In a 1970 TV commercial, a group of child actors portraying Louis Armstrong, Fiorello La Guardia, and Barney Pressman as kids are sitting on a New York City stoop and asking each other what they hope to be one day. Armstrong says he wants to be a musician. La Guardia says he wants to be mayor of New York. The bespectacled Barney Pressman is quiet, so they prod him: “Whaddaya gonna be when you grow up, Barney?” Pausing to adjust his glasses, the future founder of Barneys clothing store says, “I don’t know. But you’ll all need clothing.”
For more than three decades, I have reported on the digital hurricane that has swept across the media industry. I have tried to “follow the money,” to understand the source of the economic harm that has struck newspapers, magazines, television, and radio, all reeling from shrinking advertising revenue — revenue now fueling Google, Facebook, and a myriad of other new digital enterprises. You can almost hear the young Barney Pressman trilling the world, “You’ll all need advertising and marketing.”
Worldwide, advertising and marketing is variously said to be a $1 trillion to $2 trillion industry. Of that astronomical sum, roughly three quarters is categorized as marketing dollars. Often, rather than joining together the words advertising and marketing, we employ the shorthand, advertising. We do so because advertising is a more familiar term, and to utter both terms together is a mouthful. In fact, advertising and marketing are interchangeable. They take different forms, but each involves a sales pitch. A 30-second TV ad or a full-page ad in a newspaper seeks to sell something, which is also a marketing pitch. A direct mail or newly designed brand name or email solicitation or giveaway coupon is listed as a marketing expenditure, but it’s also an advertising sales pitch. So the two categories are really one.
Yet advertising and marketing, like the media industry it has long subsidized, is convulsed by change, struggling itself to figure out how to sell products on mobile devices without harassing consumers, how to reach a younger generation accustomed to dodging ads, how to capture consumer attention in an age where choices proliferate and a mass audience is rare.
In the course of my work as a journalist, I have tended to shift back and forth between the disrupters and the disrupted. But it’s fair to say that I was a naïf about the advertising industry’s true economic power. That began to change when I embarked on a nearly six-year odyssey through the world of network television while reporting my book Three Blind Mice, a report on how the three dominant television networks — CBS, NBC, and ABC — were being disrupted by a new technology, cable. Advertising was central to that story, for unlike cable, the networks were 100 percent reliant on advertising.
The flight of advertisers from old to new media started in the late 1990s and accelerated in the new century, and its impact was hard to miss. Less obvious was the impact on the ad industry itself. In the public imagination, we were still in the age of Don Draper, but I began to see more and more clearly how this industry that had been intrinsic to the disruption of old media was itself facing fundamental challenges to its existence.
Trying to understand the media without understanding advertising and marketing, its fuel supply, is like trying to understand the auto industry without regard to fuel costs. A war correspondent would be derelict not to try to calculate whether General Patton had enough gas in his Third Army tanks to race across France in 1944 (he did not). But it’s not merely that a reporter covering the communications business would be remiss not to follow the up to $2 trillion advertising and marketing sector; anyone who takes a moment to ponder this pool of money can’t avoid the inescapable truth that capitalism could not exist without marketing.
True, the force of marketing is often malign, seeking to manipulate the emotions of consumers. But marketing has a purpose in a free society, and intellectual honesty compels us to recognize that those who sell products need a way to share information about them with consumers. In a non-state-dominated economy, advertising is the bridge between seller and buyer. It would seem an obvious statement, but I’ve found it bears repeating. And that bridge is teetering, jolted by consumers annoyed by intrusive ads yet dependent on them for “free” or subsidized media. In this sense, consumers are frenemies.
To dig deeper into this world is to realize that more is being disrupted here than the flow of marketing dollars. The agency edifice itself is being assaulted as new rivals surface — tech and consulting and public relations and media platform companies — many of whom have long been allied with the agencies and claim still to be. A once comfortable agency business is now assailed by frenemies, companies that both compete and cooperate with them.
For many years, I examined advertising as an aspect of some other story I was telling. It crept up on me that there was much to be learned by turning that around and looking deeply into the advertising industry itself, and through it out onto the wider world — a world of artificial intelligence (AI) and algorithms and big data that raises fundamental issues, including issues of privacy, issues of whether the science of advertising can replace the art, whether relationships still matter, and where — and whether — citizens get their news.
