Frenemies: The Epic Disruption of the Ad Business (and Everything Else) (34 page)

BOOK: Frenemies: The Epic Disruption of the Ad Business (and Everything Else)
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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.

d

The 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.)

By contrast, turmoil remained MediaLink's friend. The K2 report “forced the agencies not to make money the way they used to,” Michael Kassan says. He doesn't believe they were doing anything criminal. They were doing what their contracts allowed. However, motivated
clients questioned their agencies more severely and amended their agency contracts. “We're in more agency reviews now than we were in 2015 and 2016,” Kassan says. In the summer and fall of 2017, MediaLink would conduct agency reviews for Anheuser-Busch, Intuit, Lego, Mattel, and Subway, among others. At the same time, troubled agencies sought Kassan's counsel, as did newspaper and magazine companies, consulting firms, Facebook, Google, and many digital aspirants.

■   ■   ■

Few companies escaped the turmoil.
Although Les Moonves's CBS seemed in particularly good shape—its revenue sources swelled, its profits exceeded those of two decades ago, by the end of the 2016–17 season CBS had been number one in prime time fourteen of the last fifteen seasons, and its stock price had soared. But there was no ducking the fact that it confronted existential threats. Live viewing is dropping, and one day the networks would not be able to charge advertisers more for less. “The joke's going to be over at some point,” Kassan, among others, flatly predicts. A hit show like
American Idol
on Fox in 2002 attracted a prime-time audience of nearly forty million viewers. A hit show like
Empire
on Fox in 2016 attracted one quarter as many. Even if delayed viewing and a swelling American population yielded comparable audiences for hit shows over the course of a month, advertisers knew that many fewer commercials were watched. “What is declining is people watching the ads,” Kassan says. “Brands need to find another way to communicate their brand message.” Plus, the young viewers advertisers craved were fleeing, many to shorter videos watched on smart phones where 30-second ads are a no-no. Prime-time viewing among those under the age of thirty-four, Nielsen reports, plunged by 34 percent over the past five years. And unlike digital television streamed over the Internet, which scooped up data on its viewers, broadcast television could only tell advertisers the broad demographics of who watched but not
supply deeper data on those who actually watched. By the end of 2017, Michael Nathanson of MoffettNathanson projected that total TV advertising would drop by 5 percent, which would include network as well as cable and station declines.

Long term, Irwin Gotlieb believed the networks were making a potentially fatal mistake by selling their programs to video on demand competitors like Netflix, and that this would pose a future risk to advertisers. “There are two fundamentals that are impacting the television business today,” he says. “The first is we are gradually training people to consume less linear content—you watch it when a network schedules it—and to consume more nonlinear content—you decide when you want to watch it. That's a problem because television as a medium was initially built around the concept that you create a schedule and a promotion strategy that relies on people seeing the promotion at the right time.” Nonlinear watching means networks need “new ways to think about scheduling, and it will weaken their ability to promote their schedule,” inevitably shrinking their audience. “Second, viewing is moving from advertiser-supported content to subscriber-supported content. We have already passed the tipping point where subscriber-supported content can outbid the advertiser-supported channels anytime they choose to. This trend will have long-term implications. This is a huge problem, because supply will go down because there are no commercials. That's a huge problem for advertisers. And it's a huge problem for legacy media.”

Mindful that content platforms like CBS and Disney were, in the short term, corralling huge profits by selling movies and TV programs to Netflix while in the long term building up a muscular frenemy, Disney announced in August 2017 that it would cease selling movies to Netflix in 2019. In another potentially disruptive move, CEO Bob Iger also announced that it would begin streaming sports (including ESPN) and movies and TV programs directly to consumers—as Les Moonves had earlier promised for CBS's own streaming services, highlighted by
the exclusive offering of a popular
Star Trek
series. Both were implicitly proclaiming that they were competing with Netflix. They were also, in effect, admitting they were competing against their cable distribution partners, allowing more consumers to potentially drop their expensive cable subscriptions and substitute cheaper “skinny bundles” of Disney and CBS and other content. Whether cable distributors would continue to pay hefty retransmission consent fees to networks for “exclusive” content that was not exclusive invited a potentially massive and destructive future clash.

Another possible short-term enticement for the network entered the mix in the summer of 2017, when Apple said it planned to spend $1 billion annually on TV shows and movies to compete against Netflix and Amazon, and both Facebook and Google also announced they would expand their original program offerings, aiming to siphon some of the $70 billion advertising dollars now earmarked for traditional television. If these digital giants seek to buy network shows, once again Les Moonves and his network brethren must decide whether to take the easy money but risk strengthening a frenemy. If Apple, Google, and Facebook aim simply to launch their own original programs targeted at younger audiences, it will take them years to amp up.

