Danger Signs for Advertising and Marketing

by Adonis Hoffman

Unless something changes, advertising as we know it today could be headed for a cataclysmic run-in with policymakers who would like to impose more, not less, regulation on the industry. My suspicion—and fear—is that in a dynamic, fast-paced, new media environment, industry self-regulation may no longer be enough to withstand the inclination of government to regulate industries that it does not understand and are too large to ignore.

I believe there are twelve (12) indicators that portend more, not less, governmental regulation of advertising in the future.

Over the course of the next few days, I will comment on these indicia with a degree of, I hope, some insight.

I should say at the outset that none of these indicators have anything to do with a lack of effectiveness of industry self-regulation. As any astute observer will attest, the advertising industry’s self-regulatory framework works extremely well. It is efficient, saving government thousands, if not millions, of dollars in routine oversight and enforcement. It is effective, compelling compliance with well-recognized principles for ethical and responsible advertising. And the system has been lauded by successive chairmen of the Federal Trade Commission as a model for other industries to follow.

But sound reasoning and rationale has never been a deterrent to governmental intrusion before, and I’m afraid it may not be a deterrent going forward in the new media environment.

So, here goes:

The first sign of danger is advertising is a big industry, and it’s getting bigger.

At an estimated $600 billion, the advertising industry is large and growing. Even with cyclical expansion and retrenchment, the sector will continue to grow steadily over the next five to ten years. It is a juggernaut whose tentacles touch every other sector of the global economy.

Since its rather pedestrian beginnings at the turn of the century, advertising has become more sophisticated, more ubiquitous, and—according to its many critics—more intrusive than ever. Its reach is global. Its impact virtually incalculable, even though billions of dollars are spent each year trying to do just that. Measurement of advertising’s value and reach has become a science with its own lexicon and subculture. And the laws that have evolved to regulate, limit and allow advertising are multiplying, as cities and states join the federal government’s efforts to contain the advertising juggernaut.

Advertising is an indispensable element of competition, and competition spurs the technological innovation that makes appliances, cars, computers, personal services, and much of what we need to live, quite affordable indeed.

The tremendous growth of the Internet has opened up yet another medium for advertising products and services. Online advertising dollars recently eclipsed radio, and print, television and cable are sure to follow at some point in the not-too-distant future.

The salient point about the size of the advertising industry is not to stand it in competition with other industries. My concern is that advertising has grown much too large for government regulators and policymakers to ignore or leave alone. It remains one of the biggest industries—outside the Internet—that has remained largely underegulated. Or put a better way, it is one of the biggest industries with its own self-regulatory framework augmented by light-touch government regulation.

(c) 2008. All rights reserved

Advertising Makes the World Go Round

by Adonis Hoffman

You cannot pick up a business magazine or newspaper today without reading a headline about advertising. “Google Acquires Ad-Serving Network;” “Microsoft Makes Bid for Yahoo's Advertising Network"; “AOL Abandons Pay in Favor of Ad Supported Service.” And the list goes on.

For an industry that has been overlooked, overshadowed and under-appreciated, advertising is finally getting its long overdue credit. The business world has figured out what everyone in advertising has known all along: advertising makes the world go round. In 2006, over $150 billion was spent on measured media advertising. Growth of 4 percent is projected for 2008.

Advertising, after all, is something of a shadow industry, akin to the “invisible hand” Adam Smith used to describe the force that guides free market capitalism. It undergirds the core of almost every major industry and has been the economic backbone of the media business since inception. Unfortunately few have publicly attributed such prolific economic power to the advertising industry, so the folks on Madison Avenue have had to pat themselves on the back over the years.

Until recently, the advertising industry had a latent inferiority complex that deepened whenever a new technology or “new thing” got credit for driving economic growth. Other sectors have looked down on advertising for decades, treating it as a lesser-than, but necessarily tolerable, component of whatever (bigger) business they are in. But all that is changing. With private equity confirming the multiples surrounding advertising, economic respect is on the way. There’s a palpable self-confidence permeating the advertising business today, even amidst the financial and cultural problems the industry perennially faces.

But with higher stakes come higher barriers to entry. Advertising agencies themselves can no longer afford to make horizontal acquisitions. The entrance of big money players has changed the rules of the game for the foreseeable future. The signs are clear, and in the words of Fergie and the Black-Eyed Peas: “If you ain’t got no money, take your broke a** home.”

Without doubt, advertising’s ascendance owes much to the maturation of digital, interactive and broadband technologies. The advertising models driving today’s market were heretofore impossible because the media platforms were neither reliable nor well-developed. Annual spending on online advertising recently surpassed spending on radio advertising, and it is on target to bypass newspaper, magazine and other media in the not-too-distant future.

So what does all this mean and why is it important anyway?

First, paid-for consumer content could slowly die. The proliferation of ad-supported networks provides so much choice that paid content will have to be extremely rich, highly targeted or extremely narrow to demand subscriptions. Cable television remains the glaring and profitable exception with its dual revenue streams.

Second, advertisers could slowly eclipse media as arbiters and developers of non-news programming content. In an environment where consumer choice abounds and media lack leverage, advertisers can be the kings of content if they choose to exercise their market power. As more media move toward a pure-play advertising model, the big challenge for advertising creatives will be to remain relevant and part of the mix.

And third, speaking of power, at the end of the day, it is all moving slowly but surely toward the consumer who alone determines which media platform(s) to watch, support and include in their social networks. Advertisers must find new ways to keep them engaged and interactive, while at the same time respecting their privacy, tastes and individual priorities—a daunting, but not impossible challenge for the future of advertising.

(c) 2008. All rights reserved

Common Sense on Product Placement

AAAA, ANA Push FCC on Product-Placement Rules

w w w . b r o a d c a s t i n g c a b l e . c o m

American Association of Advertising Agencies, Association of National Advertisers Meet with FCC Commissioner McDowell

By John Eggerton -- Broadcasting & Cable, 2/5/2008 5:40:00 PM

Advertisers and agencies are trying to get the Federal Communications Commission to seek more comment and information before deciding to adopt new rules on product placement.

In a meeting Monday with FCC commissioner Robert McDowell, representatives of the American Association of Advertising Agencies and Association of National Advertisers said that if the FCC did anything, it should open an inquiry rather than proposing rule changes.

According to a filing at the FCC, they argued that the commission's existing sponsorship-identification rules are sufficient and cited the Federal Trade Commission's 2005 finding that no action was warranted on product placement absent a showing that it was unfair, deceptive or harmful.

Adonis Hoffman of the AAAA and Daniel Jaffe of the ANA said their associations would also like to clarify for the FCC the different types of product placement, including the differences between paid endorsers, products that are "embedded" in programming but are not sponsored, products that are embedded but make no claim about a product and paid-for product integration.

© 2008, Reed Business Information, a division of Reed Elsevier Inc. All Rights Reserved.