April 13, 2010

My Dinner with Stanley, Part 2.

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A picture of Stanley with one of CBS's newer employees, taken at the Annual HOBY Dinner on January 30, 2006, at the Marriott in Time Square!

Before we continue our conversation with Stanley Moger, we first wanted to share a comment we received from Allan Infeld, a dear friend, well-known and well-respected Viacom sales executive, about his experience of working with Stanley earlier in his career:

"He's that Uncle that you might not talk to often, but when you do, you realize how much you love and miss him. He's truly a unique gentlemen; incredibly enthusiastic about everything he does, and this excitement always rubs off on those who surround him. Most importantly he's a great human, a person who really cares about you and your family and always takes a personal interest in anyone who's ever worked for him. He's one of my favorite all-time people in this business."

Thanks, Allan.

The Editors

My Dinner with Stanley, Part 2

Yesterday, Stanley shared his experience of the media business in the early days of his career on Madison Avenue. He touched on the environment of the media business and how it has changed in this era of consolidation.

When we left off, Mr. Moger was providing an insiders view of the "behind closed doors" deals that went down between the White House, the FCC and a handful of the larger media companies in Part 1, which changed the rules of the game in the mid 1990's. Here's a link to Part 1 of "My Dinner" for reference.

We begin this next chapter with Stanley's recalling how that deal ultimately became law. He also discusses his work with his good friend and business associate, Norman Lear.

Stanley: Back in 1973, a law was passed called the "Financial Interest Syndication Rule" because in the early '70's, even then people thought the networks were getting too powerful. It was called the "FinSyn Rule". The networks at the time were producing both their own shows and also running them on their own programs. They had a monopoly from start to finish. Norman Lear led the fight for the program producers to create a more balanced playing field, because the networks were stifling any new programming. Lear got the FCC to apply the same laws that the government legislated for the movie business when the similar problem happened with the movie studios in the 1940's. It was called the "Paramount Decree" back then. Lear got the government to place the same type of rules to TV as it had to Hollywood.


Tim: So "FinSyn" worked similarly to "The Paramount Decree?

Stanley: Yes and no. Unlike the "Paramount Decree" with didn't expire after a certain date, there was a "Sunset Provision" in FinSyn. The broadcasters were very clever. They put in a clause that "FinSyn" would expire after 23 years. The expiration date was considered fair based on the fact that the no one could argue that new technology would not have changed the media business after over 20 years. So everyone agreed that it was prudent to revisit the clause in 23 years, which just happened to expire in 1996. So, 22 years went by and then in 1995, they revisited it since it was going to expire in 1996. At the end of 1995, the White House and the top broadcasters had their meeting and agreed to let FinSyn expire. When that happened, the message was, "OK now you can go back to owning everything". And that's just what they did. They promised they would still maintain an open market, but there was no law that required them to do so. So now we have a system where almost every one of these networks owns every show they have on the air. They own the all the means of production, and the distribution. There are 6 or 7 companies that control almost all broadcast. Then if you add in the cable companies there are 10.

Tim: What a sweet deal for the media companies.

Stanley: For example if look closely as many programs on certain cable networks, once the program ends there are no credits running at the end like there used to be because then they don't have to pay anybody. It'll just say "Copyright 2004" or "Copyright 2005". Zero credits. The networks now pay a fee to a producer to produce the show. The producer produces it for very little cost and then the network owns it outright. What the White House did was like taking a sledgehammer and smashing the lightbulb.


Tim: By watering down the FCC?

Stanley: By getting rid of the FinSyn rule.

Tim: How does that change how you work with the major media companies if we can touch on that?

Stanley: Well, they now mostly from themselves. The majority of what each TV network runs is owned by another division of the parent company. The philosophy is to buy it from the inside. One of the various divisions must already it. As one of the last independent TV syndicators it's a little more difficult to sell in a program. Many times the Program Directors I deal with want to run it, but if they do without clearing it with many channels, they could risk getting fired.


Tim: Wow. But, how can they buy it if they already own it?

Stanley: Simple. the network division buys it from the production division. It goes from the left pocket into the right pocket.

