From Upfronts to NewFronts, Madison Avenue Faces Its Post-COVID Future

With all these different brands pitching themselves to marketers, there's no better time to check in with Brian Weezer, global president of business intelligence and media agency Giant Blue N. He knows the number side of Madison Avenue about as well as anyone, so I'm looking forward to hearing from him at an interesting time for the advertising business. Welcome back to Strictly Business, where I'm talking with Brian Weezer blu N about the state of the advertising business in

the thick of the so called upfront season. Good to have you with me, Brian, Uh I say, it's an interesting time primarily because of the overhang of the pandemic, which I think we can at least characterize as being in a light at the end of the tunnel stage. And I want to start with how you see where we are with COVID impacting the state of the economy globally, but more so in the US because the economy impacts advertising.

The course, Yeah, well thanks for having me here. Uh. There, there's a lot of living parts in answering that question. I mean, the first thing is to consider the what we'd call it easy comparable if you will, when you look at one over and it's just going to distort numbers for for so much of the economy when you look at things on a year of your basis. So that's maybe the first part. But even if you start to look at the trends that uh compared to say,

two years ago, you have a number of conditions going on. First, we've created a new plateau against which e commerce is growing and sustaining pretty rapid pace of growth, far faster than would have been true have there not been a pandemic. Um, we have massive new business formation, which maybe overlaps with that ecmmerce point. It certainly is catalyzed by the pandemic. But the fact that there are so many new businesses being borned h it's the best illustration of creative destruction

you can find. Um. Lots of businesses went away and truly being replaced by new ones, and that's having a different distorting effect on the overall ad market, primarily skewing um spending into digital media. And that's what we saw, I think, in part in certainly first core results from the lakes of Google and Facebook. Um. And then you get just general inflation because when when we say it's a hot market, we mean hot in terms of an

economy running hot. We have a lot of juice up demand from a lot of consumers with a lot of extra money to spend um stimulus driven in many cases um at least collectively, because we really do need to remember that a lot of people are still struggling, but on average, people in the economy are very very able to spend money and very willing to do so, and that's creating inflationary conditions at a sort of general economy level.

So what does history tell us about how the ad business is typically affected by major events like the pandemic? Did the pandemic fit that pattern? Has everything gone as you expected? Well back when I was working at the way, there really isn't anything to compare to in the United States, you know, Actually you can look at uh at what's happened you know, Hong Kong Stars or other markets. But it's it's almost it's not not big enough to provide

an apt comparison. Um even a war is not an apt comparison, because even during wartime, even in economies with total war, you may still have kind of life going on in the middle of it in a way that wasn't true during the pandemic. For for a few months, I mean, things ground to a halt in ways that that just doesn't normally happen. So it's really hard to compare to anything, certainly in modern history. UM So what we can do, though, is we can look to some

general principles. It's almost too easy, shorthand to point to something like economic growth and then try to correlate that to advertige that it does correlate with advertising, but it's more coincidental because, as I said before and applied before, creative destruction is the most important factor that drives advertising growth.

The very fact that a business that emerged this year has a different profile than a business that emerged ten years ago, or twenty years ago or forty years ago goes a long long way towards explaining what's happening with advertising and if you think about the fact that a business that formed in say row forming would have been incrementally different, right, but a business forming in versus a business forming in could be radically different in terms of

every aspect of what they do and how they do it. And so when you think about how that plays into marketing and media, I mean, we know that the average company allocates are known one percent of their revenue to advertising, But what if the new generation of business is being formed is more like two something like that is happening, and all that extra money is blowing into Google and Facebook and Amazon. Yeah, you mentioned those pretty astonishing first

quarter results. You've mentioned the rise at of e commerce. I mean, it seems like the shelter at home lifestyle spurred a quantum leap in terms of how central e commerce became in the average consumers lives. Though, as you also pointed out, e commerce wasn't exactly obscure before. So

am I actually overstating the e commerce effect? No, that's that's that's accurate, Although sometimes we stay e commerce and really we're we're just using something really tangible for a looser concept of business transformation, right, I mean business transformation meaning you know, how businesses are adapting to a world that's ever more connect did to the internet. Right, Um, the e commerce is just the most tangible example most

