Tag Archives: Advertising

Economics of Culture

The New York Times ran an article this morning entitled “Movies Try to Escape Cultural Irrelevance”. I had to smile because I have been thinking for a while about what is going on culturally in our entertainment universe and trying to ponder how the economics of various distribution platforms determine the daringness of what gets produced. It is clear that the cultural conversation today is around TV and not the movies. The movie business has long since surrendered to producing cartoon fantasies (Spider Man, X Men, etc) for teenagers while the TV business seems to thrive on serious dramas that plumb the depths of character in dramatically satisfying ways (Mad Men, The Good Wife, Breaking Bad, etc). The Movie industry thinks they have a PR problem, when they really have a content problem.

Several industry groups, including the Academy of Motion Picture Arts and Sciences, which awards the Oscars, and the nonprofit American Film Institute, which supports cinema, are privately brainstorming about starting public campaigns to convince people that movies still matter.

You wouldn’t have to convince people that movies mattered in 1975, because every week there was a movie that mattered. So what is it about the platform that determines this differential? To begin with, TV still has a business model that works, unlike either the film business or the Broadband Internet distribution business. TV works because it has a limited supply of commercial spots per hour. With increasing demand from advertisers, the price for each spot rises and so production costs can be covered and a profit can be made. Contrast this to the Internet advertising platform. Here you have an infinite number of ad units so that prices never rise even if demand rises.

Google is in essence trying to repeal the laws of supply and demand, which is why their recent financial results disappointed analysts.

Analysts focused on the amount that advertisers pay for clicks on Google ads, a metric called cost-per-click, which dropped 8 percent over both last quarter and last year. Susan Wojcicki, Google’s senior vice president of advertising, told analysts that a drop in average cost-per-click often accompanied an increase in the number of paid clicks on ads, which rose 34 percent over last year.

In contrast, even though TV viewership is down, ad rates have stayed high because of supply constraints. Which leads us to the movie business model. Unlike TV, movies are a total crapshoot. Each film is a one off product, almost impossible to predict demand. The only possible indicator is sales of a very similar product—thus the sequel. It’s hard to imagine, but the sequel is a relatively new phenomena. No one suggested a Gone with the Wind II or a Casablanca II. But once Star Wars II made more money than the first one, the die was cast and now Hollywood is a crackhead chasing sequels. Of course the agents know this, so the price for talent soars as the number after the title rises. Now a rational business would look for metrics such as return on investment to determine whether spending $200 million on Tron Legacy was a good idea. In that world, Bob Zemekis’ new film Flight, made for $30 million, may seem like the best investment of the year. Whether Hollywood will be able to kick it’s sequel habit is a question, but in the mean time the movies will continue to suffer from a kind of cultural irrelevance and TV will continue to thrive.

Karl Rove’s Nightmare

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The conventional wisdom is that Republican Super Pac money will overwhelm Democrats in the last six weeks of the fall election. This week Bernstein Research put out some data that lead me to believe that the returns to scale on TV advertising may actually be diminishing.

We believe it is not implausible that at some point, consumers will get so annoyed at having seen a commercial over-and-over again that there could actually be a negative impact. The logic being, consumers would attach negative feelings toward the brand (e.g. presidential candidate), instead of positive ones.

Here is how Bernstein charts it.

Bernstein calculates that in the battleground states 95% of the viewing public will see between 75 and 100 ads for Romney per week. Although classic marketing theory suggests that seeing more than three spots per week on a product produces diminishing results, we have never seen such “ultra-high frequency” in advertising.

Only time will tell if we have hit a wall on political TV advertising and Karl Rove’s grand scheme for buying the election fails.

The Big Lie

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Kim Dotcom is the alias of a modern day digital mafioso, who made more than half a billion dollars in the last few years by selling advertising on a site filled with stolen movies and music. Like any mafia lord, Kim hangs out with various low talent artists hoping that a little blow might be left on the coffee table. So today Kim and his lame ass disco music friends have released a song that is on a par with Triumph of The Will for those who study propaganda. The master of the field was Joe Goebbels who wrote “It would not be impossible to prove with sufficient repetition and a psychological understanding of the people concerned that a square is in fact a circle. They are mere words, and words can be molded until they clothe ideas and disguise.”

