April 13, 2010
 

David Verklin's Concept Album

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In 1939, long before "Sgt Peppers", "Dark Side of the Moon", "Reasonable Doubt" or "Nevermind", Frank Sinatra released the first "concept album" which quickly became known as "The Voice". Critically acclaimed, Sinatra's performance had a paramount effect on the music industry. It led the way to the adoption of this approach throughout the entire industry. From then on there, all albums began to be produced to have a similar mood and theme in an artist's songs. Even today.

David Verklin's new book is such a concept. Before this release David had inaugurated a number of other creative media firsts. One in particular was his being the first major media executive to lead media innovation from San Francisco (at Hal Riney's shop), rather than the home of the media business on Madison Avenue.

Today with the Internet, you don't hear media execs cry "fly me to the moon" anymore to see a live media star. Conducting business is now "nice and easy" on their travel budget. It's no longer "all or nothing at all!" Back then, it was different. If a media director wanted to meet with one of the media giants, they had to come to New York, New York. All that is except for David.

Upon the release of his new book we asked Wendy McHale to take notes and listen to David on the keys to effective media strategy. It's titled, "Watch This, Listen Up, Click Here". Here's the conversation she had with him in MadAve Journal's virtual studio on this concept album-like work!

The Editors

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Wendy: I really enjoyed your book. I read it cover to cover over the course of two days.

David: Thank you!

Wendy: As you can probably imagine, I have to read a lot of "Industry books" as I call them. Many of them are just dry as toast. I'm sure you know that.

David: I do.

Wendy: But you had a lot of great anecdotes and stories of what's going on in this crazy media business today.

David: Well I appreciate it. You know, the book is actually written for your Mom & Dad. I think there are just so many books that have been written by advertising people for advertising people. But the dream of this book was to really write something based on Steven Levin's Freakonomics

Wendy: Loved that book.

David: Me, too. You'll notice the chapter headings in this book are the same; they're fun titles. So we modeled the book after Freakonomics and it's really an attempt to demystify the media business for the average Joe on the street. But what I found interesting is that's it's struck a chord with the academic community. I mean now it's being used as a textbook at the University of Boston and the University of Dublin, Ireland -- and I just got a fax last week, from a guy who is translating it into Chinese and ordered 10,000 copies.

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Wendy: That's fantastic.

David: It's been quite extraordinary because it was designed for the consumer market but it seems to have struck a cord with the academic and trade communities so I'm really encouraged by that. It's such a hard thing, have you ever written a book Wendy?

Wendy: No not something I've tackled yet.

David: I mean it's so hard. I can't imagine doing it for a living. It took me 18 months and it would have never been done without my partner Bernice Kanner. You might have read that she passed away two weeks after we turned in the manuscript.

Wendy: Yes, very sad indeed.

David: Yes, and she was so proud of this book, she was so great to work with. I would write and then she'd edit and she'd write and vice versa. It was a real collaboration and the book was as much about her passion for the business as mine. So thank you so much. I can't tell you what it means to have people someone say that they like your book.

Wendy: I can see how it could appeal to both the consumer and trade and when I read it I thought this is perfect for students it really is. You remember in college you would have to read and the text book was really dry and you'd be yawning all the way through it. I mean even marketing and media books could be that way; at least when I was in school. So to have something like this in the classroom probably evokes a lot of conversation because these kids are experiencing this technology on a day to day basis and always on the cutting edge.

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David: I've also been surprised because a lot of my clients have wanted the book because they're confused by the media business too. I guess my timing has been pretty good. I didn't time it that way, but we're in a period of such change in the advertising business. In the book I say there's been more change in the last 24 months than in the last 24 years.

Wendy: It's so true. So let's get right to it and talk some of the different topics you cover in your book. Let's begin with the social media phenomenon, blogging and consumer activism as it relates to brand marketing. At the last ad:tech I attended there was a lot of talk about "letting go of your brand". In other words, allowing customers to "partner" with your brand, because at the end of the day, the tools available today allow them to share their views with each other through online communities so you may as well embrace this new phenomenon.

