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Advertising’s Horizon

John Battelle is a visiting professor at UC-Berkeley. Michael Tchong founded Trendscape. Lenny Baker works as a CFA for Saloman Smith Barney/Citigroup. And Martin Niesenholtz serves as CEO for New York Times Digital. Their sparsely attended closing panel discussion set out to explore the future of advertising five years out but largely ended up touching on topics already addressed elsewhere. What follows is a partial transcript of their Ad:Tech discussion:

John Battelle is a visiting professor at UC-Berkeley. Michael Tchong founded Trendscape. Lenny Baker works as a CFA for Saloman Smith Barney/Citigroup. And Martin Niesenholtz serves as CEO for New York Times Digital. Their sparsely attended closing panel discussion set out to explore the future of advertising five years out but largely ended up touching on topics already addressed elsewhere. What follows is a partial transcript of their Ad:Tech discussion:

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John Battelle: It seems to be that massive branding opportunities, particularly on television, are dying very rapidly. If you were Procter & Gamble, who built your entire business on the fact that 15 million people will watch TV tonight, what are you going to do?

Michael Tchong: If I was a brand that old, I would take all the dollars off TV and put it into something cool and viral. I don’t if any of you saw this inset in Entertainment Weekly. It’s a musical insert. And it’s a way to liven a brand that’s been on the air maybe seven or eight seasons?

Lenny Baker: I would say that if someone is getting 18% return, I’d keep doing it. The numbers aren’t quite as doomsday as they look. There are still some pretty major problems. Look at how many people are watching TV. Look at what the networks are doing to themselves with the quality of programs. Five years from now, our strategy won’t be much different, but the tactics will be more involved. As an analyst, I’ve been looking at advertising spending since 1989. Change will continue to be incremental rather than revolutionary. Procter & Gamble should think more about the creative execution rather than the delivery vehicle. Three decades ago, the quality of the ads and the quality of the TV shows weren’t that markedly different.

Martin Niesenholtz: The biggest environmental factor that Procter has faced in the last 10 years is the growth of Wal-Mart. The secret of countering Wal-Mart’s incredible leverage is consumer pull. Focus on your best customers. That’s hard to do on television. If I were Procter, I’d paid more attention to database marketing and finding those customers in my set who generate 80% of my volume.

Battelle: What do you think of the idea of insinuating your product into entertainment and content? Is this a cleaver trick? Or is it part of the future of advertising.

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Baker: We need to look at it the other way around. Energy needs to flow from Hollywood to Madison Avenue rather than the other way. Why aren’t there serialized commercials? It makes a lot of sense.

Niesenholtz: That doesn’t strike me as right. Intuitively, it feels wrong to me. Advertising works and has worked for decades. Given how dependent McDonald’s is on children and the effect children have on their parents, even the “Lovin’ It” campaign is working.

Battelle: Do you think that the medium of the 30-second spot is going to run rampant over the Internet in five years. Is there going to be the equivalent of paid search for video ads? Can I get a five-minute tour of a Dodge pickup? Does television advertising become a subset of the Internet.

Tchong: Television advertising on demand will become part of the Internet. Even 92% of Spanish people hate advertising. What about manana? People are so time compressed that they don’t have time to watch this stuff. The most remembered ad from the ’70s was “I can’t believe I ate the whole thing,” and that agency got fired.

Battelle: Does the New York Times take video advertising?

Niesenholtz: We’re not going to see the Internet subsume television.

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Tchong: I think HDTV will make advertising totally different. Advertisers minds will be blown. Those Sizzler ads will be irresistible.

Battelle: What does brand mean on the Internet? We saw Google add images to their text advertising recently. What is the role of brand on the Internet? Is it still an open question?

Niesenholtz: The quandary of the Internet is that it combines a whole lot of tactics in one medium that would have been separate otherwise. Branding is intended to develop relationships over the long term. You want to do as many of these things as you possibly can.

Baker: People seem to see things in black and white terms. Either it’s branding. Or it’s marketing. Why would Google let an advertiser who has no interest in converting a click through dominate your real estate? People are spending too much time on this medium for people not to use it to create demand rather than meet demand. The dollars spent on demand creation may be too much. I think we’ll see a balance.

Battelle: But it’s in the demand creation side of the coin

Niesenholtz: Be careful. In most traditional newspapers, the classified ads have driven the bottom line.