In his brilliant attempt to square the circle of his fortune built on stealing from artists, Kim equates his struggle with that of Martin Luther King. He attempts to hijack the whole Occupy movement to aid in his redemption. But in deciding that he could make $ million by selling advertising on Megaupload–with an inventory of quantities of stolen digital content–it’s easy to think that Kim Dotcom believed he was above the law. And the sad thing is that huge corporations like Google and Yahoo—some of Kim Dotcom’s early advertising partners–support this kind of conduct by enabling an underground advertising market that funds both piracy and pornography (usually on the same site) in the huge “remnant ad business” on the web. Continue reading →

The Hunger Games

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We had our Annenberg Innovation Summit yesterday and it was a smashing success. So today for the first time in two weeks I went to the movies. I saw Hunger Games, because I am going to give a lecture on Monday on technology, politics and the future. The movie is the latest in a long line of dystopian science fiction films from Metropolis to Bladerunner. I long since came to the conclusion that science fiction is our way of writing about our fears about the present. Metropolis (1927) was about the exploitation of the masses in a machine age. Bladerunner (1982) takes the metaphor farther by imagining machine made humans, called Replicants. Both invoke world’s of such radical change, that we don’t recognize our self in the protagonists.

But Hunger Games is radically different, because it essentially is about the 1% vs. the 99%. It is about what could happen in the world we are experiencing today. The Hunger Games is in essence a story about Bread and Circuses. As the Poet Juvenal wrote of the period in 140 BC Rome when the politicians were for sale and the people didn’t care as along as the bloody entertainments kept coming.

… Already long ago, from when we sold our vote to no man, the People have abdicated our duties; for the People who once upon a time handed out military command, high civil office, legions — everything, now restrains itself and anxiously hopes for just two things:bread and circuses

We start the movie in an Appalachia not too far distant from the haunting Walker Evans photos of the Great Depression. Dirt poor coal miners living under constant police presence. All power and money resides in the Capitol–a New York on Steroids. The Capitol is filed with a society of the very rich that are every bit as decadent as Rome in Calligulas’ time or New York in Andy Warhol’s prime. The Hunger Games are a combination Reality Show and Gladiator match. The contest creates a kind of Lord of the Flies world with knives, spears and (most importantly) a bow and arrow that our heroine wields beautifully.

But finally it is a story of teen empowerment and rebellion. It is a vision of a future of the total failure of democracy because security of the rich was more important. That’s a very dark belief that obviously millions of young readers of the novels have bought in to. That the movie made $150 million in its first weekend is testimony that some profound mental shift has happened in the society. 1%-99% metaphor has sunk in to the collective consciousness.

Now that it is obvious that Mitt Romney will be the Republican nominee, this same metaphor will dominate the political debate. Mitt is the candidate of and for the 1%. Look at his tax policy, which will enrich them and his hawkish military policy which will continue the 65 year Military Industrial Complex boondoggle, further enriching them. Finally his oil and environmental policies are made for the Koch Brothers and their friends in the oil and gas business.

The trick for Obama is to make the connection to the 18-24 year olds who didn’t get a chance to vote last time. These are the kids lining up for Hunger Games. I sense they are ready for Obama’s message. But he has to take on the Inequality Issue head on.

Coup D’Etat

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I was struck this morning while reading the New York Times story on the billionaires who are funding the Republican efforts to remove Barack Obama from the White House, just what a distance we have traveled in the nearly fifty years since JFK was assassinated. And then I thought, “but nothing has really changed”. Fifty years ago Right Wing Texas Billionaires like H.L.Hunt and Clint Murchison Sr. were scheming how to remove John F. Kennedy from the White House. No one has ever proved that these men, who were so close to J Edgar Hoover and Lyndon Johnson, actually staged a coup d’etat, but the very fact that we have moved from the thought of real assassination by gun to character assassination by money is at least some sign of progress.

