Frenemies Read online

  Scott Goodson founded his fifty-person advertising and marketing agency, StrawberryFrog, and chose the name as a way to differentiate his company. They decided a frog was more agile, and research told them that the strawberry frog from the Amazon has a red body and blue legs “so it looked like a rebel with jeans,” a perfect symbol for an agency designed to create movements to sell what he deems to be worthwhile products. He wrote a book about how marketers can help companies build brands and help change the world.* He rejects Rosser Reeves’s “unique selling proposition” because, he says, there are today too many unique platforms and most products are commodities with competitors constantly subverting them by offering lower prices. What companies must do is “differentiate on values. You differentiate on your point of view in the world. That’s the only way you differentiate.” So he sells Nature’s Variety, a nutritious dog food, the way he says he would use “a wedge issue” in a political campaign: the company has mounted a movement to save the nine thousand sheltered pets killed daily in the United States.

  Goodson acknowledges the corrosive “values” marketing sometimes promotes. “I admit marketing can be evil,” he says, “and can be manipulative and make people spend their money when they shouldn’t, and sometimes on things that are bad for them—and maybe more often than not. But I also think companies have tremendous power, and when power is wielded in the right way they can tackle some of the big issues that we face in society. . . . It’s in the interests of these companies that they solve some of these big issues. The environment is falling apart? Yes, they should fix it; otherwise they will have fewer consumers.”

  Straining to convey their goodness can backfire on brands, as Pepsi learned in the spring of 2017. Pepsi made a two-minute thirty-nine-second video of a millennial protest march while reality TV star Kendall Jenner posed for a modeling assignment. It is not clear what they’re protesting but the march slowly seduces Jenner, who keeps looking over at the marchers before receiving a beckoning nod from a nice-looking male protester and finally joins the march, to cheers. She grabs a cold can of Pepsi, strides to a wall of policemen in riot gear, and hands the Pepsi to a cop, who takes a swig, to more cheers. The screen fills with these bold white letters: JOIN THE CONVERSATION. Viewers are left with the impression that protest marches would be more effective if protesters shared a Pepsi. The Twitter and Facebook jury did not take long to rage. Martin Luther King, Jr.’s daughter, Bernice King, tweeted: “If only Daddy would have known about the power of #Pepsi.” Pepsi quickly yanked the online ad before it graduated to TV. Animating Pepsi was the same quest it shares with other brands who are convinced they must “build relationships” with consumers, become “brand stewards,” and demonstrate their “authenticity.”

  On the other hand, there are marketing campaigns that do good while doing well for the corporation. One such campaign was designed by the McCann New York agency for the financial firm State Street Global Advisors. It contains a fifty-inch-tall statue, Fearless Girl, planted on the sidewalk glaring at Wall Street’s charging bull. It is a proud, bronzed girl, her fists jammed into her hips, her chest out, her implicit message that more women belong in leadership positions. The company designed the statue to promote its SHE fund, which invests in companies that recruit women for top jobs. When Fearless Girl won three Grand Prix awards on the first day of the 2017 Cannes Lions Festival, jury president Wendy Clark announced that the SHE fund was up 374 percent since Fearless Girl struck her pose on a Wall Street sidewalk.*

  Another compelling example of a fresh form of advertising and marketing is Citi Bike, New York City’s bike-sharing program. Launched in May 2013 by Citibank for zero tax dollars and at a cost to the bank of $41 million, by the summer of 2017 it had ten thousand bikes in use in fifty-five city neighborhoods. As Andrew Essex observes in his 2017 book, The End of Advertising, Citibank, by choosing not to spend this sum on TV commercials or “squandering that eight-figure investment on useless pollution, built something additive that actually reduces our carbon footprint.” The benefit to Citibank in New York and New Jersey where Citi Bike has been introduced, was equally clear, Essex shows: by 2015 the bank’s internal data revealed that “favorable impressions of Citibank” rose twenty-eight points to 72 percent, and people who said they would consider acquiring a product from Citibank climbed forty-three points. But since Citibank is a worldwide business, to impact its overall “favorable impression” by extending Citi Bike globally would be as costly as a massive thirty-second TV ad campaign.

