Advertising And the Selling of Consumption

1
Advertising And the Selling of Consumption

• Ubiquitous
• Intrusive
• Intensive
• Without precedent in any historical epoch
• Part of a continuum of persuasion in democratic
  propaganda

2
Learning Objectives

• Identify the Commodity Characteristics
• Trace the economic exchange in the media
• Introduce Advertising and the competitive
  ideological views of advertising

3
Advertising Today(2005)

• In Canada, 12.6 billion in revenues
• In the US 277 billion in revenues
• Question how does this compare?
• Breakdown
• 24 TV
• 21 Newspaper
• 4 Internet
• Source TVBureau, Canada

4
Reading Economic History

• Media begin in state of patronage
• Commercialize over time that is, become part of
  system of private enterprise in the economic
  system of capitalism
• Characteristics of capitalism
• Rule based exchange of goods and services
• Characterized by drive to reduce labor and
  material costs and set prices to extract profits
• Economy of scale
• Operates by law of supply and demand

5
The Peculiar Nature of the Media Commodity

• Ephemeral high risk
• Renewable consumption does not destroy
  availability of use to another
• Characterised by high creative labour costs
  which, as yet,cannot be wholly substituted by
  labour
• Thus, economists argue carry the characteristics
  of a public good

6
The Importance of Marginal Cost

• What marginal cost is the cost of production
  after the initial prototype is made ie. The cost
  of materials and labour for each successive unit
• The paradox in media
• Costs or producing the first prototype are high,
  but very low to zero for additional copies
• This is called zero marginal cost suggests a
  difficulty in trapping exchange value

7
The Public Good Problem

• Implies media goods may tend to be freely
  exchanged eg. MP3 file sharing
• Businesses respond by creating laws to trap
  exchange value eg. Fundamental basis of
  entertainment law is Intellectual Property
• Which establishes a monopoly for the creator for
  70 years on products of the mind

8
Fundamentals of IP exchange

• Creative property sold
• Over space option rights in certain markets
• Over time option over first run, second or
  syndication etc.
• Over windows or various media
• Eg mainstream TV, specialty, DVD release,
  reruns. Etc.
• Each stage realizes separate revenue stream
  growing tendency to ancillary or secondary
  markets
• Exploiting video games, Tshirts etc

9
Media Risk

• Sometimes called the hit to release ratio
• In entertainment goods, very high
• US networks get on average 2000 scripts
• Take 20 to pilots
• 2-4 to air
• Lose at least half before the get a House, for
  example
• Profits from the block buster hits pay the costs
  of all the losses ( see CC 334)

10
Strategies for Reducing Risk

• Raise large amounts of capital
• Integrate production process
• Integrate vertically or horizontally ( see CC
  336)
• Recycle creative components
• Imitate formats
• rationalize demand condition taste, promote
  ritual

11
Media Economics

• Four main forms of financing the media
• Public Tax support/patronage or subsidy
• Advertising
• Subscription Revenue
• Unit Sales ( eg. PPV, DVDs)
• Fringe media volunteer labour/ gray market

12
Different Models

• Newspapers 80 ad supported plus subscription
  revenues
• Mainstream TV ( eg. CBC, CTV, CBS, Fox) ad
  supported
• specialty satellite cable both ad and
  subscription supported

13
The Nature of the Exchange in TV

• Advertisers buy Ad time from Networks to get
  access to Audiences
• This is audited by companies like Nielsen or
  BBM in Canada
• How much they buy and when is determined by their
  target audiences

14
The Audience Commodity

• Dallas Smythe the inventor of the concept of the
  audience commodity
• Really, the commodity of exchange is the
  audience of prospective buyers
• There is a discount for poor or marginal
  consumers
• The scarcer, the higher the premium
• Among consumers, premiums are paid to reach young
  ( 12-34) year old white consumers
• But, in general, the more you attract, the more
  profit

15
The Nature of the Competition

• Each entrant ( whether new medium, new player in
  the same market, or competitor in same target
  market but different medium) impacts potential
  revenues
• Issue is how elastic or constant is the
  total available consumer spend
• It is cyclical ( goes with measures of consumer
  confidence which tends to be high in times of low
  unemployment and inflation, and availability of
  easy credit)
• But overall, shows a steady growth

16
Competition Contd

• How media compete
• Sell brand lifestyle types
• Specialize
• Build huge libraries
• Use tied selling exclusive deals to distribute
  with partners in same marketing family

17
Trends in Media Competition

• Growth of oligopoly allows more efficient bulk
  buys to advertisers
• At the same time, greater proliferation of media
  platforms ( video podcasts, print, specialty
  formats)presents audience fragmentation over
  space and time
• Desperately Seek the Audience
• FRAGMENTATION
• DEVELOPMENT OF EVER GREATER SEGMENTATION OF
  AUDIENCES INTO TASTE GROUPS
• EVER WIDER PLATFORMS TO REACH THEM

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Definition of Advertising

• How consumers become aware of potential goods or
  services to buy ( CC 339).
• Thus integral to persuasion
• In business, one of the costs of marketing

19
Two Ideological Perspectives

• Libertarian
• Essential to inform consumers
• Builds demand for products
• Enables sellers to maximize sales and reduce
  costs
• Essential for efficiency of the market

• Reform Liberal
• Information is biassed
• Creates wants not needs
• Leads to oversupply of goods
• Passed on in costs to consumers thus inflationary
• J.K. Galbraith