This battle awaits another day, perhaps after Les Moonves is gone. In the meantime, Moonves is not following Disney's lead in yanking content from Netflix. He has received deserved plaudits for his skill at diversifying CBS's revenue streams, which were projected to rise over the next several years. Standing on the Carnegie Hall stage for CBS's Upfront presentation in the spring of 2017, Moonves glowed as brightly as his purple tie. Despite the speed of change and the many challenges, he told the audience, “In this fragmented world, the social and economic value of any medium with the power to bring people together is more important than ever, and that's what we do here. . . . Great content is always king.”

■   ■   ■

Carolyn Everson was equally bullish
as 2016 came to a close. She had just turned forty-six and was entering her seventh year at Facebook, a year that would see Facebook reach two billion monthly users. Google and Facebook were gobbling up 77 percent of every new global advertising dollar.
*
Everson believed the measurement travails of the fall were history. In the year-end diary she privately composes each year she wrote:

Our business has exceeded all expectations and we are trusted by the industry as to “who has your best interests at heart?” When I speak to our closest C-level marketers, they believe that “Facebook delivers more than they take,” that we are a culture of givers, and we simply care more about growing their business than any other partner. We led the industry to develop standards for measurement that could be used across media and we have set ourselves apart from the “noise” about digital not being transparent.

By January 2017, her optimism would resemble Voltaire's Dr. Pangloss—this is “the best of all possible worlds”—as an avalanche of embarrassing Facebook and YouTube headlines stirred a massive backlash. Exposed was their reliance on automated machines to place ads on sites offensive to advertisers, their platforms' role in transporting unverified “fake” news, a cascade of new measurement mistakes, and stories about how their data might threaten user privacy. Advertisers cried foul and began to pull some of their ads. Onstage at the June 2017 Cannes Lions Festival, Keith Weed complained that 60 percent of advertising online is directed to bots. “We want to buy eyeballs of
viewers, not bots,” he said. Procter & Gamble's Marc Pritchard warned that his ad dollars would not be funneled to digital companies unless their advertising and brand safety was verified by independent measurement firms. Then in the fall of 2017, Facebook embarrassingly disclosed that it had unknowingly accepted ads aimed at dividing Americans during the 2016 presidential campaign, ads that were paid for by a shady Russian company with Kremlin ties.

The trust issue, which has hobbled relations between agencies and clients, now subverted Facebook and Google's relations with advertisers. Carolyn Everson and her Google counterparts made efforts to assuage advertisers. But it was a “serious” setback for Facebook and Google, Kassan said as he looked back later in 2017. “Last year at Cannes if you stood on the Croisette and looked at duopoly beach”—Facebook and Google's popular cabanas on the beach—“you would have thought they were impregnable. What we found out in this last cycle was that they were penetrable. Facebook has all the issues around measurement and YouTube has all the issues around brand safety. In the Upfronts this week, everybody's story was ‘Brand Safety, Brand Safety.'”

Why did Facebook and Google screw up?

“It happens online because they don't have a filter,” Kassan said. He went on to say of his mentee, Carolyn Everson, “She was affected profoundly. Carolyn is somebody who has a high standard. This impugns her integrity, and she's not comfortable with it. Nor should she be.” She knew advertisers and agencies were less trusting, more suspicious of Facebook.

To gauge and defang the level of mistrust toward Facebook, Everson retained Kassan and MediaLink. She did lean on Kassan for advice, she says. And she goes out of her way to praise Marc Pritchard, a forceful critic of digital practices, who she says, “called on us to lead the way to clean up what he would call ‘the digital swamp.'” Everson retains the humility to be a really good listener, which helps explain
her ability to win over critics. Of Pritchard she says, “He's been advising me. He's been a mentor to me.”

Yet by the fall of 2017, advertising clients still grumbled. In a presentation he made to an Advertising Week audience in September 2017, Keith Weed offered a report card to Facebook and digital companies. He gave them a mere C for Ad Fraud, and an even harsher F for Cross Platform transparency, insisting, “We've got to see over the walled gardens” and allow measurement companies to monitor and measure their claims.

BOOK: Frenemies: The Epic Disruption of the Ad Business (and Everything Else)
4.29Mb size Format: txt, pdf, ePub
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