Tolerance

No medium has tested human tolerance of advertising more aggressively than television, which has long been the fattest wedge in advertising’s pie chart of spending⁶ (40.4 percent of the projected total worldwide in 2012, according to Zenith Optimedia;⁷ and around 72 percent in the United States, according to Nielsen and AdCross).⁸ So let’s dive into TV for a bit. How much advertising do we tolerate there? And how much less will we tolerate after we do all our TV watching on devices that are not designed and controlled by the TV industry?

In the United States, the typical hour-long American TV drama runs forty-two minutes. The remaining eighteen minutes are for advertising. Half-hour shows are twenty-one minutes long, with nine left for advertising. That’s 30 percent in each case. The European Union sets a limit of twelve minutes per hour for advertising on TV, which comes to 20 percent. Ireland holds broadcasters to ten minutes per hour, or 16.7 percent. Russia by law sets aside nineteen minutes per hour for advertising: four for “federal” messages and the rest for “regional” ones. Russia is also considering lowering those numbers, due to a decline in viewing.⁹ Thus, eighteen minutes seems to be the upper limit.

So far, nobody is pushing that limit online, except with simulcasts. On the Web, Hulu sells only two minutes of advertising per half hour.¹⁰ Commercial podcasts and streaming videos tend to have only “bumper” ads at the front and back. As viewing and listening migrate from TV and radio to the Net, however, it’s only natural for producers to look for ways to increase revenues by loading more advertising into content. To help with that, comScore in 2010 released a research report titled, “Great Expectations: How Advertising for Original Scripted TV Programming Works Online.”¹¹ From the introduction:

Eager to sustain growth online both in audience size and time spent viewing long format TV content, publishers have erred on the side of fewer ads against a typical TV program. However, although audiences continue to grow in both size and engagement, this approach has resulted in challengingly low ratios of ads to content—typically, 6–8% of viewing time is ads against most long format TV programs viewed online, compared to 25% on television. Consequently, the business model around online distribution of TV programs is becoming difficult to sustain for many content providers.¹²

Note the perspective here. Publishers “have erred” by running fewer ads. To comScore, the problem is not enough advertising. So it surveyed to see how large an advertising load the audience will bear when viewing scripted TV on devices other than TVs. Not surprisingly, it found “cross-platform viewers” (ones that watched TV online as well as the old-fashioned way) were much more positive toward advertising than were TV-only viewers, that “43% of all cross platform viewers stopped watching a TV program online in order to visit an advertiser’s website,” and that “over 25% of the audience who were reached by online video advertising felt that the commercials were enjoyable.”¹³

Thanks to advertising’s Chinese wall, the reciprocal numbers don’t get mentioned. Here, they are: 57 percent didn’t stop to visit a promoted Web site, and 75 percent did not find commercials enjoyable.

ComScore also did a “sensitivity meter analysis” to find “ad load tolerance levels.” It surveyed 640 people and spread the results across a graph titled “Desired Length of Commercials Online: 18–49.” ComScore came to the conclusion that around six minutes was most “desirable,” because 50 percent or more of those surveyed considered six minutes to be either “long enough” or “too long.”¹⁴

Now, if you’re not in the advertising business, you might ask, Is advertising something viewers desire at all? In fact, comScore’s findings show that nearly all people find some level of advertising intolerable. Asking how much of an ad load people will bear is like asking how much brown matter they can stand in their water, or how many extra pounds of fat they’re willing to carry.

If advertisers would peek over on our side of the Chinese wall, they would see two icebergs toward which TV’s Titanic is headed, and both promise less tolerance for advertising. One is demographics and the other is choice.

The Ageberg

We can see the demographic iceberg approaching in the comScore’s breakdown, in the same study, for five demographics (see table 2-1).¹⁵

Already, the majority ages eighteen to twenty-four watch TV on devices other than TVs, and TV-only as a platform is going down while online-only is going up. At some point, it will become clear that TV is a video format and not a platform, and that the only platform still worthy of the noun is the Internet.