“Advertising works as a value exchange,” says Andrew Robertson of BBDO. “In exchange for advertising, consumers get free or reduced content costs.” Or needed information. It is easy to be cynical or dismissive about the role of advertising in a consumer economy, but its role can hardly be overstated. Commerce and most forms of communication would shrivel without it. Many retail stores would shutter, the number of new products would dwindle, financial service companies would sputter, consumers would complain they are shopping blindfolded. Google, with 87 percent of its $79.4 billion in 2016 revenues supported by advertising, Facebook with over 95 percent ($26.9 billion out of $27.6 billion) in 2016, and Snapchat with 96 percent from advertising, would — like the TV networks and most radio — cease to be “free.” A prime reason U.S. newspaper employment plunged from 412,000 in 2001 to 174,000 in 2016 is that advertising dollars — which account for more than half of all newspaper revenues — dropped from $63.5 billion in 2000 to $23.6 billion in 2014, the last year the Newspaper Association of America released newspaper revenues. Facebook’s advertising revenues alone exceeded the combined ad dollars of all U.S. newspapers. Overseas, in that same span, newspaper ad revenues sank from $80 billion to $52.6 billion.
Disruptions to the industry come from without and within. Former MediaCom chief executive Jon Mandel shocked the advertising world in 2015 when he accused the industry of widespread corruption at the annual Media Leadership Conference of the Association of National Advertisers (ANA). Agencies, he declared, engaged in a “pervasive” practice of demanding “kickbacks” from media companies and platforms like magazines, newspapers, TV, radio, and websites in exchange for their ad dollars. “There are cases where there are rebates that should be going to clients that are instead going to agencies.”
The assertion was atomic to this audience: The ANA represents about 700 companies, including Coca-Cola and Procter & Gamble, which spend more than $250 billion annually in the United States to advertise more than 10,000 brands. Moreover, Mandel was placing a cloud over the many billions spent worldwide on marketing as well as advertising. Coupled with the ongoing disruption of the industry by Facebook and Google and the internet, the controversy threatened to upend the flow of monies that finance the public’s news and entertainment.
There is certainly smoke here, if not fire. Rebates are common outside the United States, and media buying is an increasingly global process. And as more and more advertising is being done by machines (called programmatic advertising) across a large number of media platforms, the opportunities to conduct speculative price arbitrage to bank lower prices for ads for later use arguably becomes reasonable business practice. The clients want to share the rewards. The agencies say clients are unwilling to share the risks, so why shouldn’t agencies be rewarded for taking risks?
Of course, the issues raised by this controversy were broader than just rebates. Is advertising a relationship business, where accounts are won and lost on the golf course and over three-martini lunches, as had been caricatured for decades? Or is it a creative business, where consumers’ hearts and minds are captured by big, original ideas articulated with aesthetic brilliance, as the doyens of the Creative Revolution claimed? Or is it, increasingly, a science, in which leadership will gravitate to those who can capture and analyze the most data, as Silicon Valley and its digital gurus claim?
No matter which version of the industry prevails, it’s clear that advertising and marketing continue to provide “the oil for the economy’s energy,” WPP CEO Martin Sorrell says. A 2015 study on the impact of advertising by IHS Markit, a London-based financial services company, concluded that in the United States each dollar spent on advertising alone spawned $19 in sales and supported 67 jobs across many industries; they predicted that by 2019 advertising would kindle 16 percent of all economic output. A 2016 study of Western Europe for the World Federation of Advertisers, based in Brussels, concluded that each euro spent on advertising equates to seven euros of economic value. Predicting the exact impact of advertising on consumer behavior is not an exact science — though going forward, data will yield better evidence — but by anyone’s measure, advertising and marketing packs a mighty economic wallop.
Naomi Klein chose to measure the impact of advertising in a very different way. In her book No Logo, first published in 2000, she portrayed advertising “as the most public face of a deeply faulty economic system” that promoted sweatshops to produce their often unhealthy products, and that propped up global companies that held sway over politicians to advance globalism, which exported jobs. Klein’s harsh critique of advertising as addictively manipulative was echoed 16 years later by Tim Wu, whose book The Attention Merchants argues that by demanding their content be “free” and refusing to pay subscriptions or micropayments, consumers invite intrusive ads and receive inferior journalism and content.
No question: Without advertising many citizens would feel liberated from annoying and often misleading interruptions. But what’s indisputable is that advertising and marketing dollars serve as an underlying subsidy for much of the media and the internet — in other words, for our information ecosystem and, often, for the architecture of our everyday lives. Without this free ATM, many companies would be doomed. But as any good advertiser knows, asking someone to sit through all the ads in the TV show they’ve recorded because those ads fund the channel the show is on is just about as thankless as asking people to pay more for a product because it’s good for the environment. Some percentage of consumers may make that choice for the greater good; many more will not. Today, the consumer is in control, and increasingly the challenge for advertisers is to create experiences that people will want to have because they will no longer have to have them.
From Frenemies by Ken Auletta, published by Penguin Press, an imprint of Penguin Publishing Group, a division of Penguin Random House, LLC. Copyright © 2018 by Ken Auletta.