of us can point to. But if you think about like digital ordering, right, I mean, just as a constable, you know, um, you know the idea that we can now call a store or you know, we can arrange for the specifics of a transaction and then pick it up with that every setting foot in the store, and we're using our mobile devices to alert the people in

the store that we're there. You know, all these different elements of using digital technology to drive how we do what we do and drive how businesses interact with us. All of that accelerated over the last year. E commerce again just the most superficial, most tangible thing we can point to. Sure, I mean, look, all all signals signals are that there's this sharp rebound a foot here. But are there any flags on the field. Are there anything that could steer the economy or advertising? Uh, in an

unexpected direction? Oh? Sure, Well we learned nothing from the last you know your in event, it's an unexpected things can occur. Um. I think that the in the in the short term, one of the bigger risks that we're certainly mindful of. Is this whole semi conductor shortage issue. UH, the idea that almost every free company who's making electronic

product has a real problem right now because of this shortage. UH. And so you pair that with other supply chain issues, pair that with input cost inflation, and there are some real challenges in the near term. Now the semis issue. If I'm not a semi conductor analyst, but certainly UM, every automo manufacturer that's reported so far this UH this quarter has talked about how it will disrupt second quarter production, but they do expect things to even out as your progressives, right, UH,

it doesn't necessarily impact longer term planning. UH. And at the same time, things like input cost inflation is an issue, but a manufacturer can always find ways to, you know, change how they do what they do. UM. They can find ways to certainly raise prices consumers and create inflationary conditions, yes, but all else equal, those manufacturers might be just as well off. But there's an interesting question to be raised.

And this is sort of you know, an issue that I think Wallster is debating is just how temporary will higher inflation be and by the way, are we talking about a percentage point or two or something more robust? And once you get into a path of inflation being out there, do we actually create a sustained levels of elevated inflation? So those are arguably potential risks to be aware of. Well, we'll have to keep an eye on

on those issues. Let's let's dig deeper now into this new front, up front, old front madness that we're in the middle of. I'm curious, you know, every year seems to be like a different narrative in terms of these marketplaces. Is there anything that's jumping out of you in terms of well, this is the year we're learning X. I mean, I think that's that's that's not a bad way to try to look at it. Um, I would I would tend to focus on things like power marketers using television

and context of other immediate and how that's changing. Um, what is the role of television going forward kind of in a longer term sense rather than you know, it's kind of a point in time as opposed to something that reflects a longer term trends that marketers are are working around. And let me just elaborate a been on that we're going into a period where consumption of television in its traditional form is following a pretty dramatic club

right now. Um, and you and I talked for a long time and those of me for a long time and known that I you know, back in the late two thousand's, early two thousands tens, there are people calling me a TV bowl. You know, as an analyst, It's like, no, I'm not a bowl. And just observing that the medium still growing. It's like consumption holds up generally speaking, it's not nothing is getting in the way of of that. Those trends that we were seeing last year, something got

in the way. And it wasn't just the pandemic. It was the very fact that you had all all the streaming services finally committing to spending billions and billions and billions of dollars on original programming. That is a meaningful difference between what we saw ten years ago or five years ago. And to a UM, all those concerns about you know, member back in the early two thousand's that where of all the young men gone like men in eight thirty four are playing video games, says Massive, the

video game company, and that became these dominant narratives. Right, well, there is never anything to that. Um, this is real and because we know, you know, you can roughly estimate that globally there's something like a hundred fifty billion dollars of spending on uh TV or professionally produced content in a year, and Netflix is going to be fifteen billion dollars of that. It's not unreasonable to think that they'll

get about a tenth of ball viewing. And it's not like you it goes up by ten to account for it. It comes from somewhere, and that Netflix viewing is not as supported, it will never be out supported. Then you get you know, Amazon Prime, they are going to be some number in the high single digit billions on Prime Video specifically. And then you look at and there will

be any adds. They're not many, at least Disney Plus, thank Deal, and you go on, well, there will be some ads and some certainly Whlue remains that supported, but there'll be these uh some of the able oard services inside of this UH this realm of content, the available advertising inventory is compressing in a pretty meaningful way. And that means that the capacity for a marketer to accomplish the reach and frequency based goals that they had in

the past is pretty meaning they altered. So when I think about the upfront and I think about the decisions that marketers are making, I think about it more through the lens of marketers having to figure out what the role of television is more generally in their marketing dgics. And it seems though as if a big part of the pitch from the traditional TV players will be, Hey, it doesn't have to be all about linear. We've got your back marketers on connected TV. We've got all this inventory.