The Choiceberg

The tip of the choice iceberg is TiVo, which has been around for more than a decade. TiVo was the first digital video recorder (DVR, aka PVR). It gave users a way to store TV shows as files and to skip over ads when viewing shows later. The full implications of TiVo still haven’t fully sunk in, although there are plenty of people in The Industry (as they call it in L.A.) who saw the end coming from the start. One is Jonathan Taplin, a veteran Hollywood producer, writer, entrepreneur, and currently a professor at the USC Annenberg School for Communication & Journalism.¹⁶ At the Digital Hollywood conference in September 2002, Taplin was on a panel during which the moderator asked the audience to raise their hands if they had a TiVo.¹⁷ Nearly every hand went up. Then he asked them to drop their hands if they didn’t use their TiVo to skip over ads. The hands stayed up. “There goes your business model,” Taplin said.¹⁸

Six years later, in 2008, engadget published a press release by the management consulting firm Oliver Wyman reporting that 85 percent of those surveyed by the company used their DVR to skip at least three-quarters of all commercials. Those surveyed also said they would not want to “watch advertising even when it underwrites free content.” Nor would they pay extra to remove ads.¹⁹

These findings were published in the Oliver Wyman Journal, in a long report by John Senior and Rafael Asensio, titled “TV 2013: Is It All Over?”²⁰ In it, they look at two scenarios they call “Non-TV” and “Next TV.” With Non-TV, video is just video. Watch it on anything: your flat screen, your laptop, your phone, your tablet, or any other device you like. Today’s TV content sources go direct, and sell or give you whatever you like. With Next TV, the cable and satellite systems continue couch potato farming the old-fashioned way, but with better Internet integration.

Non-TV is what the cable industry calls “over the top.” It’s a good metaphor, since the bottom is its whole old system, and it’s a dam that’s breaking down. What’s spilling over it isn’t a brook or a river anymore. It’s an ocean of video files and streams from millions of sources, most of which are already available à la carte through YouTube and other online distributors. So far, most “original scripted programming” is still confined to old-fashioned TV, but in time, that stuff will move online as well. Consider the choice. With TV, your choices are sphinctered through a set-top box. With the Internet, you can watch on whatever device you like. It’s no contest.

Meanwhile, we’re willing to put up with what’s left of TV, for two reasons: (1) because it’s still normative, and (2) because the stuff we want most is still trapped inside TNT, ESPN, HBO, and other cable-only networks. But how long will those networks put up with being stuck inside an old system that’s breaking down? They’ll bolt for the Net as soon as they’re sure they will still get paid for their goods. Once that’s worked out, your choices as a viewer will be simple: you’ll watch some mix of live streams and stored files, some of which you’ll pay for and some of which you won’t. Table 2-2 shows a possible sorting out.

How it all sorts out matters less than the fact that all of it will be “over the top” on the Internet.

More of Less

When TV’s sources go direct through the Internet, what happens to advertising? The old TV system was built to make you watch advertising, while the Internet is built to let you do whatever you like. Yes, there are ways you can be forced to watch ads on cable-over-Internet services such as Hulu and Xfinity. But we still have the “load” tolerance problem that comScore probes. We’ll put up with some advertising, but far less than we did in captivity. If the most we’ll tolerate is six minutes per hour, as comScore says, that’s a two-thirds drop from what you got over the old tube. You might put up with eighteen minutes per hour on a live sportscast, no matter what glowing rectangle you watch it on. But will you put up with it on everything else? Doubtful.

