They Want The World (And They Want It Now)

In 1985, for the first time, more U.S. TV sets were sold with remote controls than without. It was an amazing taste of empowerment for media consumers: The ability to control one's viewing habits with a click of a button would have implications for everyone from TV programmers and advertisers to consumer-electronics companies and even makers of Barcaloungers and snack foods. Americans like to find their own open roads of experience, and it wasn't long before those early couch potatoes were on the run, navigating through cable- and satellite-delivered programs, time-shifting with VCRs, dashing about with cell phones and pecking out e-mails on laptops. Fast-forward 20 years: If the remote ushered in the era of personalized technology, it seems a quaint precursor to things like video on demand, multi-application mobiles, MP3 players and satellite radio. This year proved to be a tipping point of sorts, as convenience has morphed into full-blown "on-demand" entitlement. It's nothing short of a technological revolution that has enabled ordinary Americans to seize ever greater control of how, when and where they consume and create media content. "We're in [a media] era where the human is God. Consumers are now in control of content: We're consuming it, retransmitting it, creating it," says Rishad Tobaccowala, chief innovation officer at Publicis Groupe Media, who credits the shift to "plummeting hardware prices, elegant software that's become easy to use and access to an incredible amount of content." All sorts of companies are genuflecting to that new master of the digital universe—content providers, like those in the entertainment industry; distributors, like cable and telecommunications companies; hardware and software manufacturers, like Apple; and content aggregators, like Yahoo! and Google. In what is still mostly a chaotic rush into the unknown, marketers remain largely on the fringe. There was a 25-year lag between when network TV reached mass consumption and when ad dollars caught up. It took 15 years for cable. After 10 years, is the same about to occur for the Internet? The indications are good: At year's end, as forecasters cut 2005 spending estimates for traditional media, they revised upward those for the Web, which could end up reeling in more than $12 billion in ad revenue for 2005, according to the Internet Advertising Bureau—well ahead of the previous record of $9.6 billion in 2004. "This is going to be so big, so pervasive," says Wenda Harris Millard, chief sales officer at Yahoo! "We're just seeing the beginning of a world in which consumers are making decisions that programmers and marketers never dreamed they would. Those carefully crafted Thursday-night [TV] lineups won't mean anything anymore. I don't think we saw that coming. Consumers are sending a clear signal that they want whatever content they want, wherever they want it, on whatever device is the most convenient for them. Marketers need to engage with those consumers at any of those touchpoints." While 74 percent of U.S. households were expected to be online this year, per Forrester Research, marketers are expected to spend just 4.6 percent ($12.9 billion) of their overall media dollars there, per eMarketer Inc. But if marketers are hesitant, Wall Street is not. Google's stock has quadrupled in value in 2005 to trade around $400. That bullish optimism, the likes of which have not been seen since the late '90s, re-energized a sleeping giant in the media world. "This was the year that people picked up where they left off at the time of the crash," says Jonathan Nelson, co-founder and chairman of Organic. "It's gone from back-burner to explosive again. Technology [development] never stopped in Silicon Valley. This time it's here to stay, because it's obviously working." Nelson is quick to add, however, that "unlike 2000, it's more rational now." One reason that may be is that the Internet, after a giddy adolescence, has reached a kind of maturity. In 2005, for the first time, more Americans were connected to the Web than to wired cable TV. More than half of them have broadband, resulting in more time spent online and a richer experience that is transforming user behavior through greater interactivity and streaming video. "With DVRs, TiVos, iPods or video on demand, clearly the technology is there [as] the American consumer is taking more and more control in ways they've never been able to do before," says Bill Rose, svp of marketing for U.S. media services at Arbitron. "It tends to fold in on itself—those consumers now have different expectations of media." In a study this year, Arbitron and Edison Media Research concluded that one in 10 Americans consider themselves on-demand media consumers, with 27 million of them owning one or more on-demand devices. What surprised Rose was the passionate bond they said they enjoyed with such devices, some of which are still early in their product life cycles. Fifty-four percent of respondents said they "loved" their TiVos, as did 44 percent their non-TiVo DVRs; 40 percent, HDTV; 40 percent, broadband; 40 percent, satellite radios; 35 percent, iPods; 31 percent, satellite TV; and 27 percent, handheld e-mail devices like BlackBerrys. "Compare [that] with all those stories about moms and dads not being able to set the clocks on their VCRs," Rose jokes. Teenagers still lead as early adopters. Ask any parent, and they'll describe teens who IM friends in between cell-phone calls while they surf the Net or play videogames as their customized Yahoo! music plays in the background. But the parents have caught on, too: In 2005, for instance, women were expected to become the biggest spenders in the $122 billion U.S. consumer-electronics industry, according to the Consumer Electronics Association. That shift portends significant change in how manufacturers design, market and service technology. As women make some of the major purchasing decisions in the new digital household, they'll look for the same kind of convenience, functionality and styling that they do in buying kitchen appliances. Already, Dell says nearly half its customers are females.Facilitated by broadband, one of the year's most talked-about developments was content providers' embrace of video on demand (VOD), which will make their product available on everything from portable media players and mobile phones to gaming devices. After unveiling its video iPod in October, Apple announced a deal with ABC that allows users to download hit shows like Desperate Housewives and Lost commercial-free for $1.99 per episode. NBC and CBS quickly followed suit, partnering with DirecTV and Comcast, respectively, to offer on-demand 99-cent versions of shows after their initial broadcasts. AOL and its Time Warner sibling Warner Brothers joined the fray, offering, for free, ad-supported older titles like Welcome Back, Kotter. "Apple was a watershed deal. It got a lot of people thinking," says Albert Cheng, evp of digital media at Disney-ABC Television Group. "Everyone had been reluctant to do anything, and then [Disney CEO] Bob Iger and [president of Disney-ABC Television Group] Anne Sweeney said, 'We have to make sure we don't fall prey to what happened in the music industry.' " The lessons of the music companies, which struggled to control file-swappers before taking the fight through America's courts, aren't lost on Hollywood: Their own digital early adopters have made file-swapping of movies and TV shows widespread. Still, unlike audio, which loses little in translation, some wonder if consumers really want to take 10-20 minutes to download a repurposed version of Desperate Housewives to view on a 2.5-inch iPod screen. "The iPod deal doesn't mean very much," asserts Mitch Oscar, evp and director of Carat Digital. "TV 'appointment' viewing is up to 4 hours, 22 minutes a day. With something like Desperate Housewives, you're going to want to see it when it's new, on a big-enough screen in your living room or bedroom, and you're not going to want to pay for it." Unlike the TV networks, AOL is wooing consumers with free VOD, with ad support. "If you want to build a large-scale business model quickly, you've got to bring a lot of people into the market before they can decide if they want to pay," argues Kevin Conroy, evp of AOL Media Networks. "This doesn't preclude pay models in the future; it just takes away the obstacles for consumers." In a fascinating glimpse of future options, AOL has taken a stake in Brightcove, a young Internet TV company that allows consumers to create their own online TV programming or stations (which can also carry advertising). TiVo, meanwhile, threw a wrench in the works in late November, saying it would offer subscribers the ability to transfer recorded programming onto portable devices like iPods. (However, this service will not be available to the 2.5 million subscribers TiVo acquired through DirecTV, more than half its customer base.) In one of the year's stranger twists, TiVo, synonymous with ad-skipping, teamed up with ad giants like Omnicom and Interpublic to develop ways for consumers to receive more detailed marketer information, which TiVo likes to call "value-added content," according to vp of national advertising sales Davina Kent. Consumers are taking their activism to the Web, too. Some 23,000 new blogs are created in the U.S. each day, according to Technorati, launching communities both passionate about and critical of products and services. Marketers doubtful of blogs' power can look no further than the Neistat brothers, whose 2003 Web film—an "anti-advertising project"—prompted Apple to start a battery-replacement program. (An Apple rep had no comment on that episode.) Welcome to the age of "citizen media," says Jeff Jarvis. "My first law of media is: Give the people control of media, they will use it. The corollary: Don't give the people control of media, and you will lose," says Jarvis, a co-founder of Entertainment Weekly who runs the BuzzMachine blog and until recently was creative editor of Advance.net.Marketers have tried to co-opt some of that authority for themselves. This year, even Procter & Gamble launched a blog, for its Secret Sparkle Spray teen deodorant, where a fictional character (disclosed as such) talks about issues affecting girls. Microsoft has a site, Channel 9, to facilitate discussion between developers and consumer geeks. Bob Lutz, vice chairman of global product development at General Motors, began his own blog, FastLane, asking for