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.

America Interactive--The Republic is Not Yet Safe

By Adonis Hoffman

If history is any barometer, it will not be long before a well-meaning public servant comes up with a solution to a problem that does not exist. Policymakers just might over-react to new technologies they do not quite understand. For some, the default position becomes: when in doubt, regulate. Or at least try to regulate.

In line at the DuPont Circle Krispy Kreme in Washington, I could not help but notice the young woman ahead of me who was peering intensely into her video iPod. On the screen was a podcast of last Sunday’s Meet the Press. I asked her how she liked watching programs on such a small screen and whether it was worth the time and effort. She said her husband uploaded all of her content every morning, and sent her off to work with more programs than she could watch—all without commercials. “And, oh by the way,” she said, “we don’t really watch much TV at home, nor do we have cable—he gets most of this stuff online.”

As a parent of two teenagers, I am rapidly becoming an interactive expert out of necessity—not unlike a jailhouse lawyer—because there is so much I need to know just to keep apace in the day-to-day world of digital convergence where music, games, voice, video, products, goods and services are all within the grasp of a handheld device. In the wrong hands—say that of a fourteen year old male—this could be disastrous either due to the cost or the content. But for a responsible adult, this new world is simply marvelous.

When I talk with advertisers seeking to master today’s new world order, I encourage them to leave their value judgments at the doorstep. The ease of interactivity changes everything, not the least of which is how marketers vie for the attention of viewers, listeners and consumers. For the millions of Americans who love shopping from home via television, interactivity makes purchasing as easy as pressing a button on the remote control. For those who buy online, permission based marketing messages and RSS can cut through the usual clutter. And for wireless handheld devices, the sky is the limit.

While some experts say that better creative content is the key, I think the answer lies in the speed, personalization and medium of delivery. After all, when the ad for sales on the latest lacrosse sports gear comes over my son’s cell phone, he could care less about the creative content—although there are style points given for the “cool factor”. Three things make it most effective: First, the ad reached him where he was; second, it was for something he really wants and somehow opted into; and third, it caught his attention before and better than any other form of marketing.

But all is not rosy in this scenario. If history is any barometer, it will not be long before a well-meaning public servant comes up with a solution to a problem that does not exist.

My concern is that policymakers just might over-react to new technologies they do not quite understand. For some, the default position becomes: when in doubt, regulate. Or at least try to regulate.

This is not good for business, good for competition or good for end-using consumers. America, if not there already, is well on the road to complete media and marketing interactivity, and consumers appear to really like the power it gives them. Few people really understand how all the interactive technology works. Even fewer know anything about the complex interstitial relationships between suppliers, delivery systems and media platforms. What’s more, they don’t care.

What people care about is ease. Make it easy for them to do what they want to do with the medium that is in their hand, on their desk or in their family room, and they will be very, very happy. If marketers can help policymakers understand this simple, but powerful maxim, the republic will be safe for the pursuit of commerce, innovation and information.

If marketers do not succeed in making the case, we could see 20th century regulation imposed on new millennium technologies. Not a comforting thought.


© Adonis E. Hoffman, 2007

FCC Preps Product-Integration Inquiry--Adelstein's Pet Issue Part of Tentative Agenda for FCC’s Dec. 18 Meeting

By John Eggerton
Broadcasting & Cable, 11/30/2007 11:29:00 AM

www.broadcastingcable.com

The Federal Communications Commission is preparing a possible crackdown on product integration in TV shows.

According to sources who have seen the tentative agenda for the FCC's December meeting, it includes a proposal seeking information on how and where to put on-air disclosures for products that advertisers have paid to be worked into the plot lines of shows.

Product integration is distinguished from product placement, where a product might be used as a prop. For example, Everybody Loves Raymond creator and executive producer Phil Rosenthal told a Hill hearing audience earlier this year about a Seventh Heaven episode in which Oreos were repeatedly mentioned by name and even featured in a marriage proposal in which the ring was embedded in Oreo cream filling.
The commission isn't proposing exactly what to do, the sources said, but the item -- which is expected to pass with the help of commission Democrats -- would signal that the FCC is serious about taking some action.

Democratic Commissioner Jonathan Adelstein, in particular, has pushed hard for better disclosure of paid and outside material used in broadcasts, including video-news releases and paid product plugs, but Martin had also pledged to look into it. The issue was also raised in public hearings on media-ownership rules.

