Wall St Speaks Out on Cannes and Ad Industry Turmoil

The Cannes Lions – arguably the world's pre-eminent annual event for the advertising community – begins today and runs through next week. The industry will celebrate a wide range of advertising and creativity while at the same time threats to the health of advertising in the future will loom for some as they so often do.

Fears around ad-skipping in various forms have been around, seemingly, forever. To start with television, there have almost always been opportunities to watch TV programming without ads or to use some technology like a "zapper" or VCR or DVR to skip them or simply pay attention to something else. Currently there are concerns around over-the-top consumption of ad-free services such as Netflix. Concerns rise and fall, although it's hard to say that changes in ad-free viewing as a percentage of total TV consumption have been overly meaningful.

To illustrate, prior to this year and for most of the last 20, mostly ad-free premium pay cable and public broadcasting accounted for 8-10% of total TV viewing, with a peak in the late 90s, according to Nielsen data. VCR playback of pre-recorded theatrical entertainment probably accounted for a few percentage points, too. Over the 2014-15 season so far premium pay cable and public broadcasting is capturing around 7% of total viewing, while DVD/Blu-Ray viewing accounts for around 2% of TV viewing across the whole population. Viewing of religious and shopping channels probably accounts for close to the same. And then there are the over-the-top content distributors, such as Netflix, whose approximately 5% share-equivalent of national TV viewing is notable, but only a minority of the ~15% of TV viewing that is essentially ad-free in the United States. An equivalent figure would be higher in many markets outside of the US, where ad-free public service broadcasters may have a more substantial share of TV viewing. In the UK, for example, ad-free BBC networks account for around 30% of TV viewing. It probably is true that ad-free viewing of TV has grown over time as a percentage of total TV viewing in most countries, but it's probably far less than most think.

With this context, it was interesting to see so much recent concern about the potential absence of advertising in digital media, focused on ad blocking in general and mobile ad blocking in particular. Old fears were made all the more tangible by news that Apple's upcoming mobile browser update will itself allow consumers to block "cookies, images, resources, pop-ups and other content" associated with advertising. However, it's far too early to be concerned about any impact for several reasons:

• Most mobile content consumption occurs in apps (around 90% according to many studies we have seen). Apps are unlikely to be impacted by this change

• Some publishers might oblige registration and de-activation of ad blocking for access to a site

• There could be more of a focus on forms of advertising that are embedded within a publisher's content such as branded content or whatever the publisher might want to define as "native"

• Desktop-based inventory could see a re-concentration of budgets on the margins, as desktop consumption of digital media is not necessarily down in absolute terms, but mostly is correctly viewed as down as a percentage of digital time

More importantly, a rise or fall in ad delivery remains only one reason why spending rises or falls for a medium so long as that medium satisfies certain goals better than any given alternative. Television arguably best satisfies the goals of marketers focused on reach, frequency and brand awareness in a lean-back environment better than any alternative. Similarly, digital advertising exists because most advertisers relying on the medium do so because it satisfies certain other goals – such as engaging with narrowly-defined groups of consumers or driving them to a direct action such as buying something over the web – better than alternatives. So long as this holds true, those media and the agencies and marketers who depend on them don't really have to worry much about ad skipping or ad blocking.

This is not to say that the industry will have nothing to worry about as it descends on the Cote d'Azur. A new book entitled "Madison Avenue Manslaughter (An Inside View of Declining Ad Agencies, Fee-Cutting Clients and Profit-Hungry Owners") will be launched there, reflecting concerns that many in the creative agency community will share. Some media agencies will be worried about the consequences of losing a significant share of the record volume of client pitches they face in the market today or – worse – the risks of disintermediation and clients bringing work in-house. Marketers will be concerned about the growing range of issues they are learning about in digital advertising (as described our recent note from March on "Advertising's Parade of HorROIbles"). Marketing technology and ad tech companies, relatively new to Cannes, will probably be concerned they won't meet aggressive sales goals. And everyone will be concerned about the heightened focus on cost-cuts among marketers which are curtailing spending growth we might otherwise have seen for the industry overall.

However, at some point during the week, most will also focus on the fluid nature of advertising and the ways in which media owners, technology providers, marketers and agencies can evolve and grow together. Those discussions may be less alarming than ones involving imminent doom, but actions eventually taken to solve these problems help ensure that future attendees will have the opportunity to talk about whatever new threats emerge in the future. Advertising and the eco-system around it is fluid and entrepreneurial, especially if defined in a broad form of "demand generation". The industry's capacity to shift form to support this end-goal ensures its resilience as far into the future as we can see.

REPORT INCLUDING DISCLOSURES CAN BE FOUND HERE: Madison and Wall 6-19-15.pdf

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