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  Whatever form advertising and marketing takes in coming years, a certainty is that data-fed targeting will be a pillar. Irwin Gotlieb believes that in the future, agencies will have to guarantee results to clients, and better results will boost agency compensation.

  We can also be certain that privacy will remain a third rail to marketers, always worried that governments will grow alarmed and impose regulations. The European Union, for example, passed legislation scheduled to go into effect in May 2018 restricting the ability of companies to collect personal information without the user’s consent.

  Some, like Andrew Robertson of BBDO, believe that the blizzard of different platforms and better targeting will place a premium on creative advertising that captures people’s attention and will invite advertisers to spend more to lure those identified as potential customers, as advertising spending becomes more cost effective. Others, like Michael Kassan, offer a bleaker view. “My biggest fear is that the inextricable link that existed historically between serving up content financed by commercial messages, that link is broken because consumers can get their content without commercials now. Think what it would have cost you to get Life magazine if there were no ads in it. It was subsidized by advertising.” But today too many people “just won’t watch commercials.”

  So what replaces the commercials?

  “We will live in a subscription world,” he boldly, and I believe wrongly, answers.

  Tim Wu is among the most prominent advocates for replacing ads with subscriptions. Harking back to 1833 and the first ad-subsidized newspaper, the New York Sun, he calls this “the original sin.” In his provocative book The Attention Merchants, Wu argues that in advertiser-supported media the reader or viewer is not the customer; the advertiser is. Thus, letting advertisers into the tent inevitably means a diminution of quality, because advertisers pressure the platform to deliver a bigger audience. More news about Kim Kardashian magnetizes an audience. The way to improve media is to pay for it, he says, preferably with subscriptions and micropayments. Wu is not alone. In February 2017, Twitter cofounder Evan Williams, who had raised $134 million to improve journalism by forming Medium, an ad-supported blogging and publishing site, announced that he was laying off one third of his staff and ending its reliance on ads. Echoing Wu, he told Business Insider that ad-driven media was “broken” because corporations fund it “in order to advance their goals. . . . We believe people who write and share ideas should be rewarded on their ability to enlighten and inform, not simply their ability to attract a few seconds of attention.” When Jim VandeHei left as CEO of Politico in 2016 to start a provocative online publication, Axios, he assailed the “crap trap” of “trashy clickbait” designed to attract more page views and thus to satisfy advertisers. The “trap” was set by a reliance on ads. For Axios to produce quality journalism, he said, “readers will have to pay up and if they need and love the product, they will, and gladly so.”*

  The thoughts are noble, the analysis of what often ails advertising-supported content is correct. But the economics don’t support the noble idea. The economics of Axios certainly doesn’t support VandeHei’s bold words, for roughly 90 percent of Axios’s revenues, one of their principal investors says, comes from corporate sponsorships, or advertisers who are granted a sandwiched paragraph and often a picture introduced with headlines like this: “A MESSAGE FROM BANK OF AMERICA.” Hillary Clinton a
nd Donald Trump didn’t agree on much in the 2016 presidential contest, but they did agree that most Americans in the middle were being squeezed, their incomes frozen. Although median income did rise between 2014 and 2015, it was little changed from the pre-recession year 2007. The Census reports that median household income in 2009 was $54,988; by 2015 it had inched up to only $56,516. And those just below median income but above the poverty line saw their income drop. The Brookings’s Hamilton Project found that, after adjusting for inflation, wages in the U.S. rose just 0.2 percent over the past forty years.

  Think about the subscription toll today, including mobile phone, broadband, cable or satellite TV, newspaper and magazine subscriptions, Netflix, HBO or Showtime, Amazon Prime, apps, music. Jeffrey Cole, who teaches at USC, says the average household pays monthly subscription charges of $267 per month, which does not include electricity, gas, and other unavoidable monthly bills.