Industry lobbyists will be meeting with FCC officials about the issue over the next couple of weeks. They are looking to avoid disclosures that would break up the flow of a show, such as a crawl across the bottom of that Seventh Heaven episode pointing out that Nabisco had paid for the privilege.

Adonis Hoffman, senior vice president and counsel to the American Association of Advertising Agencies, said the FCC should not go in with the presumption that there is a problem or tar new forms of advertising with the payola brush.

"There is quite a bit of misinformation and misunderstanding surrounding the very term 'product placement,'" he told B&C. "Today, the opportunities for advertisers to advance brands in multiple media platforms and formats are not limited to what we all grew up with. But just because there are new forms does not mean there is something inherently sinister going on."

He continued, "It goes against logic for any advertiser to hide its message, no matter where or how it appears. The fact that a product appears embedded in noncommercial content should not be cause for alarm, provided that there is ample opportunity during the credits for acknowledgement and disclosure. What we do not want to see is the association and mischaracterization of today's branded content with the unlawful practice of 'payola,' which everyone acknowledges is wrong ... Our members would look forward to helping the commission understand current practices, terms and trends in the business."

Product integration was among a half-dozen media items circulated among the other FCC commissioners by chairman Kevin Martin. None is a lock to make the final cut, which is released publicly seven days before the Dec. 18 meeting, and items could be pulled after that, as well.

Also on the list are several media-ownership-related items the chairman would probably like to take care of all at once, including a vote on the newspaper-broadcast cross-ownership rules (although pressure from the Hill could still potentially foil that plan); proposals to boost minority broadcast ownership, including a Martin proposal to lease digital-TV spectrum to minorities, women and small business and address broadcast localism; and a vote to cap cable companies' subscriber count to 30% of multichannel-video providers.

The package of broadcast-related issues would be an attempt to bring the 18-month media-ownership-rule review to a close, although, again, that could depend on how much push-back there is from Hill Democrats, who are holding hearings and trying to pass a bill that would block a media-ownership vote.

© 2007, Reed Business Information, a division of Reed Elsevier Inc. All Rights Reserved.

The Advertisers' Advocate

The Advertiser's Advocate

By Staff -- Broadcasting & Cable, 7/23/2007
w w w . b r o a d c a s t i n g c a b l e . c o m

Washington legislators are turning up the heat on advertisers over childhood obesity, drug ads and violent content, to name a few issues. Adonis Hoffman's job is to help explain why advertising should not be the government's “default” scapegoat. He is senior VP/counsel at the American Association of Advertising Agencies as well as director of the Center on Responsible Marketing and Media, of the American Business Leadership Institute in Washington. Complex problems can't be solved with simplistic solutions, he says. At stake is more than $10 billion worth of food advertising to kids.

How seriously are advertisers taking the childhood-obesity health issue?

The issue is perhaps one of the most important public-policy issues to come on the agenda in a while. First, we're all concerned about the health of children. Second, advertisers have been front and center on critics' lists as one of the leading causes of childhood obesity.

Is that a fair criticism?

I don't think so. It is clear that many, many factors contribute to childhood obesity. Advertising and marketing is remote at best. While policy makers, public-health experts and the food industry search for solutions, the implications for business are extremely important. Marketers of junk foods have been postulated by many as the chief contributors to childhood obesity. I think there is a disputable scientific basis for the claim, but it has taken root in an activist sector that wants to limit or abolish advertising.

You acknowledge that there is some industry responsibility for the problem as well as for the solution?

There is certainly a responsibility for the solution, and I think that, if you want to look at media as a factor in behavior, yes, media is a factor in behavior for a lot of things.

If childhood obesity is a legitimate threat, shouldn't the government step in to protect kids wherever it can, including regulating TV ads, as FCC Chairman Kevin Martin said it might have to do?

Here are some areas where the government can be helpful. How about lack of exercise? What about stimulating physical-education programs that get kids off the couch? Diet has a big, big role to play. Parental choices. Helping parents become wiser.

The FCC limits ads in children's shows. Why shouldn't it limit food ads in those shows, as Rep. Ed Markey (D-Mass.) has suggested?