Um to me, that seems I mean, while certainly not a new trend, uh, it's now sort of in a in a more prominent way that I mean, do you think it will be sort of transformative? Well no, because I mean my my point is that the available at support inventory in what most people would reasonably call television. Most people meaning consumers, meaning there's no meaningful distinction between

connected TV linear TV. From a typical consumer's perspective, that available inventory is shrinking because if you think about a total Internet connected device based viewing is some number like all viewing and rising still at twenty or percent a year, of that inventory call it half is a third is Netflix, another is Amazon Prime, and another five percent is Disney.

Right there, that's this just take away half of that inventory, you know, so you've just lost, call it fifteen percent of all available consumption, and then YouTube is that TV or not. Those advertisers would still say it's not really that comparable. Okay, lop off another five of that available inventory. Okay, you've just taken out consumption, right, total consumption in agory.

It didn't really grow that much. It was eroding. All this viewering was going towards and burns which were either at supported or not comparable to traditional at base television. And so while it's great that a traditional TV network owner has some ad inventory in these environments, and let's put aside of the measurement issues. Let's put aside whether or not you're getting unduplicated reach and all that fun stuff. Um, the reality is there's just a lot less television and

based inventory, uh with which to reach consumer. We'll be back in just a little bit with more with Brian Weser. Welcome back to Strictly Business, where I'm talking with Brian Weezer or group and about the state of the advertising business in the thick of the upfront season. Brian, I hear what you're saying about all these alternatives, but there's also to be and Pluto TV and Peacock streaming inventory that you know, the traditional TV companies are making available.

So that doesn't solve all their problems. No, because I mean that's included in the numbers of sting. Oh that's my boy, got it? And what about the I'm just curious what you think about the so called free acid free ad supported streaming options like to be in Pluto TV. Do you see these as as being viable, you know, to define five years in the future, this is gonna be a permanent part of the landscape in general. Yes, I I think that the way I think about viability

from a consumer perspective is spending on content. There should be a rough relationship between share and spend on content and share of viewing and again just dealstrate to take Netflix right, I can roughly estimate, depending on how you want to make assumptions about what the right connations between

cash accounting expenses. If Netflix was some number like five billion dollars on programming in a country where by my estminsters around seventy billion dollars of spending on programming for the US, that's about seven right, Well, what's their total share of viewing? It's about seven percent. If you spend if you show up today with let's say one point four billion dollars of a TV budget of the budget for programming, I would bet you probably will get to

to percent audience. Sure all those people. Now, if you're really good, you can find ways to do it cheaply and get a lot of audience. But on average you need to spend up to get the viewing. It's not I don't think it's that hard hard to understand. Why. It's a spaghetti theory of programming. Right, you throw it up against the wall, something sticks. On average, you know that some percentage will. So if you're whether you're Pluto or to be oring these others don't. Hey, they may

end up being very efficient forms of getting the viewership. UM. That remains to be seen. They are going to spend more on original programming, and certainly we've heard um. You know, Fox really talked about that the other day their next call, UM. And I think we'll see that more often from the pure a body aggregators UM that don't today have a lot of original but in general, the viewing share will

go to where they're spending a share. I don't think that should be rocket science, can't are had estimated national TV ad spend in was down about pent of at fifty billion dollars. Uh, So what do you see for one? How big a swing could we see in terms of money moving to digital? Well, I mean, let's I mean, first of all, I guess we could say on our numbers that's not too far away from where Groogum's estimates

are for two thousand twenty. You have to be mindful when you're looking at the year of your media and our ad revenue, or at spending trends. It's really important to be conscious of the role political advertising, which really distores the numbers on a year of your basis um. So you know, if you wind up with on an underlying basis, one can grow by college nine percent or something. But is that very meaningful in context of the decline

that we have last year and not? Really? The right way to think about it, as as far as I'm concerned is to think about flatish kind of overall business, maybe a lightly declining one over time, and it comes back this creative destruction issue. If the kinds of companies that are predisposed towards using television are less prominent in the economy, that will lead to less spending on television.

