Five Essential Business Rules for Marketers and Media in 2013

Originally published January 2013

Last January, in my first report of the year, I wrote "2012: Look Forward. Look Back. Then Go!" I was optimistic about the year ahead, writing "We can look forward to the next several years with enthusiasm, excitement and a positive economic outlook." I remain enthusiastic about our business, but we are at a standstill. A more realistic description for 2012 would have been "Look Forward. Look Back. Now Don't Move!" Politicians from Washington D.C. to Olympia, Washington are at an impasse, ineffective in rising to the task of fulfilling their basic governing requirements or meeting society's fundamental economic demands, social needs or civil interests. I bounce back and forth between partisan anger and exhausted passivity. The fiscal cliff debate scared Wall St. and another debt-ceiling crisis looms. In the digital media community, as pointed out recently by legendary venture capitalist Alan Patricof, there are far too many competitors and too many emerging companies seeking capital.

The legacy media and advertising businesses are at a standstill, locked in a battle between traditional business models and the growing evidence their relevance is eroding. The media business is facing an accelerating period of contraction and consolidation – and the solution for many is to stick with the status quo while embracing change without action. We think we're changing, but the reality suggests otherwise. Ask yourself this question: does the company you work for do business in ways that are radically different from the basic ways the media, advertising and marketing business was done ten, twenty, even thirty years ago. Other than technology having been layered onto existing systems, metrics and processes, have the fundamental business models truly changed?

In that context, here are my five recommendations for new business models your company should embrace in 2013.

1. Redefine your demographic targets and metrics. Ask this simple question: what percentage of the data you review is useless information and what percentage truly offers incremental and actionable knowledge? Read more below.

2. Monetize the digital social, commerce and gaming marketplace. There's not a media company, marketer or agency that doesn't need to have a gaming strategy and capability, a social monetization strategy and team, and commerce-based resources in place and activated in 2013. Read more below.

3. Corporate Responsibility and Revenues are Irreversibly Connected. If you don't believe politics and political issues will have an impact on your business, you're simply wrong. Your team should be well prepared to evaluate the impact of both taking – and not taking – a stand on the major issues confronting your consumers/audiences, the country and the world. Read more below.

4. Technological Overload. The future of technology is not the "next new thing." Success in the future depends on understanding the new marketing, advertising and media ecosystem that technology has created, its implications for your future, and how to most economically and effectively apply existing technologies to assure continued business success and revenue growth. Read more below.

5. Have Your Earned Weapons Ready for the Content Revolution. Breaking through with ad messages will be difficult – even impossible – without creative content-based strategies and yet to be conceived tactics. It's incumbent upon the marketplace to begin arming for this inevitable future. Definitely read more below!

RESTRUCTURE DEMOGRAPHIC TARGETS AND METRICS

Whatever your business focus, you are probably operating with outdated metrics used to define your business targets. Tools and resources available through a diverse collection of measurement and data companies enable you to better target your best customers and potential customers, whether your product/service is a TV series, a mass consumer product, or a narrowly targeted business-to-business service.

Many marketers have yet to recognize even the most fundamental shifts in the Hispanic population, ignoring both their size and affluence. Are you aware Hispanics are among the most advanced early adapters of mobile technologies and heavy users of social media? Is your company focused on reaching consumers through experiential initiatives around their passions and where they live, work, play and socialize? Has your company established multiple creative and marketing strategies for consumers under 24 years old who have grown up with the Internet and receive content and advertising in radically distinct ways from those even a few years older? Are marketing mix analytics and advanced media consumption measurements being used proactively to predict the impact of marketing and media targeting shifts, and not only for broad (and mostly after the fact) insights? Has the movement to predictive Big Data influenced the budgets you invest in media and marketing-related research, or do you remain locked into traditional reach and frequency curves and after-the-fact and ratings results?

If you're part of a media sales organization, have you adapted to agencies' and marketers' organizational convergence of digital and legacy media; do you have teams targeting creative, sales promotion, direct marketing, event and PR shops, where budgets are being redirected? Are you developing advanced metrics to serve these new constituencies and respond to their business models, rather than requiring that they adapt to yours?

Ask this simple question: what percentage of the data you review is useless information and what percentage truly offers incremental and actionable knowledge?

MONETIZE THE SOCIAL, COMMERCE AND GAMING MARKETPLACES

In 2013, you will most likely be one of the millions of consumers who link coupons, offers and discounts directly to your credit card. Within the next several months, Shazam and Shazam-like services will enable you to absorb offers from video and audio content directly to your pre-registered credit cards. Almost 100% of all credit cards are now activation-ready and waiting. To redeem offers, you'll need only to use the activated card upon purchase and your accepted discounts/offers/deals will automatically be applied. Few TV commercials, and a shockingly small percentage of online video ads, include even the most basic URLs and direct links to commerce, gaming and/or social experiences. This will change in 2013 as direct marketing, commerce and traditional advertising converge behind R-O-I based redemption metrics. The long-awaited advances in interactive television are finally materializing, creating an even more compelling commerce universe. Creative agencies will be charged with the responsibility to incorporate commerce-related activation into most advertising messages.