After reading the comScore study, Terry Heaton, one of the top consultants in the TV industry, posted an essay titled, “Media’s Real Doomsday Scenario.” An excerpt:

The advertising hegemony used by Madison Avenue is about to collapse, and when it goes, it will take traditional media with it. As alarming and preposterous as that might seem, it is exactly the impossibility of such a situation that makes it so likely and so dangerous. When it happens, those involved will look around in astonishment and insist that it couldn’t have happened and that, indeed, either advertisers or media moguls have lost their minds.²¹

Heaton isn’t alone. Bob Garfield, author of The Chaos Scenario, cohost of NPR’s On the Media, and veteran columnist for Ad Age, shook the walls of the advertising world in March 2009 with an Ad Age column titled, “Future May Be Brighter, but It’s Apocalypse Now.” He writes,

Chicken Little, don your hardhat. Nudged by recession, doom has arrived. The toll will be so vast—and the institutions of media and marketing are so central to our economy, our culture, our democracy and our very selves—that it’s easy to fantasize about some miraculous preserver of “reach” dangling just out of reach. We need “mass,” so mass, therefore, must survive. Alas, economies are unsentimental and denial unproductive. The post-advertising age is under way.²²

The Greater Unknown

So why is advertising’s apocalypse running late? One reason is that the TV programs viewers like best (especially sports) are still trapped on cable, and cable isn’t giving up easily. (Even the live streaming of HBO GO requires a cable or satellite subscription.) The other is that online advertising is growing rapidly, thanks partly to a growth in the number of places where ads can be placed and partly to innovations in tracking, targeting, and personalization. This is the quantitative conversation Randall Rothenberg talked about, and it has become a craze.

The Wall Street Journal began following this craze in the summer of 2010, when it launched an investigative series titled, “What They Know.”²³ The first article, which ran on July 30, 2010, said,

One of the fastest-growing businesses on the Internet … is the business of spying on Internet users. The Journal conducted a comprehensive study that assesses and analyzes the broad array of cookies and other surveillance technology that companies are deploying on Internet users. It reveals that the tracking of consumers has grown both far more pervasive and far more intrusive than is realized by all but a handful of people in the vanguard of the industry.²⁴

Over the following months, the Journal’s series grew to dozens of reports, polls, and graphical illustrations. The findings were many. Here are a few, in summary form:

• Data gathering is a new and lightly regulated industry based on surveillance, harvesting, and selling data and data-educated guesses about what users might want, in real time.²⁵
• All the largest commercial Web sites in the United States put intrusive tracking devices in computers visiting their sites. Some installed more than a hundred of these things in a single visit. Forty-nine of the fifty most popular Web sites installed a total of 3,180 tracking files on the Journal’s test computer. Twelve (including IAC/InterActive Corp.’s Dictionary.com, Comcast Corp.’s Comcast.net, and Microsoft’s MSN.com) had each installed more than a hundred files.
• It’s worse for kids. The top fifty sites targeting teens and children installed 4,123 tracking files on the Journal’s test computer: 30 percent more than for sites targeted at adults.²⁶
• In response to the poll question, “How concerned are you about advertisers and companies tracking your behavior across the Web?” 85 percent of respondents were “very alarmed” or “somewhat concerned.”²⁷
• In the back-end market for buying and selling personal data in real time, the biggest player is BlueKai, which “trades data on more than 200 million Internet users, boasting the ability to reach more than 80% of the U.S. Internet population.”²⁸
• Most users had few if any clues that they were being tracked. Case in point: many phone apps share the customer’s user name, password, location, contacts, age, gender, location, unique phone ID (equivalent of a serial number), and phone number with third parties, which in turn represent countless advertisers.²⁹
• The biggest exposure comes not from location-oriented apps like Foursquare, but from apps that do not appear to be location-based, or even advertising-supported—and quietly make money by selling users’ location data to advertisers, without users’ knowledge or permission. One app tested by the Journal sent personal data to eight different ad networks.³⁰
• There is a big business in building detailed information about people, gleaned from tracked browsing and digital crumb trails. Writes the Journal,

  firms like [x+1] [sic] tap into vast databases of people’s online behavior—mainly gathered surreptitiously by tracking technologies that have become ubiquitous on websites across the Internet. They don’t have people’s names, but cross-reference that data with records of home ownership, family income, marital status and favorite restaurants, among other things. Then, using statistical analysis, they start to make assumptions about the proclivities of individual Web surfers. “We never don’t know anything about someone,” says John Nardone, [x+1]’s chief executive.³¹