David: I understand.

Wendy: Others take the opposite view and don't want to allow consumers to determine the direction of their brand. They will rely on tried and true methods like research to guide marketing strategies of their brands. Since consumer activism and the role of community is not going away any time soon so I'd like to know what your opinion is on this issue, where do you fall out?

David: Okay, I'll give you a little bit of my stream of consciousness. I think the first thing to do is look at it from the agency or client side of the desk. The biggest challenge I know that I face is attempting to change and evolve as fast as the marketplace is changing. I mean Carat is a pretty nimble company too but it's just that the change is happening so rapidly.

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Wendy: Right.

David: Some of this new technology, the role of search, a push in mobile and wireless, the decrease in TV, frustration with some kind of traditional upfront, branded entertainment, new Nielsen ratings, a whole new currency for television, evolving role of circulation in newspapers now; I mean it's frenetic. And you're really challenged to evolve your company at the same speed as the market. I mean this is normally not that big of a problem. You know the popular word in business writing is evolution. And I'm not convinced this is an evolution -- I think we're in the middle of a revolution.

Wendy: Agreed.

David: So I think that's one piece. The second piece is, in the old days, great brands were the ones that told the best stories. Look at the Nike story or Coca-Cola commercials. You used to hear creative people talking about great stories and how to craft them. Now thanks to community, great brands today are the ones about which best stories are told. It's really about, the consumers reflecting back their views so they're the ones telling the story. Right now we're in a place where we're not buying time but kind of creating time. I love that idea. Let me give an example. In the book I talk about the software the U.S. Army used. Well all of a sudden they put it on the web as a recruiting tool.

Wendy: Such a smart idea.

David: And so interesting. I mean now you have someone spending 30 minutes in an Army environment! Now you're creating time. I mean you can't buy 30 minutes with people. But with this new kind of medium you can find ways to engage people for enormous periods of time. Yes, the role of community has really changed the advertising paradigm.

Wendy: What are some of the other challenges facing advertisers today?

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David: The biggest issue in advertising right now is trying to figure out how to put a dog food commercial in front of people who have dogs. 40% of Americans own dogs. So when I put a dog food commercial on prime time TV tonight, 60% of the audience isn't interested so most likely they'll tune out or if they have a DVR fast-forward though the ad.

Wendy: And of course there's the added problem of the consumer feeling the ads are intrusive.

David: Exactly. So now what's exciting is that we're moving to a place where technology is going to allow us to put ads in front of those who are interested either by opting in or by behavioral targeting. Suddenly you're advertising to consumers who are actually looking for information about your product or service. And hopefully the consumer sees the ads not as an interruption but actually something that's relevant to their lives.

Wendy: You know it's funny because for years companies like yours tried to plan very strategically because you listened to what your clients said and gave your advice. But these new forms of media must be so much more interesting for you personally and as a company because it's not just about buying time and getting through another upfront, it's a whole new ballgame with new options and platforms and a new way of defining what advertising looks like.

David: Absolutely. It is an unbelievable time to be the CEO of a media services company and in the media side of the advertising and communications business. When I'm sitting in my rocking chair at some point in the future and someone asks where I was when the media revolution took place, I'm going to tell them I was right in the middle of it. To see the marketing communication landscape be reinvented is incredibly exciting.

Wendy: I agree and it's great to have other options rather than just TV, radio or print on a media plan.

David: Yes. And to that point, because of the rapid change of pace it's important for an ad guy or gal not to get too freaked out about you know, the death of the :30 TV commercial which, as I say in the book, is not going to die; or where you're going to get the dollar of page revenue. If you can just keep your wits about you I think you'll come to the same conclusion I did, that it's a really interesting and exciting time to be in the advertising business and a great opportunity to be involved in the changes.