  How do most overstretched consumers pay more? They probably don’t. There are, of course, successful efforts to reduce dependence on advertising. Hulu is growing its subscriber base. The Apple App Store rang up $2.7 billion in subscriptions in 2016. Spotify’s subscriber base swelled from thirty million to fifty million in 2016. Amazon’s Prime membership, for a then modest annual fee of $99, offered its one hundred million subscribers free delivery, free streamed movies and television shows, free music, and other enticements. The New York Times’s reliance on advertising revenue has been cut from 80 percent to about 40 percent. (But unlike most newspapers, the Times—like the Wall Street Journal and the Financial Times—could pull off this feat because they successfully raised the subscription price and their affluent readers were willing to pay.)

  Some novel experiments to lessen reliance on advertising have also been tried. Rather than impose a paywall to deny free online access to news stories, a practice followed by most newspapers, the Guardian provides open access. But at the bottom of each story they append this:

  Since you’re here . . .

  . . . we have a small favour to ask. . . . If everyone who reads our reporting, who likes it, helps fund it, our future would be much more secure. For as little as $1, you can support the Guardian. . . .

  Readers can then click on a credit card or PayPal link. A total of 300,000 readers volunteered a contribution, the NiemanLab reported in November 2017. Another 500,000, they reported, either joined various membership programs for a monthly fee granting them access to various events and newly published books, or were print or digital subscribers. These monies now eclipse the Guardian’s ad revenues.*

  For those not wanting to see ads, YouTube offers Red for $9.99 per month. Many other platforms charge extra to be free of commercials. It is not uncommon to hear the argument advanced by entrepreneur Kevin Ryan, a founder of DoubleClick and Business Insider: many could afford new subscriptions because they “are going to Starbucks and paying five dollars a day for a coffee.”

  Maybe. But let’s return to the economics. The New York Times’s subscriber base is expanding nicely, up by 46 percent between 2015 and 2016. They, like the Washington Post, have done a spectacular job puncturing the untruths and disarray of the Trump administration, and they’ve been rewarded with a burst of new digital subscribers. These subscribers have made the Times less reliant on ad dollars. This is great news. But, and here’s the rub: the Times makes most of its profits from the print newspaper, including 62 percent of its advertising revenues. And it’s not clear how a much-cheaper-to-produce digital newspaper could generate comparable ad revenues.

  Why? The average reader of the print edition of the Times spends about thirty-five minutes a day with it. But the average online Times reader spends about thirty-five minutes a month. Because advertisers know readers spend much less time looking at their ads, they pay about 10 to 20 percent for the same online ad as appears in the newspaper.

  Despite the growth in digital subscribers, and the rise of circulation revenues of 3.4 percent, and the growth of digital ad revenue of 5.9 percent, the overall revenues and profits of the paper fell in 2016. This left the Times to caution about its future in its 2016 annual financial report, “We may experience further downward pressure on our advertising revenue margins.”

  By the end of the third quarter in November 2017, the Times reported that despite the further erosion in print newspaper revenues, overall revenues rose by 6 percent. Obviously, if the Times could one day abandon its print edition, the cost savings in paper, printing, and distribution might offset the disproportionate profits the print paper generates. Or if the Times can increase its subscription revenues from 60 to 70 percent, as it hopes it can, analyst Ken Doctor has written that the Times could escape from its struggle to maintain slim profits to “generate actual, lasting growth, ahead of inflation.” Alas, Times profits in the years ahead will be slim. And like other smart analysts, Doctor knows that if the Times succeeds in maintaining slim profits, it will be an aberration, not a trend for other newspapers. The dominant trend was defined by Gannett’s USA Today and its 109 regional newspapers, and chains like McClatchy and A. H. Belo, which saw their 2017 print advertising and circulation losses exceed their digital advertising and subscription gains.

  No question: consumers can reconfigure their cable bundles and can make choices among various subscription models. But to believe that the bulk of consumers who live on tight budgets can afford subscriptions as a substitute for the ad dollars that subsidize most of our “free” media and Internet activity is to ignore the math.