Last night my wife and I watched the wonderful four hour American Experience film on Bill Clinton. What is so striking was that within weeks of his inaugural, the Right Wing, with full acquiescence from the Republican leadership, set out to delegitimize Clinton through character assassination. Of course Clinton was stupid enough to hand the assassins some ammunition by playing around with an intern, but other than lying about a blow job, there was absolutely nothing to Kenneth Starr’s four year $40 million Whitewater investigation. The same characters (Koch, Adelson, Simmons, Perry, Crow) have now set out to spend what ever is necessary to assassinate the character of President Obama. Adelson says he is will to spend $100 million to get rid of Obama.

What scares me is the continuation of the socialist-style economywe’ve been experiencing for almost four years. That scares me because the redistribution of wealth is the path to more socialism, and to more of the government controlling people’s lives.

Part of this character assassination is the continuing “Obama is not a Christian” bullshit that we hear from Santorum, Gingrich and even the Reverend Franklin Graham. And this is where I get pretty sad, because in some ways we have regressed culturally since 1961. In 1962 Major General Edwin Walker, who had been forced to resign from the Army after writing that Harry Truman and Eleanor Roosevelt were communists, organized a counter demonstration by local armed Klansmen against the integration of the University of Mississippi.

After a violent, 15-hour riot broke out on the campus, on September 30, in which two people were killed and six federal marshals were shot, Walker was arrested on four federal charges, including sedition and insurrection against the United States. He was temporarily held in a mental institution on orders from President Kennedy’s brother, Attorney General Robert Kennedy.

So in 1962 a crackpot like Walker was sent to a mental institution. Today, he would probably have a right wing talk radio show with millions of listeners. In 1962, fringe organizations like the Klan or the John Birch Society were forced to the margins of society and had no access to the mass media. That is not the case today. The crazy anti-science screeds financed by the Koch Brothers or the “Obama is a socialist” rants backed by Adelson are proof that, with enough money, the truth can be obliterated and that Joseph Goebbels was right—“If you tell a lie big enough and keep repeating it, people will eventually come to believe it.”

Financial Musings

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Apple Store-Shanghai

I have been known to make occasional predictions about our economy, and this quiet time between Christmas and New Years leads me to venture once again into these waters.

In general I feel that the incessant Chicken Little “sky is falling” rhetoric coming out of the media is creating opportunities in the American stock market. When Apple is selling at a P/E of 14 and I can buy Chevron at a P/E of 8 with a 3% yield, good quality companies are selling cheaper than I can remember. Europe may have a financial crisis, but remember after 2008 the ECB did relatively little to shore up their banks. The stress tests were pathetic compared to the ones forced on the U.S. banks. Germany and France are rich enough to fix this problem and since they have both benefited from the Euro, I doubt they will let it crash. The temporary problems of European banks does however provide an opportunity for U.S. Multinationals to raise their game. Procter and Gamble competes with Unilever all over the world to sell shampoo and detergent. Unilever depends on European banks for lines of credit and my guess is that P & G’s cost of capital is cheap compared to Unilever.

Speaking of cost of capital. Despite the hand wringing from Republicans, the U.S. Treasury’s cost of capital is at an all time low. What does that tell you? That the rest of the world sees the U.S. as the best bet for the future. Part of this Republican meme about the “decline of America” is based on 19th Century notions of measuring trade. In David Ricardo’s time, the fact that England was a manufacturing powerhouse that exported to high value goods to Portugal and Portugal was a rural country that exported wine to England gave them each a comparative advantage in their sector. But when Apple assembles an I Pad in China and imports it into the United States it adds $500 to our trade deficit. But where is the great value captured in the product? By Apple shareholders, because the Chinese labor component is a tiny fraction of the selling cost? So traditional economics is totally distorting our real strength in the world economy.

This is not to say that there isn’t a job crisis in America as our less educated workers are caught in a global labor price arbitrage with Korean and Chinese workers. But this too will sort itself out in the next ten years as huge numbers of Baby Boomers retire. Even now, many companies are trying to hold on to Boomers with hard to replace skills past their retirement age. I’m well aware that there are a few Thirty-somethings who troll this blog that are totally frightened that they will never live as well as their parents. It is kind of pathetic because rather than adopting the obvious solutions to shore up their retirement prospects like removing the cap on Medicare and Social Security payroll deductions on high earners and drastically cutting back the defense budget, they are trying to start a generational war by scapegoating my generation and stealing their pensions.