Wendy: Did you feel the same way about the Internet as a viable forum for advertisers the in the first iteration?

David: No I didn't. I think then the Internet was a tech-based medium and it was ignored by the agency types for the most part. It was not a medium that was delivering full motion video so the ad guys didn't take much interest in it. Technology folks invented it and it was text based. I remember in the middle of the Internet boom when we looked at this little banner and said wow this is it?

Wendy: The rate of adoption was pretty slow that's for sure.

David: Well, the engineers who were creating the web and the advertising community weren't collaborating so there wasn't a cohesive plan as to how this new medium could deliver ads to the consumer in a way they would engage with. I think in part that's how we ended up with a downturn in the Internet market.

Wendy: So you feel differently about Web 2.0? I mean according to the IAB, display online advertising for Q1 was just under 5 million.

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David: Absolutely. Web 2.0 is a whole new ballgame. We have broadband which has the power to deliver full motion video and we now have digital devices like PDAs and phones and the next generation of gaming platforms. Broadband connectivity allows the web to feel more like TV which is important because television is the bread and butter of the American media business and frankly the worldwide communications business. Now those of us in the advertising business are really paying attention. The professional commercial persuaders, guys like me and companies like ours are very, very interested and committed; and are showing it with our passions, our control of the marketplace and the acquisitions we're making.

Wendy: Let's talk about TV. I enjoyed the chapter title on TV, "Why Ratings are Overrated".

David: Thanks.

Wendy: We're going to come up to the 2007/2008 upfront and there's been a lot of press about what was discussed in the upfront presentations. I would like to know your feeling about whether in fact the 2007/2008 upfront is really going to be filled with these integrated packages. I mean there was lip service given to it but given where we are right now do you think these networks are going to deliver and do you think the media buyers are going to find some way to come to the middle regarding this whole ratings system?

David: I think first thing you're going to see a change that is endemic. You're not going to see 9 billion dollars spent in 72 hours ever again. I think you have a much more orderly market; there's no rush to do business. You now have 6 buyers; Carat would be one of those 6 that control 75% of all the network television in the U.S. Six of us will be buying 75% of all the inventory and we're not going to do it in a rush.

Wendy: That's a big change.

David: No more spending at 3:00 in the morning. We actually haven't done that for the last several years. And that's a good thing. It's a much needed improvement in the market place. I've been fighting against it for years. I don't think there's a more outspoken critic of the upfront process than me this past decade.

Tomorrow David gives his views on relocating to Madison Avenue, digital outdoor, integrated media packages, the effect porn has on the business and suggestions for colleges grads considering a career in advertising!

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Wendy: Let's dive a little deeper into this year's upfront. I think we agree it's a ridiculous system. How do you explain to clients?

David: I could never explain it to the client. You go to the CEO of Pfizer and explain why he has to spend millions of dollars in 36 hours. And he looks at me and says help me understand why that's good business practice.

Wendy: Exactly.

David:In terms of the rating debate we're in the middle of a new currency and I think the biggest problem we're going to deal with in this market is that some agencies in some cases will have each client use a different currency and that's going to be a real crisis. That's why the market is going is going to go slow.

Wendy: You're referring to the ratings base and the CPM.

David: Yes. We're not going to agree on the currency right now because it's still new. Most people are going to use same day ratings. A few big players will demand live and then they'll be a few that will agree to live + 3. So I think we'll have a bell curve to some degree but it will make negotiations a bit of challenge this year. The other big factor is DVR penetration. It's at 17%. Think about it. Almost 1 out of 5 households have a DVR and that's significant. We know that 40% of the people that have DVRs skip the commercials. We are really moving to a place where the commercial rating not the program rating is also the new benchmark.

Wendy: That's going to change the whole basis of currency, as you call it.