Tim: OK, what you're saying is that before 1996, broadcasters were monitored by the Federal Government so they always had to have a public interest element to it.

Stanley: That's right.

Tim: The networks had to be sensitive to that or they could lose their license.

Stanley: No. The networks were never regulated by the Federal government. The local stations are. The FCC regulated the local stations. They were the ones who had the licenses. The main way that the networks made money was through the stations. They supplied the programming to their stations. So they owned and operated the stations in all the major markets.

Tim: It sounds like what happened on the media programming side has also happened in the ad agency and media agency business. Over the last 10 years, we've all seen hundreds of ad agencies cobbled into around 12 or so. What's the long-term effect of this on the communications business?


Stanley: The advertiser takes it on the chin. Madison Avenue now has much less to do with servicing the advertiser. The advertising agency was originally designed to help an advertiser with the market, to sell their products and services. That was the whole idea.

Tim: Right.

Stanley: No more. It's now more a question about what the profitability is for the advertising agency than it ever was. When advertising agencies sold themselves to Wall Street, their bottom line became more important than the client's bottom line. And then when that happened, it was all over. It was the beginning of the end. For example, a few yeas ago, a major ad agency holding company set up a special operation with a different name to service one client. It focused primarily on buying all the media for one that very big advertiser. They did a great job. Then a competitor, another agency holding company set up a special division to focus primarily on all the planning of all the media. So one controlled the buying and one controlled the planning.


Tim: Right.

Stanley: So then the client had another idea, which was to put the planning and the buying under one roof. They put everything in review. Many people think it was a setup. It ended up being consolidated into one of the agencies, but the hypocritical part was that the winning agency hired all the people from the other agency. They just moved their offices across the street with the exception of the top management. Everybody else all moved over. So what was their reason to switch? It was all about money. The advertiser reduced their costs because the winning agency charged half the fee for both the planning and the buying. So the client saved some money but then they were left with an agency partner who could only afford staffing the account with about 65% of the original people.

Tim: A real train-wreck. That's been happening all over town.

Stanley: We're talking about a company whose advertising dollars is well into the $billions. So what was the big fight really over? You have to ask yourself though is it more effective long term. With a much lower fee and more people, the agency now can't really service the client effectively anymore. The client may save .5% percent in media fees, but who knows if the billions of $$ of media spending is planned and bought correctly. It's pennywise and a pound foolish. More monopolies were formed under the Clinton administration than in the history of this country.


Tim: I know.

Stanley: It's not just Madison Avenue. All of Standard Oil was put back together under that White House.

Tim: So you think that Washington changed Madison Avenue?

Stanley: No question.

Tim: Yeah, but didn't the Saatchi's do it 10 years before when they came here and bought many agencies with European money?

Stanley: Well, Publius is French, HAVAS is French, and WPP is English.

Tim: Right.

Stanley: Here's the crazy part. Do you know what a lot of these media agencies are charging now for new business? Zero! They're taking it for free: Most of the multi-million or billion $$ accounts you see switching over are being taken for free. Clients think it's great because when you're eliminating fees for huge budgets, the savings goes to their bottom line.

Tim: So why are agencies taking it for free?

Stanley: Because they can show Wall Street all this new billing they have. Even though they are not getting paid for it, it still pumps their stock.


Tim: But I thought the Sarbanes Oxley Act enforced that you can't now inflate your billings.

Stanley: They're not inflating their billings. They're not inflating their earnings. No body knows what fee they're getting for it. All Wall Street sees is the legitimate increase in media spending. The rate is secret.

Tim: OK. Let's change talk about the cultural side of the business. You grew up in the entertainment business.

Stanley: Yes.

Tim: With your background, how does the increased integration between Hollywood and Madison Avenue look to you? Did you see it coming?


Stanley: Yes and No. My dad was a press agent for Warner Bros. out of Boston. I was always the kid he dragged around. Everything from business meetings to movie premieres. I learned that people were people. But I also learned that there's a great responsibility that goes along with the communications business. When you're delivering a film or a TV program to the general public, you're sending a message out there to someone sitting in a dark room or at home on TV. ...You'd better have responsibility for what you're sending out!

Part 3 of this 5-part series to be continued tomorrow

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