Similarly, more and more content, especially ad content, will be activated through social and gaming initiatives, encouraging consumers to respond proactively to the content that washes over them ad nauseam day in and day out, most of which they completely ignore. Social TV will need to find a path to revenue models, moving beyond the simple engagement and check-in activities that the industry has embraced to date. Social media and social action will become intertwined as marketers shift their messaging to more earned media models and seek to engage consumers through their passions. (Read more on this in the Content Revolution section below.)

Game-related virtual commerce is already a multi-billion business, and marketers are at the earliest stage of jumping on a huge growth bandwagon. Just a small percentage of virtual gamers purchased the almost $15 billion in virtual goods worldwide last year, with many more viewing commercials and engaging with game-integrated advertising to earn points, prizes and virtual goods related to the games they love. The growth potential is massive as more relevant options and opportunities to reward consumers become available. There's not a media company, marketer or agency that doesn't need to have a gaming strategy and capability, a social monetization strategy and team, and commerce-based resources in place and activated in 2013.

CORPORATE RESPONSIBILITIES AND REVENUES ARE IRREVERSIBLY CONNECTED

If Wal-Mart decides to continue to sell the same guns and ammunition that killed 20 children in Newtown, or if they decide to remove automatic weapons from their stores, consumers know and react. If products are manufactured in plants with little concern for worker safety and pay below standard wages, consumers know and respond. When corporate political action groups require employees to contribute to specific candidates, consumers know. When a company CEO is actively engaged in supporting specific causes, consumers know.

Not only are consumers informed, but increasingly sophisticated public action groups, both for profit and non-profit, are engaging in sophisticated communications programs designed to assure that corporate politics and actions are made public and translate into revenues and, more often, loss of revenues. Corporations and especially media companies will be pressured, in 2013 and heading into the heated political waters of 2014 and 2016, to make their politics public. Women's groups will actively publish the percentage of female employees and executives employed by companies and their comparative pay scale. Action groups will demand that companies that rely on female consumers take a stand on women's rights in the looming battle over Rowe v. Wade. The same reality will apply to companies that employ large numbers of Hispanic workers, who will be required to take a position on immigration laws.

Your communications and PR executives can no longer be relegated to the back office, but need to get in front of the huge challenges resulting from unbridled media access, social realities and intensifying political passions. If you don't believe politics and political issues will have an impact on your business, you're simply wrong. Your team should be well prepared to evaluate the impact of both taking – and not taking – a stand on the major issues confronting your consumers/audiences, the country and the world.

TECHNOLOGICAL OVERLOAD

Terry Kawaja's Lumascape charts include an estimated 1,500 venture-funded companies. As Terry's groupings clearly demonstrate, there is excessive overlap and redundancy in almost every category.

Venture capitalists typically have four walls around the box they ask companies to fit into:

· a qualified (and mostly youthful) team;

· a proprietary technology;

· a clearly defined marketplace need and potentially hockey-stick revenue model;

· and an exit strategy.

With the average VC-funded company now taking nine to ten years to reach an exit, that requirement has clearly become moot with expectations unmet. The abundance of VC-funded companies in every part of the digital media space battling it out with minimal competitive advantage makes it apparent the third wall has come crashing down. The vast majority of media entrepreneurs who first introduced their ideas to VCs have been bounced out of the companies they founded, and are now known by the seemingly positive, but increasingly demeaning term, serial entrepreneur. Few have even one success under their belt. So wall one is still followed but mostly irrelevant.

So that leaves us with wall two: a proprietary technology. This of course is preposterous. Unless the business is designed to own and sell patents, there is little protection offered by proprietary technology. In fact, the greatest financial drag on digital companies has been the need to maintain technological leadership and relevance. Yes, proprietary technology is valuable, but its lasting impact on the business and revenue growth is negligible unless the resources are available for continued aggressive technological development, implementation, sales and marketing. That's the advantage Google has and the conundrum Yahoo! finds itself in today, along with the vast majority of the companies included in Terry's Lumascapes. Companies have been funded based on models and assumptions that bear little connection to the real world, and they now find themselves at a standstill, unable to expand without significant added capital; unable to clearly define or market a unique selling proposition; unable to merge or consolidate because 2 + 2 would need to equal about 16 to satisfy investors; and unable to scale back to gain profitability because the goal has only to do with achieving an exit for investors who are under water – and little to do with building a viable small and sustainable business.