David: The days of every quarter hour ratings will also go by the wayside. That's 2 pretty big changes. We've been doing every average quarter hour rating for the last 40 years since the 1960's when the upfront started and it's not relevant anymore.

Wendy: What about overall pricing?

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David: Right now the average prime time ratings for regularly scheduled prime time network shows are down 11% this year – that's a fact. It's not debatable. I think you're going to see some dollars shift out of prime and out of network and you're going to see it spread a lot of different venues. I think cable and syndication will do fine but I think the biggest growth this year is going to be what I like to call TV surrogates. I think you'll see people look at things that feel a lot like TV. I think in in-cinema advertising for example. We just did the largest scatter cinema buy in the history of the industry with Hyundai. Also Wal-Mart TV, Captivate and airport vision.

Wendy: So you believe in digital out-of-home? I think it's great and very effective. Digital out-of-home media has had the biggest growth of any medium this year. Like for example, ProLink Media. Do you know about it? You can place advertising on GPS golf cart screens. It's like the others except for the clutter. The only distractions ProLink screens have are the birds chirping on the golf course! All the top golf clubs have it.

David: I think digital out-of-home is going to happen. I'm talking about more of these smaller in-store external venues. You can see how TV money will move maybe from network TV into some of that -- it kind of feels like TV.

Wendy: Are you saying that the perception of television is going to change?

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David: I think we're going to see the beginnings of a broad definition of television. You going to have network TV, cable TV, local TV and syndicated TV and then it's going to be broadband and its going to have what I like to call electronic out of home. I think you're going to see a broadening of the definition of what of television is.

Wendy: What will the integrated deals going to look like? For example, you can package ProLink into any corporate golf sponsorship, or do it just the opposite. Build an integrated deal around the ProLink Media network.

David: Regarding integrated packages, you're going to see more. We've been doing packages now for awhile but it's going to get bigger. Will every network and every buy come with a package? Absolutely not. But there will be more and more integrated packages by virtually every seller this year. I mean ABC has been a leader with video on demand and some of the special episodes of Lost. Carat has been one of the leaders of using that so yes you will see the advent of digital packaging but anyone who tells you every buy will come with a digital component this year is incorrect.

Wendy: Are we talking dramatically different deals?

David: It's gradual in that sense. Networks are just learning how to sell it and companies like ours are just learning how to buy it. To execute a successful program, on and off line operations have to be really tightly integrated. Think about it; the network buy comes from the network buying group and the digital buying is usually done by the digital agency. The groups can't operate in silos. At this point most of us have structured ourselves to be able to create integrated packages. I believe about 20% of the buys will come with a digital component this year up -- from 11% last year.

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Wendy: 20%? That could turn out to be a large figure!

David: 20% more or less.

Wendy: Talk about change, how are clients reacting to these changes? When you're sitting down and they're telling you what they would like to accomplish, and you go back and say I recommend you move a portion of your budget out of television and buy let's say in-cinema advertising and here's why. For many brands that is a big change. Are you finding that clients are relying on you more than ever? There must be a lot of hand holding these days.

David: In some cases clients are saying don't tell me about your digital capabilities and don't tell me about your offline capabilities because I know you have them. Clients are turning to me and saying help me manage the brand. Help me understand what the mix of channels should be and how we allocate the budget by channel and then I need you to activate.

Wendy: Activate?

David: It's a great word -- activate. In the old days we called it buying but today we're calling it activating. It's not about buying time it's about activating a program that moves a consumer to act and do something. This is part of the evolving change that's happening on Mad Ave. The old landscape had simpler marketing plans. The question you have to ask yourself when you write a piece like this is, will the marketing plan tomorrow be simpler or more complicated than it was 5 years ago? I haven't met a person that says it's going to be simpler. Not one person.

Wendy: How so?

David: Here is the example I use in the book. The next time you want to know what the marketing plan or the media plan of the future is, tomorrow morning when you get in the shower look at your feet, and look the tiles of your bathroom floor. That's the plan of the future. It's like all those tiles are individual program pieces that are cohesively integrated into a whole with lots of components.