20
There is no free lunch

• Ad supported media appear free to consumers
• But, the costs of ads are passed on in the end
  price of the good
• Marketing and ad costs can reach 10-15 ( almost
  like a private ministry of information GST)

21
Market Research

• Advertising is built on market intelligence
• Identification of potential consumers by
  demographics, behavioral and attitudinal factors
• Endebted to social psychology
• Study of what attracts, appeals, provides a sense
  of identify, pleasure

22
Market Intelligence

• An extensive network of trade associations which
  monitor audiences
• Large, independent or allied ad firms eg. J
  Walter Thompson or Ogilvie Mather (CC 344)
• The trend to passive people meters and
  universal barcodes tv/exposure to ads/retail
  purchases try to simulate
• complete data shadows of consumers

23
The Canadian Ad Market

• Since the 20s, dealt with overspill from US
  Market
• On a per capita basis, Canadas total TV ad
  market is 1/3 the size of the US
• Why?
• Overspill
• Sectors of the economy are public eg. Health,
  education, or have different norms eg. Do not
  advertise legal services

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Economic Regulation of the Ad Market

• All things being equal, Canadian businesses will
  use US border stations or US magazines to reach
  Canadian consumers
• But, Canadas Income Tax Act disallows ad
  spending on US media to reach Canadians as an
  allowable expense
• Thus, Canada protects the border for ads, to
  allow Canadian businesses to reach Canadian
  consumers

25
Other forms of economic regulation of ads

• In Broadcasting, the CRTC limits the number of
  ads per hour ( unlike the FCC in the US)
• Consumer Law Prevents Unfair Competition
• eg. Prohibits deceptive practices, untrue
  allegations about the competition, bait and
  switch forms of roping in customers

26
Ad Rates

• American Idol is currently the highest ad rate of
  continuing series in the US
• Charges about 620,000 US per 30 second spot
• During the Super Bowl, may charge 2 million or
  more
• Global could charge only 100 K

27
Political Advertising

• Government is still Canadas biggest advertiser
• The summit of democratic contests Elections, has
  Election Act regulation of ad time
• Free ad time must be provided, proportional to
  seats in Parliament
• Paid advertising is capped unlike the US which
  has no spending limits, Canada does not want to
  have elections bought by those with the biggest
  ad budgets

28
Advertisers Clout on the News

• Canadian Association of Journalists
• We will not give favoured treatment to
  advertisers and special interests. We must resist
  their efforts to influence the news. ( ethic
  guidelines
• Prohibit acceptance of swag gifts
• Structural separation of editorial and ad
  departments
• But journalists aware of the need to sell and
  maximize audiences

29
Advertisers Censor?

• Classic cases
• Advertisers boycott withdrawal after wardrobe
  malfunction, Disney withdrawing from offensive
  contents, Bill Maher
• Efforts to directly influence content
• Kingston Whig Standard lost 100 k after
  realestate agents pulled ads when article about
  direct sales published ( Russell 52)
• Tied selling advertorials
• The Bay and National Post

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Social Issues in Advertising

• Is there a social responsibility accepted?
• Yes the Advertising Standards Council of Canada
  sets out several principles
• Yes, Advertising directed at Children is strongly
  regulated around the world
• Prohibited for very young children
• Type of appeal restricted
• In each generation, there are issues of
  representation in advertising hotly contested
  gender, age, race, sexual orientation

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Cultural Issues in Advertising

• As form
• A dominant art form?
• Reducing the length of video sound
  bitesfuelling the trend to shorter information
  bites
• As Utopic Ideal
• Establishing a cult of beauty?
• Infinite narcissm?
• Selfish self-gratification? Desire? Pleasure?
• As Dominant Ideology
• An Ideology of feckless consumption and
  materialism?

32
The rules of Advertising

• Norms created by ad directors, creators
• By Manufacturers
• By social institutions set up to regulate ads
  directly or indirectly
• Direct CRTC and Broadcasting Act
• Indirect Advertising Standards Council

33
The Advertising Standards Council

• A not for profit body
• Made up of advertisers, and representatives of
  the public
• A classic case of a civil society agency for
  professional self regulation
• Arms length from government an industry
• Set up to preempt or avoid direct government
  regulation

34
Powers of the ASC

• To develop and administer codes
• Recruit voluntary members
• Receive and investigate complaints
• Thus, reactive, not educative in mandate
• Administer rulings
• In some cases administer fines, compel
  withdrawal of ads etc.

35
Advertising Council Standards

• A copy must be accurate, clear,
• Receives complaints ( under 1000 a year)
• Finds about 10 in contravention of Standards
• Not well known and consumer groups argue, not
  proactive enough
• No substitute for consumer boycotts

36
The Critical Perspective

• Advertising creates false consciousness
• Contributes to the standardization of cultural
  products
• Fuels the dominant ideology of capitalism spend
  spend spend ( patriotism after 9-11)

37
Have we become Citizens of a Shopping Mall?

• Very few consumer protection groups in popular
  culture
• Effort to protest one of the most onerous of
  behaviors
• Groups like adbusters ( BC)use guerilla tactics
  of advertising against the dominant industry (
  eg. Brontosaurus ad)
• They advocate a buy nothing day

38
Recommended Sources

• Leiss, Kline, Jhally, Advertising as Social
  Communication
• Frank, Liberation Marketing
• Nick Russell Media and Morals