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Battelle: Those are moving rapidly to the online environment, right?

Niesenholtz: If you’re searching the classifieds for a job, a house, or a car, you already know what you want.

Battelle: But we do have this online culture that’s being built. That doesn’t seem to have the support structure that other things have. Do you see five years from now another layer or revenue line that’s not search?

Tchong: You mentioned how there’d be this Madison and Vine effect. That’s where we’re going to move. Seinfeld and Superman. Subvervient Chicken.

Battelle: What do you think, Lenny? Are we underestimating? Overestimating?

Baker: I was looking at these numbers today. Internet growth is different than cable TV growth because we were talking about network TV to cable TV. The two big wildcards that I see are the Yellow Pages industry. They have no idea about the bulk of the dollars those calls are generating. Where search can become interesting is adding local and doing something between ads and click throughs. The piece we’re underestimating is the brand advertising dollars.

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Battelle: How many of you watch ads on your TiVo?

Niesenholtz: That’s not just a problem for marketers. It’s a problem for programmers, too. You need to go to DVD and other delivery mechanisms. At the end of the day, someone has to pay for the program.

Battelle: That’s the thing. Is it illegal to fast forward through commercials because they underwrite my cable programming? No way! My cable bill is $100-plus a month!

Niesenholtz: I’m not suggesting it’s illegal. I have no idea if it’s illegal.

Baker: It’s a tricky question from the larger perspective. If you were to look at media in a really big way and the overall funding of the media economy, you might see a trend toward the consumer paying more to support the media. If you add it all up, there’s some shift

Battelle: The New York Times costs several hundred dollars a year. That feels like a price point that’s high online. How do balance that not undermining the old media without not going after the other?

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Niesenholtz: The time will come when the consumer will be willing to pony up for more content services on the Internet. Is that time here? It’s approaching. Broadband is a really big piece of that. The advertising business on the Web right now is very healthy. But there may come a time when it won’t be healthy. We are determined to eventually develop a second robust revenue stream. We happen to be fortunate to be the largest newspaper Web site in the world right now.

Tchong: It’s remarkable that we’ve come this far when the Internet is still just a regurgitation of old media. The Internet needs to grow up. We’re not going to get there by slapping the printed word on screen and calling it cool and interactive.

Battelle: That was the case in 1995. I don’t think it’s the same.

Niesenholtz: What you’ve just said is wrong. The Times is a 154-year-old institution, and it’s been changed dramatically in the last five years. If you’re interested in news, what you come to us for is not in fact what’s in the paper. The vast amount of our usage is not taken from the paper, it’s content we produce once the newspaper is put to bed. Because we have some scale now, we can fund a 24-hour newsroom that didnt exist five years ago.

Tchong: The New York Times is just one of 65 million sites.

Niesenholtz: So what? My point is that we’re way beyond simply repurposing the printed paper on the Web.

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Baker: I would even take this one level further. There was the old Knight-Ridder project that held we’d read the newspaper on TV. The true content on the Internet is the software. Chat and other stuff is the most compelling content online. You’re missing the elephant. The elephant is that people aren’t just reading articles online. They’re doing things they can’t do offline.

Battelle: That’s the social architecture. People are involved in making their own media. Marketers’ Spidey senses go off because they think there might be an opportunity here.

Baker: Google’s come up with an interesting solution. If there’s going to be all this fragmented content, let’s find a way to find it all and slap some ads up on it. That’s only going to go so far.

Niesenholtz: I’m actually interested in what you have to say about that John.

Battelle: Because I blog?

Niesenholtz: Because you think. I hope this changes, but my perception has been that marketing solutions that are agnostic to technology from a branding perspective, most brand marketers have just avoided that kind of content on the Web.

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Battelle: I have a theory. As a publisher, I have a real problem with almost all of this stuff. Publishing is a community-based endeavor. Advertisers are part of that conversation. But when you buy based on keyword, you’re not part of that conversation. There should be some connection.

Niesenholtz: Marketers have tended to shy away from user-generated content.

Battelle: There are places where user-generated content wants, needs, and desired marketing. One example is Boing Boing, which has 750,000 readers a month. Their bandwidth bills are too high, and they’ve asked me to help figure out how to bring in marketers. Marketers need to learn how to interact with these communities.

Tchong: You just burst a lot of bubbles out there because there’s a lot of buzz about contextual advertising.

Battelle: But you need to be part of the conversation.

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