Ad 2.0 - Part 1 (Losing the Captive Audience)
Monday, November 13, 2006SUSIE GHARIB: The first advertising agency in the United States opened its doors back in 1841 in Philadelphia. Over the next 165 years, the advertising industry has blossomed into a global powerhouse with spending worldwide now exceeding $430 billion a year. But the industry is in turmoil, facing new challenges brought about by new technologies. Tonight we begin a three-part series, "Ad 2.0," looking at advertising in the 21st century. New York bureau chief Scott Gurvey begins with a look at how advertising used to work.
SCOTT GURVEY, NIGHTLY BUSINESS REPORT CORRESPONDENT: Once upon a time, if you had something to sell, you didn't have a lot of choices when it came to getting your message out. You could put an ad in the local newspaper or broaden your reach with a national magazine. You could sprinkle in a little radio, try a billboard and if you could afford it, buy a television commercial on one of a handful of TV stations. Long gone are the days when a single television show and its commercial messages could attract more than 70 percent of the audience, as an episode of "I Love Lucy" once did. Viewers now have hundreds of individual channels to choose from. They have recording devices which let them skip commercials and if they don't see anything they like on traditional TV, they have the Internet and video games and scores of other options all trying to attract their attention. For advertisers, ad agencies and mass media companies, this is a full-blown crisis.
TONY GRANGER, CHIEF CREATIVE OFFICER, SAATCHI & SAATCHI/NY: The captive audience is gone. It's gone. And, you know, it's getting less and less and less and less. Think about, you know, Tivo. Think about digital recorders zapping through commercials. How do you stop that?
ANDREW ROBERTSON, CEO, BBDO WORLDWIDE: Words like "captive," which we used to -- which were adjectives that we used once to describe audiences, are totally irrelevant now and, in fact, I think we should be thinking not in terms of distribution and media that send messages. I think we should be thinking of access to content.
GURVEY: This new reality has hit particularly hard on Madison Avenue, which makes big bucks producing mass media messages meant to reach the biggest audiences possible. The business model has been built around the 30-second TV commercial. Ad agencies employ hundreds in the production of a single spot.
JONAH BLOOM, EDITOR, ADVERTISING AGE: A lot of the margin they've been able to get out of their business was by taking the marketers' money -- you know, saying it's going to cost us $4 million to create this 30-second ad for you and then obviously when you go out and hire all these people to create this 30-second ad, you make sure that there's enough money left over for you to skim a decent margin off the top.
GURVEY: The result for the ad agencies has been pressure on earnings and less-than-stellar returns for investors. The traditional television networks have seen their share of the advertising pie decline, putting pressure on the big media companies which own them. But the most dramatic impact is being felt by the advertisers themselves, where brand managers are finding that many traditional rules no longer apply, like the one that said to put the biggest share of an ad budget into broadcast television.
DIEGO SCOTTI, GLOBAL HEAD OF ADVERTISING, AMERICAN EXPRESS:
Ten years ago it was 80 percent of our media investment. Today that is less than 50 percent. It is not that television will continue to decrease, but we're starting to use media in different ways: much more integrated as well as including in the mix much more experimental-approaches, the use of content and definitely online as one of the key medias that we're using to reach consumers.
GURVEY: It is the online world sellers are turning to, looking to find the buyers who have turned their eyes away from traditional media. Some are embracing the new technology, while others have to be dragged in kicking and screaming. But most agree a successful 21st century marketing strategy requires adding the new media into the mix.
REX BRIGGS, CONSULTANT, MARKETING EVOLUTION: I think a lot of marketers in the early days of the Internet were hoping it would just go away. And when the stock market collapsed, there were no doubt cheers on Madison Avenue because it meant that they didn't have to worry about it. But it's back and it's back with a vengeance. It's even more important today and it's even more complex.
GURVEY: Internet marketing can be complex for all involved, but it can also be very profitable. Just look at the market caps of Google, Youtube and Myspace. We'll look at those and other new tech marketing channels in our report tomorrow. Scott Gurvey, NIGHTLY BUSINESS REPORT, New York.
