so called new media (Viacom) has grown from around $38.50 to around $41.00. Any questions?

    - As Mr. Garfield well knows, layoffs are not solely a result of poor performance, but a short term trick to pump stock prices. Media companies are now the sole purview of bean counters – squeezing margins is their business, not creating content.

    - not so sure I’d hold up Youtube as a shining example of this theory. Mired in legal hassles, deserted by the majority content providers who no longer tolerate being ripped off and even the Google principles themselves have admitted they have no idea how to make it a viable business model.

    - upfronts, as Mr. Garfield also knows, do not tell the whole story. His own publication indicates, the short term (scatter) market has been quite robust this season – J&J, GM and Coke all paid more for their TV time than they would have if they did choose to participate in the “broken” upfront.

    Rather than bore you with more specifics, let me expound on MY theories for a minute:

    - TV is here to stay. People watch as much TV as they ever did – just more choices to watch. Pay per view is a joke. In a world where “free” TV costs over $100 amonth through a cable or fiber optic system, only a very limited number of households will choose to add to that bill by ordering ala carte programs for cash. TV viewing on the net will continue to occur primarily where it always has – on the job.

    - Advertisers will quickly realize several things about new media advertising:

    – it’s even easier to ignore than commercials and only provides a limited amount of potential to attract new customers. If you have to actively engage with the advertising to receive information, aren’t you simply preaching to the choir? Mass media will continue to be the best method of attracting new customers through simple and hopefully better executed short form messaging over time.

    – it will continue to be labor intensive to buy and service, and will provide no standard measurement of value or verification unless client finally decide to hold them to the same standards TV has embraced for decades

    – it will quickly become apparent that as dollars continue to shift to new media, prices there will rise as well. And that’s what this is all about to the marketer – paying less for the message

    Agree with Garfield that entertainment choices will continue to abound and viewers do not like advertising – who would choose an interruption after all, especially the mostly awful ones we have to endure now? But the model is broken less by these factors than the one no one likes to discuss – the cost of creating content. If the cost of producing an hour of primetime television fell commensurate with fragementation, we wouldn’t be talking about broken models. The Hollywood community (and their partners in crime, the guilds) stubbornly refuse to recognize this reality, opening a window for advertisers to seek more cost effective ways to deliver a message. And yes, Jeff and Bob, most people still think messages are ok.

    The ultimate result will continue to be a lot of bad content, a ton of hype and, at some pioint in time, a realization that this emperor, while not completely clothed, isn’t fully dressed either.

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  • http://mymindshare.com Jim Bursch

    Chaos sounds too apocalyptic and hysterical — I prefer evolution (granted, fast evolution).

    This story is illustrated in flash with a catchy tune here:

    Advancing Evolution: The dis-intermediation of Media
    http://mymindshare.com/b/secure/disintermediation.php

  • John Rawlinson

    Very interesting and has some credence. What is not said is the impact on direct marketing by use of the cell phone.
    Suppliers have not yet tapped into their direct marketing capability through the cell phone in this country, but it is coming, and then the message creation through advertising is sure to dwindle.

  • http://richardstacy.wordpress.com Richard Stacy

    The Garfield piece is indeed an important article. This is my take on what it means for the future of advertising. In essence this says advertising will shrink to being one small specialism in a range of content production services – with the main game being the production of floating digital content packages that bring to life credible brand stories.
    http://richardstacy.wordpress.com/2007/03/27/the-future-of-advertising/

    The key point, I think, in your post in the concept of big enough. Traditional media are going to have to cut themselves loose from expensive distribution technologies. Once they have done this they will find they don’t need as much money. The big media brands will become syndicated content producers. The downside is that lower costs also mean little barriers to entry – so the main challenge for traditional media brands will come (is coming) from a host of new, much smaller, operators and services – Craigslist being a classic example.

    So yes – the money will shrink – but so will the costs. And the money that spills out of the shrinkng business model will (should) be used by marketers to reconstruct the way the engage with consumers so they can become more conversational – which is an expensive and time consuming business to do properly.

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  • http://www.eatmedia.com David Cutler

    Poetry: That horrible crashing sound you hear is a gravy train derailing.