This represents an incredibly opportune marketplace for buyers, a reality that Sir Martin Sorrell of WPP has understood and that agency holding companies will focus on in 2013 and 2014. Marketers and media companies should move now and quickly to identify and acquire (or partner with) the best of breed in the categories in which they will need to compete effectively in 2013 and for decades into the future. There is an ecosystem waiting to be exploited. There are 8,000 to 12,000 media and advertising-related service companies today in search of an exit. Those included in Lumascapes are the most successful, but not the only ones in need of a new forward-looking business model. They've been built on misguided principles and false hopes, and with billions of dollars in venture funding that is now drying up. They are part of the first ecosystem in history that has been funded primarily with little or no promise of support from the industry they serve. Some of these companies have been built on technology but by management teams and advisors who actually understand and support the short and long-term fundamentals of marketing and media. These are the golden nuggets that will drive the business forward, and are the gems acquirers should seek out.

A failure to comprehend these fundamentals is the basic reason that Facebook, Twitter and hundreds of other "successful" companies are struggling to create a business model from scratch. We are grateful to the system that has enabled this and we're confident many of these companies will be rewarded for their success, even if it materializes more slowly than expected. But for those seeking to move forward in 2013, it's essential to recognize the future of technology is not the "next new thing." Success in the future depends on understanding the new marketing, advertising and media ecosystem that technology has created, its implications for your future, and how to most economically and effectively apply existing technologies to assure continued business success and revenue growth.

HAVE YOUR EARNED WEAPONS READY FOR THE CONTENT REVOLUTION

GE has been at the forefront of this movement, underwriting multiple content-based campaigns, the most visible of which can be viewed at www.focusforwardfilms.com .* Johnson & Johnson armed itself early with an investment in Baby Center. Unilever, P&G, Coca-Cola and many other companies have investments in relevant content, but the core underpinnings of the content revolution will leave most marketers and media companies, including some that believe they are investing appropriately, struggling to comprehend why they failed to prepare and how their management so grossly neglected the need to arm themselves with the basic competitive tools required to communicate in the future. The television industry has done a good job of responding to the expansion of digital distribution. Unlike print media and, until recently, radio, TV networks responded early to the competitive threat and have engaged, built, invested in and produced for digital.

Yet, they're still not as prepared as they'll need to be to prepare for the inevitable erosion of network program ratings, the continued challenges to local broadcast station superiority, the affiliate model and the accelerated fragmentation of viewing options. All of these issues, though, have been well-charted and come as no surprise. What companies have not been preparing for, although the indications are very clear, is the reality of earned media: aka unpaid media distribution and exposure.

Branded entertainment and product placement are the most visibly effective models, following on the same approaches the print industry has taken with custom magazine publishing and special newspaper sections and supplements. But most of these content initiatives are clearly and definitively designed as advertising and with marketing messages an integrated and integral component of the communication.

A new approach, spearheaded by GE, is branding-through-association rather than integration. Similar to the advantages gained through sports sponsorships and concert promotions, the key difference is that the vast majority of future branding-through-association models will rely on earned media, requiring little or no paid media exposure.

Cinelan, the company behind the GE initiative, specializes in engaging well-known documentary filmmakers to produce short form films that respond to brand "briefs" and also respond to consumer interests and passions, as well as the passions of the filmmakers themselves. Thirty of the Cinelan filmmakers, who include several Academy Award winners, produced 30 three-minute films under the Focus Forward umbrella and available for viewing at the Focus Forward site, as well as You Tube, Vimeo and other distribution platforms. The films, along with 90 additional films produced through a Focus Forward film competition, have generated millions of views and shares, all earned. GE's brand association is a logo at the beginning and end, but the company has no branding or product integration within the films themselves. Many of the films have premiered and been exhibited at leading film festivals worldwide, including Sundance and Tribeca.

While there are obvious costs related to content development and production, plus distribution costs, new economics are evolving that enable marketers to recoup some of these costs through back-end rights, non-competitive advertising integration, and international exploitation.

This is just one of many future models that digital creative, distribution and production technologies are enabling and that will progressively erode the basics of the traditional paid media model. TV networks and content studios will not disappear. In fact, my forecasts argue that broadcast and cable network TV will continue to expand, with advertising revenues remaining strong through the end of this decade. But all media and marketers must begin to arm themselves with new message creation and distribution strategies that respond to audiences that are far less likely to conform to traditional patterns and far more likely to consume media from highly fragmented and disparate sources.

I refer to it as Soundtrack Economics. Video viewing will evolve into a Pandora-like model, constantly on. Always in the background. Occasionally elevated to "like" status and shared. Breaking through with ad messages will be difficult – even impossible – without creative content-based strategies and tactics yet to be conceived. It's incumbent upon the marketplace to begin arming for this inevitable future.

*Disclosure: Jack Myers is a partner in Cinelan, which developed and implemented the GE Focus Forward program.