The commercial time limits are a legitimate use of the FCC's regulatory authority because it has nothing to do with content. It's a time limitation. To take that authority and extrapolate it into content— as in, you can only advertise food that somebody determines is healthful—that gets us into a qualitative determination by the government into what we can say and consumers can hear. There is no such thing as an unhealthy food. There are unhealthy diets.

What is the biggest government threat to commercial speech?

I am very troubled by the notion that advertising and marketing has been seen as the cause of so many societal ills, whether it is obesity, the high cost of prescription drugs, violence. There has been an automatic default to go immediately to marketing and advertising.

What is driving this issue? Politics?

Sen. Sam Brownback [R-Kan.] and Sen. Tom Harkin [D-Iowa] have taken on the childhood-obesity issue and have legitimate concerns about the public-health issue. To ask the advertisers and marketers to come into a larger group of stakeholders is perfectly legitimate. To zero in on marketing and advertising as the single most controllable factor for solving the problem misses the mark. A lot of activity has developed around these issues. It is driven in part by public advocates and public policy, but it is also driven by the marketplace. I can't tell you how many Dateline NBC specials there have been on advertising to kids, junk food, the perils of food marketing. And yet in some very credible research and polls, parents rate marketing and advertising way down in the single digits as causes of childhood obesity.

On the viral-marketing front, the FTC has been asked to look into the practice. Should parents be concerned that kids are being sold products by marketers posing as fake online friends?

To the extent that those practices exist, they represent a very small portion of marketing and advertising practices. Social marketing is a reality. I would like to see disclosure for social marketers and buzz marketing. If my next-door neighbor who just got a Chevy Tahoe and says it is the best truck he's ever had and he is a paid endorser, I want to know that. But I don't think the viral marketing to kids is at such a serious level at this point. I would like to see perhaps an FTC guideline or rule that, like every other form of marketing, you have to be truthful, fair and accurate.

© 2007, Reed Business Information, a division of Reed Elsevier Inc. All Rights Reserved.

Seeking Answers to Google-Doubleclick from FTC

4A's And ANA To FTC: We Want Answers!

by Tameka Kee, Media Post, Online Media Daily
Thursday, May 31, 2007 6:00 AM ET


WITH A JOINT LETTER TO the FTC and the Justice Department, the 4A's and the ANA made it clear that marketplace restriction is one of the possible implications of the $11 billion wave of online advertising mergers and acquisitions.

"Advertising on the Internet is one of the fastest-growing sectors of marketplace promotion," the letter said. "Therefore, ensuring its competitiveness is critical for all participants."

So while market analysts, bloggers and journalists alike have been content to theorize how deals like Google/DoubleClick and WPP's acquisition of 24/7 Real Media will affect how online advertisers do business, the two major advertising associations want definitive answers.

"When all of the acquisition announcements came out, we said, there's so much stuff going on here and we don't know what the implications are," said ANA CEO Bob Liodice. "We simply asked the people who could best assess this to use the tools and ability and look at the market dynamics as a whole."

Given the FTC's wealth of antitrust experience, relative manpower and federal budget, the agency is well equipped to tackle both micro issues such as how the merged companies should handle pricing and inventory management, and macro questions such as whether the deals affect just online advertising or advertising as a whole.

While neither organization would comment on specific concerns, maintaining industry-wide competitiveness was a key consideration. "As a trade association, we have a vested interest in making sure that the Internet remains competitive as an advertising/marketing space," said Adonis Hoffman, legal counsel for the 4A's. "But it's fair to say that a lot of people are looking at the impact that these combinations will have on the marketplace."

Industry players--from publishers to brand executives to smaller ad networks--will be affected by how these deals play out, but independent agencies offer a unique perspective.

"I think the big issue will be what are the definitions of the categories of business," said Tom Bedecarre, CEO of AKQA, the largest remaining independent agency, which took a majority investment from private equity firm General Atlantic Partners earlier this year. "The people putting up noise are doing it for competitive reasons. It smacks to me of paranoia and fear in the face of change."

According to Gal Trifon, Eyeblaster's founder and chief executive officer, "these deals erase the familiar demarcation lines. When the dust finally settles after the recent frenzy of acquisitions, we believe that this complexity will drive demand for independent campaign management solutions."