  Yet the conundrum is that the advertising ATM subsidy may also be unreliable. The thought many marketers try to banish is whether for consumers—spoiled by Netflix and YouTube, by ad-skipping DVRs and ad blockers, by personal devices we hold in our hands—the interruptive ad message may be a relic. Are consumers irrevocably alienated by sales pitches? Has the consumer, on whom marketing relies, become a frenemy?

  19.

  “NO REARVIEW MIRROR”

  “Two weeks ago I skied down the mountain in Deer Valley and it’s the first time I didn’t have a rearview mirror in a long time.”

  —Michael Kassan

  Disruption has not always been kind these last several years to marketers, but it has been kind to Michael Kassan and MediaLink. By mid-2016, Kassan was ready to make some real money. He was soon to turn sixty-six, and his sole other shareholder, Wenda Millard, was sixty-three. LionTree’s Aryeh Bourkoff’s exploration of a possible sale was heating up. By summer, Kassan confided that he had four bidders. He guessed that in any deal he would agree to sign up for another five years, and his company would command a sales price in the $150 million range, with performance rewards driving the price up from there.

  dThe problem working for an agency holding company or a Facebook or a consulting company with a roster of clients was that MediaLink would have to shed its neutrality. How to conduct agency reviews of your parent company as a neutral? Financially, he might be willing to consider abandoning his agency review business because “reviews are not a big percentage of my business. Single digits.” But they were a big part of his power.

  More than a few members of the advertising community thought Kassan’s “neutrality” claims were a salesman’s contrivance. “I choose sides,” Rishad Tobaccowala of Publicis says of Kassan, whom he has known for years. He was uncomfortable that Kassan did not choose sides. “There are two forms of Switzerland ‘neutrality.’ You are neutral. Or you sell out to everyone equally, and everyone pays.”

  Although he does not assail Kassan publicly, Martin Sorrell knows how to inflict pain. When Kassan attended WPP’s afternoon Stream conference during the 2016 Cannes festival, Sorrell came over to Kassan’s table at an outdoor picnic lunch and loud enough for others to hear exclaimed, “I hear you’re selling your company!” Kassan was horrified, and enraged, but laughed it off. Late that night, he huddled with Bourkoff. By August, Kassan said he had an offer from an unnamed consulting company that he
would not accept.

  Looking ahead, Kassan and Bourkoff scanned the field of possible suitors, assessing their pluses and minuses. With his friend Maurice Levy soon to step down as CEO of Publicis, and with the uncertainty as to who would succeed Sorrell, John Wren, and Michael Roth, all north of the customary retirement age, their stocks might be impacted. Viselike cost pressures on the holding companies were tightening, driven by C-suite demands to slash spending, by fears of corporate raiders mounting hostile takeovers, and by spiraling mistrust between clients and agencies. Procter & Gamble would announce that over the next five years it would slash its $10.5 billion marketing budget by $2 billion. Keith Weed’s Unilever, which fended off a Kraft Heinz takeover assault in February 2017, would cut its agency fees by nearly 20 percent and the number of ads it produces by 30 percent, especially impacting its foremost supplier, WPP.

  Clearly, Jon Mandel’s 2015 speech to the ANA, and the K2 transparency report that followed, injured the agencies. When the ANA’s annual report on agency compensation was published in May 2017, it revealed that advertisers were “aggressively addressing transparency concerns and streamlining and simplifying agency compensation practices.” Senior management involvement in negotiations with agencies, the ANA reported, more than doubled, and agency fees were shrinking. In an offshoot of Mandel’s “kickback” claims, by the summer of 2017, five of the six giant holding companies were also in the crosshairs of the Department of Justice, it was reported, investigated for cheating clients. The Justice probe allegedly centered on whether agencies, to fatten their wallets, engaged in bid rigging of production contracts by leaning on independent production houses to submit inflated bids for production work, allowing the in-house production arm of the agency to submit a lower bid and win the contract. (By the spring of 2018, the probe remained a mere rumor.)