suggestions and criticisms. Of course, marketers risk backfire with efforts that come across as PR exercises or blatant sales ploys. One company that shows how sophisticated marketers have become over the past year is Stonyfield Farm, which set up blogs like The Bovine Bugle and Creating Healthy Kids on behalf of its yogurts. Without appearing fake, they capture Stonyfield's organic, environmentally friendly ethos. Clearly, as consumers gain unprecedented control in terms of creating and accessing content, marketers are left trying to figure out which emerging media will be the most effective. While the Web is well on its way to becoming a mainstream medium, it's also one that offers marketers the chance to make a very targeted connection to consumers. Search engines continue to drive ad spending online, with local advertising showing some of the hottest growth prospects. In 2005, Google is expected to sell $6.1 billion in ads, more than any U.S. newspaper chain, magazine publisher or TV network, according to estimates from Anthony Noto, a Goldman Sachs analyst. A Google rep declined to comment on that figure. In the third quarter alone, Google revenue soared 96 percent to $1.6 billion. The Web has been viewed traditionally as a direct-marketing medium, but it's no longer just for travel and credit-card companies, as mass marketers move online and, thanks to broadband, show off their products in rich, creative ways. Ford this year said it was shifting "a significant amount"—perhaps as much as 15 percent—of its $1 billion marketing budget online. It spent 20 percent of its launch budget for the Ford Fusion in nontraditional media in 2005, with a good portion going to the Web, including roadblocks on Yahoo!Yahoo! has set its sights on consumer packaged-goods companies and now counts all of the top 20 U.S. CPG companies as customers. Buying a highly considered, high-ticket item like a car plays to the strengths of the Web. But how to convince an advertiser to market toothpaste on the Internet? Yahoo!'s Millard has an answer. She developed an initiative with ACNielsen called Consumer Direct. Out of a sample of 61,000 monitored homes, they identified 20,000 of them as Yahoo! households—then had them scan purchases after shopping trips, giving marketers a chance to track offline behavior. Unlike the kind of boxcar demos coveted by TV networks, companies like Yahoo! are emphasizing behavioral targeting. An auto company used to buying time in TV programs favored by men 18-34 could, on the Web, go for men in that age group who are in the market for a new car, and even live in a specific region. "The idea that you can reach your very own mass market is a far more exciting idea for marketers," Millard says. "Look at the pressure marketers and agencies are under: Efficiency is a very big need. You can use the Web to achieve reach while still finding the right men: You can layer classic demographics and behavior and geographic levels and achieve a very, very high-quality, efficient market." Increasingly, advertisers may use their 30-second TV spots as a portal to guide customers to the Web for the brand message. "The Internet is finally being embraced as a traditional medium. Broadband is a legitimate advertising model. If P&G and GM are walking away from traditional media and including the Internet in their media strategies, we're going to have to look at [the Web] in a different way," says Mohan Renganathan, associate director of digital strategy at MediaVest Worldwide. "We can get granular levels of tracking that I can't get from my TV buys." That growing sophistication is indeed changing consumer behavior on the Web. "We call it the 'Google effect,' " says Keith Mallinson, an analyst at The Yankee Group. "The aim of the portal used to be to get people there and get them to stay there—[portals] would control experience and the content they wanted you to look at. Google takes you anywhere—it's very democratic, and from an advertiser's point of view a much more targeted approach, very highly qualified and directed, as opposed to pop-ups." Explains Google director of sales strategy Patrick Keane: "The great thing about broadband is that it turns the Internet into electricity. Behavior online is now more aligned with mall experience. 'Intended purchase' stuff is still happening, but you now have a lot of people just wandering around—users are actually using less bookmarks and navigating through searches more." As those increasingly empowered consumers experiment in finding their way on the Internet, marketers must learn to accept that they will be along for the ride only if they're invited. The days of relying on the push of 30-second TV spot are numbered. "In the coming year, marketers will face the challenge of [Internet] accountability"—not just on ROI, but in terms of their own responsiveness—"as marketing really shifts from transactions to a more collaborative model," says Nick Brien, CEO of Universal McCann. "As [P&G CEO] AG Lafley says, the customer is now the marketer, and we have to think of it as a collaborative medium."

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They Want The World (And They Want It Now)

Noreen O'Leary

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Noreen O'Leary