Wendy: That's going to make planning media a very different process.

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David: The days of uni-vehicular media plans -- media plans that just focused on TV or bimodal radio and magazines focused and that was it -- those are gone. Today's media plans will have sports and event marketing and search components; multi-cultural elements that have to be considered. There has to be experimental testing with digital. You have to think about your website design and digital promotion. There's just a lot more pieces. Clients recognize that and they're struggling to try to get all those pieces to fit together holistically.

Wendy: Is your company growing because of this media revolution?

David: I think our company is kind bit of a poster child for the revolution. I left Hal Riney in 1998 and I spent the first year here buying companies and beginning to build Carat. We won the Pfizer business April 1st of 1999. So what's happened is we've gone from 125 to 2,000 employees in the U.S. and our billings are approaching $8 billion. And now we're the 5th largest media agency.

Wendy: Wow.

David: So as a Madison Avenue member I still run an agency. I mean no one's ever run an agency the size of Starcom or Mindshare before. And these are big creative agencies that maybe billed a couple of billion in creative fees. But now you're talking about companies that have $10 – 12 billion under their portfolio and managing billings with that many clients has never been attempted before. I mean the media services company today is an agency of a scale that's never been seen before. But here's the thing, it's still an agency, that's what people forget. Yes, our company has grown tremendously. I think Carat is the fastest growing company on Madison Avenue today.

Wendy: I want to talk about that a little more. I really respect that you are one of the only independent media buying companies on Mad Ave today. I think I can make the case that it makes you more objective serving your clients. Plus you don't have to worry about your stock price, you can grow your business as you see fit and not have to justify your decisions to anyone else. One could argue that media holding companies are letting the CFO's run the companies simply because they have to deliver a profit to Wall Street. What is your opinion?

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David: I think there's a real pushback in the agency business today. I mean look at the 4 big holding companies Omnicom, Publicis, Interpublic and WPP. I would argue that all of those companies are diversified marketing companies with creative at their core. Carat is a media services company with media at the core – both are diversified media companies but I think it's very tough to run a creative agency today.

Wendy: How so?

David: If you're a holding company you've got some real serious sorting out to do. I know what the clients are asking for. They are asking for a very seamless on and offline media and communications strategies. In order to accomplish that goal for the client, internally the traditional and digital departments have to communicate with each other and not operate in silos. So, yes, I think the holding companies are in the midst of a lot of challenges.

Wendy: So Carat is sitting in a very good place.

David: I think so. The mistake people make is that they think we don't do creative work. Again I use different terms. I don't call it creative. I think of it as content. Carat entertainment, which is our production company, has 5 TV shows on right now which we produced for clients. Among them are King of Vegas and a show on the Oxygen network called Tease (sort of an Iron Chef meets hairdressers) that we created for Jenny Craig. We have one on the Logo network for Stoli and we have another show we're going to announce for Reebok.

Wendy: That's very cool.

David: We create billboards and online. We're full service. We do content and media. Our company Molecular designs and builds websites which is a huge business. We're actually involved in every creative endeavor except making :30 TV commercials and we've chosen not to be in that business.

Wendy: What's one of the biggest challenges Carat faces today?

David: The pace of turnover within the marketing departments at most of major companies we service. There is constant change on the client side. Being a marketing director these days is not a long tenured job. I mean you get a new client almost every 20 months on average. Especially today, the changing marketplace requires good dialog and a relationship with a client. That's tough to do with high turnover.

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Wendy: I can certainly relate. Being in sales all those years, it was the same problem. I would work hard to develop a relationship with a marketing or brand manager and then they would leave and I would have to start all over again someone new.

David: It's a tough job in today's marketing environment. It's very difficult to effect any change when you're only touching the brand for a year and a half especially if you're are trying to turn a brand around or launch a new product. That takes longer in many cases to make a difference and then you're onto something else.