Right you see some of those advertisers, Uh, the average large brand advertiser incrementally reduces their spending on television with every passing year. That's been true forever. They get replaced in part by new marketers who show up because it's satisfies a goal better than an alternative for that new advertiser who shows up. But the combined effect is that you get a flat kind of number to slight decline in terms of the available spending that's out there. That's

independent from the available inventory. Right now, this is something that a lot of people miss. There is there's no law that says a change in supply causes the change in demand at So just because audience trends go one way or the other doesn't tell you anything about demand. Those are independent To point on, you know, shifts to digital show that is happening because the nature of marketers.

Businesses are adapting and evolving, and we can argue, rightly or wrongly that a marketer whose business is increasingly oriented online will increasingly allocate money to digital media, the pure play you know, digital platforms. Um that tends to happen, whether it's right or wrong. I could argue the best allocation of resources a market could make is first invest in brand, second, invest in creative, third, figure out the

bed afterwards. That's not how market there's actually make decisions though. Um So, television will still have an important role for most of those marketers, but it's with every passing year there is on average there's a bit of a shift for the like for like marketing. Another way that TV is going to try to close the gap on digital is to sell Madison Avenue on its capability to target with addressable advertising. Oh what do you think of where

the state of addressable advertising is right now? What are the obstacles to this, you know, becoming a bigger deal for TV? Yeah, well so I've I've been spending time understanding addressability for twenty years almost, which feels like a long time. I know there still have been out longer.

Um and it it from the earliest days where I looked at this, I thought the whole trying to sell you know, running at for for dog food to dog owners sounds great in concept, but it feels like it's a pretty small market, And sure enough, I think that is a very small market, is not where the ultimate

opportunity is for addressability. Where the ultimate opportunity for adjustability is, as I see it is in helping marketers accomplish what they really need, which is cost effective reach extension, meaning how do you find that of a target audience under a broad definition? Because keep in mind, if you're using television,

it's probably because you want to reach everybody. How do you make sure that you're actually managing you're reaching frequency the way you intend to eight percent reach with an average of eight times frequency and making sure that only uh, nobody gets more than ten exposures and no one gets less than six, you know, balancing a load of frequency that is not commonly done or not commonly doable with television the way it works today, I think addressability offers

UH an amazing opportunity to actually help markers accomplish those reaching frequency goals that they have. And sure then you can start to incorporate variability, like maybe you identify that a certain kind of profile of a consumer is more likely to respond to a certain kind of message versus another. But it's all very incremental in terms of its impact

and very difficult to prove with any certainty. So I think that that's where the greatest opportunity is um for for addability in the medium, and it becomes a reallocation of reason versus not a source of new resources. But at the same time, I think there is some opportunity

to help bring some marginal advertisers into the medium. It's not necessarily a large amount of money, but it's the idea that if you're a marketer, would say a five million dollar budget, you think that television would work for you if only you could use it in a very precise way. Yeah, there's some extra money to be had from that kind of a marketer, but they don't know that that's necessarily a need mover. Well, it also wouldn't be up front season if we didn't have some sort

of controversy around measurement. And we're seeing the networks claiming Nielsen is under counting TV viewing during the pandemic. Uh, what what to make of this? Is just just sort of like a new variation on the same old theme of the networks, you know, working the refs so to speak,

or or do they have a point? Well, I mean, there are definitely some issues that based with respect retombishment during the pandemic UM mostly pretty understandable in terms of not being able to you know, send people into homes um. But you know, you could argue the other the the numbers are distorted in lots of different ways through the pandemic. For example, because they didn't turn over the homes in

the panel as frequently as they normally would have. UM, they didn't bring in new homes, which would have biased the panel towards traditional pay TV subscribers rather than court cutters, rather than BMVPD subscribers, which would have had uh at the effect of reducing consumption or as measured right. So there's lots of living parts and you can see this in their data where there's the normally, Nielsen's data is probably the best single metric in terms of tracking total