   

• Companies such as Kindsight and Phorm do “deep packet inspection”—the same technology used by spy agencies for surveillance of terrorism suspects—to “give advertisers the ability to show ads to people based on extremely detailed profiles of their Internet activity.”³²
• “Scraping”—copying every message an individual posts, even on private sites—is another popular way for advertisers to gather information about individuals. The Journal found a number of companies that live to “harvest online conversations and collect personal details from social-networking sites, résumé sites and online forums where people might discuss their lives.”³³
• Answering the poll question, “Would you use an Internet ‘do-not-track’ tool if it were included in your Web browser?” more than 92 percent said yes.³⁴

Not surprisingly, on December 1, 2010, the Federal Trade Commission issued recommendations for a “do not track” mechanism on browsers.³⁵

Picking up on the FTC’s cue, USA Today and Gallup conducted a poll of a random-dialed sample of 1,019 adults over eighteen years old on December 11–12, 2010.³⁶ To the question, “Should advertisers be allowed to match ads to your specific interests based on Web sites you have visited?” 67 percent said no. And, while 30 percent agreed with the statement, “Yes, advertisers should be allowed to match ads to interests based on websites visited,” and 35 percent also agreed with, “Yes, the invasion of privacy involved is worth it to allow people free access to websites,” the reciprocal numbers—70 percent and 65 percent—show negative demand by its recipients for tracking and advertising personalization.

At some point, The Market—meaning people gagging on advertising—will pull their invisible hands out of their pockets and strangle the source.

Waste

One might think all this personalized advertising must be pretty good, or it wouldn’t be such a hot new business category. But that’s only if one ignores the bubbly nature of the craze or the negative demand on the receiving end for most of advertising’s goods. In fact, the results of personalized advertising, so far, have been lousy for actual persons.

Chikita Research, a primary source for online advertising statistics, published a report in September 2010 with the headline, “Ad Layout Series: Above The Fold Ads Get 44% Higher CTR.”³⁷ The fold is an old newspaper term and was meant literally. Full-size papers (non-tabloids, such as the New York Times) are folded, and in the caste system of newspaper advertising and editorial placement, “above the fold” is always better, no matter what the page. Online, “below the fold” refers to space outside the typical browser’s viewing area. Chikita found that CTRs both above and below the fold run at less than 1 percent (0.939 percent and 0.651 percent, which combined are 0.818 percent).

From advertising’s side of its Chinese wall, all this waste is okay, because advertising is guesswork, and online the waste is easier to ignore because it has been relocated: moved from airwaves, billboards, and newsprint to server farms, pixels, rods, and cones. But it’s still there. So are the costs, which far exceed zero.

Branding

Of course, that’s the view from our side of the Chinese wall. From the side where advertising comes from, most of that waste can be excused, because even its failures can be rationalized as “branding.” Within the industry—and even outside it (see the sidebar, “Nothing Personal”)—branding is a subject of countless books, articles, and postings on the Web. What was once an “image” is now a “promise,” an “experience,” and an “asset” that has “equity.”

It’s easy to forget that the term branding was borrowed from the cattle industry. The idea was to burn the name of a company or a product onto the brains of potential customers.

Procter & Gamble’s first brand was Ivory soap, in 1878. The product and its strategy were so successful over the following decades that brand management eventually became a serious business discipline.³⁸ This happened in the 1930s, when America was getting hooked on radio, and women listening at home were entertained by soap operas, which were mostly sponsored by brands of cleaning products. It was in this era that grocery store chains also grew, and “shelf wars” were won by companies that maximized varieties of packaging and promises, while minimizing the actual differences between the products themselves. This is also when the first jingles came along. Hence the old industry adage, “If you’ve got nothing to say, sing it.”