Wendy: Okay, let's move on and talk about Carat Exchange because that's an interesting idea. Could you tell me a little more about it?

David: The Carat Exchange is designed to create a forum so that the guys creating the technology can meet and present their ideas to clients and agencies. They can get their input so what they're building is related to and solves a client need. It really is something we should have done in the early days of the Internet. Maybe then we wouldn't have had the banner and the button. Today, there are so many people creating new technology for TV. Take for example, Video on Demand. Should the ads be pre-or post-roll?

Wendy: Good question.

David: It's really been a great forum for everyone so far. And what I'm most proud of with the Exchange is that some of my competitors have joined forces. The Digitas guys have been here, folks from Y&R. I can't do this alone, Carat can't do it alone because we need to work as an industry on some of these issues. There's plenty of time for competition, we'll beat the hell out each other down the road.

Wendy: But let's get it together first, I agree. Ok so let's talk about the last chapter, "What's Really Sexy About Porn"? I was so intrigued when I first read the title and thinking where is he going with this? But of course after reading it, everything makes so much sense. Elaborate on that because I think our readers will be intrigued by your point of view.

David: Okay. Well, it's a sad fact, but the sex industry has really invented so much of the current media. Think about it, the HS cassette, rental business, they really cracked Internet security. They made encryption technology so people felt comfortable, and they really pioneered video-on demand. So if you want to look from where the media is going, and don't get me wrong--it's a sad testament to our society--but if you look at the where the sex industry is today, you'll find that it's always on the leading edge of the media business.

Wendy: Are they doing anything right now that translates into the mainstream?

David: Well, if you look at the way sex is being delivered on the Internet, it's this metered delivery where you buy as many minutes as you want. I think that's where you're going to see our media business in the future. The media bill of the future is going to look like your phone bill. You'll get one bill from Comcast and it's going to list all the programs you watched – maybe some are free, maybe others you'll have to pay for, but it's going to be metered delivery. And I think that's just one example of how the media business is going to evolve. I think pay-per-view is going to get much bigger and more popular. Clients love pay-per-view because they like to know how many people clicked on the video.


Wendy: And any kind of measurability is key.

David: Right. So now you have the ability to watch what you want to watch, when you want to watch it, and where you want to watch it. They've been very successful with mobile delivery. I don't know if you know this, but one of the most popular features on these MVNO's are pornography downloads. So it's a really interesting chapter and whenever I talk to people about it and they think about it; they say sad but true.

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Wendy: Ok we've talked a lot about new technologies today in regard to the media business. But beyond creating better advertising opportunities how do you see technology helping people in a more personal way?

David: Well I'm a technophile so while I think technology has had some pernicious side effects; overall it's been really good. I mean the Internet is amazing. If you think about it on macro terms what you have right now in a box is the sum total of human knowledge at your fingertips. Plus you can access it from virtually any platform anywhere in the world. And that has changed the way we are able to communicate with one another.

Wendy: Yes, the prediction about the global community getting smaller has really happened with the Internet.

David: It certainly has.

Wendy: Okay, last question. This is such an exciting industry these days, what do you say to the recent college graduate who wants to break in to media business... what is your advice?

David: Embrace the click is what I would say. If you're are a college grad coming out of a university today and have an interest in the marketing communications business you have to get into the digital marketing space. Join a company like iProspect and learn about search because I think search is our future. Get involved in a company like Molecular that is a leader in website design and build. Go work in San Francisco in a viral agency. Think about getting involved in Google or Yahoo. Or go work at Avenue A or aQuantive up in Seattle. It's just such a fantastic time to be in the business and that is what I'm telling people to do; get a job in a digital agency. People are looking for work and these are really interesting times, but you've got to embrace the click.

Wendy: Great advice! Thank you, David.

David: Wendy, you're welcome.

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