pay TV subscriptions. And you know, it's a it's a different number than if you compare it to say, add up Direct TV and Charter and Comcast cable stubs and just add them all up and you wind up with a different number versus what Nielsen has and The reason is Nielsen wouldn't have any double counting in the way

that the mvpd s do. There's other history factors when you look at the public company reportings, but there is a huge gap between that total pay TV number UH and what the what the actual distributors were reporting through the pandemic until this most recent quarter, arguably because of this issue, and that would have had the impact of because it's a boosting viewership of television and in particular booststing cable viewership. So there's moving parts and UH, it's

not necessarily favorable. It's not favorable unfavorable on that basis necessarily it's hard to know. Um, Obviously we're talking a lot about video based advertising. I don't want to give other forms short shrift. I mentioned you know, we've got podcast upfronts going on, hearing more talk about video games as a place for advertising. What are what are certain some of the meaningful trends that you're seeing that we should keep an eye on in terms of advertising in

in in non video formats. Well, you know, there's what's happening and then there's what should be happening. UM, what's happening is uh beyond television. It is Facebook, Google, and Amazon's world and we're just living in it, right. Um uh and so it's really you know, all these other platforms are important, but and and market will talk about these things, and they allow kay resources to these things,

but not in a meaningful way. UM. It's safe to say that the typical large brand, to be clear, we're talking about advertisers or like network TV TV. So if you think of that cohort of brands, typically they're allocating just under of their budgets to television, but probably allocating for to digital and everything else gets about something like that. Um. And so sure, something like podcasting has tremendous interest. Uh. It is the sizzle that drives the stake of radio,

so to speak. But it's not like collectively radio is going to grow right beside the year of your comparisons which are easy, but I'm saying beyond this year. UM. Outdoor advertising lots of our too, very impactful, probably greatly under appreciate for how much it could be used even during a pandemic environment. UM. You know, that probably gets back to something resembling normal growth and single digits for them. UM. Print you know is a great example where print is

only going to grow if they invest in contents. Where you see a media owner investing in content, there will be a lot of interest upon the marketers to spend money as advertisers with those publishers. But where you see publishers disinvesting in their properties, trying to hardest the assets, so to speak, um, there won't be a lot of

advertiser interests. I would be remiss in in not asking about the third party cookie situation, where obviously big changes afoot on the Apple and Google platforms, changes in how audiences are targeted and measured. Um, what is is you more sense of it? I mean, this is sort of a drum that has been sort of, you know, approaching crescendo for a while now, and it's I'm kind of losing track of when I'm supposed to truly focus here. Yeah, well, I mean it depends on which vantage point you're you're

looking at this issue from. I think if you take a step back and look at the bigger picture about what it means for marketers. Um, what we saw from GPR in Europe was kind of the tell about what marketers needed to do. What what GDPR was essentially saying to marketers was deer marketer. If you cannot persuade a consumer to part with their data, you probably don't deserve it. The California law that ccp A was not dissimilar, maybe not as as aggressive as as GDPRE, but definitely going

down that same direction. And every law that's you know, been considered basically trying to get to the same kind of place. And so when you see what what Apple uh is starting to do right now, and what Google is going to do as well, and the whole deplication of their pretty cookies as we've done it, it's all consistent with this broader trend. Deer marketer, if you cannot persuade a consumer to part with their data, you probably

don't deserve it. So the bigger issue than from a marketer is all right, you need to invest in figuring out how to persuade consumers to part with their data. What makes it truly worth their while. Don't assume that they actually love advertising, don't assume that they love your brand. Make sure that they actually have a reason to want to care UM and that could mean that there needs to be a good value trade off that the consumer

actually understands UM and it's not. Then you know, marketers need to kind of work within this world where they can build their brands over time. At least that should be the goal. Um. Certainly, if you want to differentiate yourself over the long long term, a strong brand is essential. And if not done then you know there's al sorts of other ways to make a living. Oh, that's just one of many big issues that needs to be followed on the advertising front. Brian Weezer, thanks for taking some

time out to walk us through all this. It's gonna be an interesting to pay attention to. Thanks Matting. This has been another episode of Strictly Business. Tune in next week for another helping of scintillating conversation with media movers and shakers, and please make sure you subscribe to the podcast to hear future episodes. Also, leave a review in Apple Podcasts and let us know how we're doing