I try to teach my students that one of America’s great understandings is the link between art and science. Hold up your I Phone and you intuitively get that. I’m pretty confident we can continue to excel as long as we somehow get our politics straightened out. That of course will be the task in front of us for 2012.

Four Years is a Lifetime

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The first post of this blog was exactly four years ago. It’s been a long strange journey and yet I’m struck by how much I feel the same mixture of hope and foreboding. As to hope, I am still struck by the creativity of my family and close colleagues. I am still in awe of a few artists who seem to be able to make music or films with a passionate commitment to truth and beauty. And despite the disappointments, I still have an essential faith in the humanity and intelligence of Barack Obama. And the foreboding that I felt four years ago, before the Great Recession had struck, still is in place.

And then you ask–so where does the aforementioned dread come from? It comes from a sense of profound economic peril. We have lived as a country off the rich inheritance of past generations and now the party may be coming to a close.

This has been a revolutionary year. Some would compare it to 1848, 1917 or 1968. Look at the Pictures of the year as organized by the New York Times and you can’t ignore the interregnum upheaval we are experiencing. I chose the photo of the young Egyptian revolutionaries at their computers as the quintessential image of “the old is dying and the new is struggling to be borne” that defines the Interregnum. These kids give me hope and I was struck by the words of their young Russian counterpart, Aleksei Navalny at the massive anti-Putin rally in Moscow yesterday.

“Where is this man?” Mr. Navalny asked. “Can you see him? Is he here?”

He added: “These days, with the help of the zombie-box, they are trying to prove to us that they are big and scary beasts. But we know who they are. Little sneaky jackals! Is that right?” The crowd roared. “Is that true or not?” Another roar.

Of course we have our own battles with the forces that control “the zombie-box” in America. For all our idealistic belief in the liberating power of the Internet, most of our citizens still get their information from television–Fox News, CBS, ABC and NBC. And of course there is the large minority that gets no news at all, but rather sits like Mr. Navalny’s zombies zoned out on the fake spectacle of Wrestling or the lives of the Kardashians. Near the end of a presidential campaign all the advertising goes to reach these zombies–people who for some reason in late October of a Presidential race have been paying so little attention that they are still “undecided”. WTF! These cretins get to decide a close political race?

And you can bank on it that Karl Rove’s $500 Million Super Pac will have some killer ads to wake these moron’s out of their stupor just long enough to get them outraged enough to drag their sorry asses to the polls on the first Tuesday in November. Somehow, I can guarantee you that Obama will be painted as “un-American” and the Know-Nothings will drink a couple of Red Bulls and be driven to the polls to pull the lever of Democracy.

So let’s hope we can be inspired by the young activists in Cairo, Moscow, Damascus, New York, Oakland and all the points around the globe where citizens are trying to make the word “democracy” have some meaning. For me, that means going back to Localism. Trying to make Los Angeles the most livable, just, optimistic and creative city on the planet.

Merry Christmas and Happy Holidays,

Delicious Irony

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Two years ago Citizens United financed a documentary by Newt & Callista Gingrich called America at Risk. It was the typical Gingrich over the top Global War on Islam screed and par for the course for the production company most famous for the Supreme Court decision that unleashed unlimited corporate funds into the 2012 election cycle.

So what a delicious irony that Newt’s campaign has been brought to earth by the very force of Citizens United and the Super Pacs it spawned which are dumping endless negative ads on Gingrich.

The involvement of such groups can be especially damaging for candidates like Mr. Gingrich who have not raised enough money to be able to counter negative attacks with an advertising blitz of their own. Nor does Mr. Gingrich have a well-financed super PAC working on his behalf.

“The problem is the super PACs come in and spend $1 million a week blasting a candidate,” said Tim Albrecht, a senior aide to Gov. Terry E. Branstad of Iowa, a Republican. “And Newt has not been able to put an apparatus like that together.”

Live by the sword, die by the sword.

Jonathan Taplin

Director, USC Annenberg Innovation Lab