Examination of Witnesses (Questions 420
- 429)
TUESDAY 20 JUNE 2006
INSTITUTE OF
PRACTITIONERS IN
ADVERTISING
Q420 Mr Hall: You have mentioned
the amount of money which is being spent on advertising and the
amount of money which is being spent particularly with the written
media now, the newspapers, regional, national and local. We see
an ever-decreasing amount of money being spent on advertising,
and clearly at local and regional level it is the advertising
which brings in the revenue to keep the publications going. What
is the future for these publications now; and also, in particular,
the evidence you have already given about the different age groups
and the way that they access media?
Mr Marshall: I think, in terms
of local and regional newspapers, they have been probably more
innovative in terms of developing the business in their products,
not only with free sheets, in terms of the quality of their content,
but also they have been much more progressive in terms of delivering
across the line, so they have been offering online facilities
as well. That has worked successfully for them. National newspapers
are having a tough time of it at the moment and I think what they
are recognising is that the revenues are not going to be continuing
to flow into the newspapers at the old rate and that they have
to develop other services. If you look at all of the newspaper
owners, they are all developing their own internet services.
Mr Arnold: I think there has been
a fundamental shift as well. I think these guys have got big challenges,
in terms of content created now. You have only to look at the
London bombings as a great example, in terms of how the news is
reported; it changed fundamentally in that one day, from being
basically Sky News, BBC, ITV telling the news, to the people who
were actually on the tube stations. Then you get to when the second
scare came along, basically then the news immediately was peoples'
pictures, they were actually asking people to create content.
That is at the very top level; if you take it at a regional level
as well, now actually who are the reporters, the reporters are
the people in the street, they are people telling their own stories.
Because of technology and the ease of technology, with the increase
of broadband for people to upload not just the written word but
video files and photograph files, is the question is who is the
journalist now, who is the content-maker, is it actually the traditional
broadcaster or is it the person in the street? I would argue actually
now it is probably pretty much 50/50 and it will not be long before
that is going to increase; and you see examples of this time and
time again, whether it is MySpace, or whether it is flickr,
or other people taking photographs. The challenge for the traditional
channel is how to maximise revenues from that; do you innovate
by creating new spaces, like MySpace has done, and charging
advertisers to take those areas, do you do what Guardian Unlimited
has done and really embrace this whole culture and get people
to subscribe. I think it is a huge, new challenge. I think the
biggest thing for broadcasters or content-makers, whether it is
newspapers, radio stations or TV players, is basically how do
you embrace this and really encourage it to happen and then generate
revenues back via e-commerce, via search findings, via display
media.
Mr Marshall: The theory that newspapers
are dead is patently ridiculous and in 10 years' time and a hundred
years' time people will still be reading The Guardian,
The Times, the Mail and even, dreadfully, the Daily
Express.
Q421 Mr Hall: Do you mean reading
that as a newspaper or reading them online?
Mr Marshall: I think they will
continue to be reading them as newspapers; in the same way that
people said film was dead in the 1950s, in the 1960s it was a
television version. Of course, the film industry has never been
more vibrant; it has had to adapt and that is exactly what media
owners will have to do, inasmuch as they will have to own across
platforms and operate on a cross-platform basis, as simple as
that.
Mr Pringle: There is no reason
at all, taking that strong, regional newspaper brand, why they
cannot survive. Probably somehave already become broadcasters
in the locality, broadcasting over the internet. I think one of
the issues for the regional local newspapers is, because they
have such a huge capital investment in hard copy, it has been
very difficult for them to push hard on the online stuff. They
were some of the earliest people into the online arena, but because
so much of their business is dependent on classified advertising,
they are in a very difficult situation and currently they are
haemorrhaging money on that, because that is all going online.
It is a bit like the old Midland Bank and First Direct, you set
up a separate business to push the new medium, and, generally
speaking, I do not think the regionals have done that. It is interesting
that the national newspapers have not really got into the idea
of broadcasting their own version of the news, and there seems
to be no reason why they should not be able to do that in an online
environment.
Q422 Mr Hall: In my constituency
we have a publication called Frodsham Life, which is a glossy
little thing which comes out once every couple of months, and
that is very much sought after, it is very localised and very
sought after, but also it goes online, and there are far more
hits online than there are actual copies on the street. Where
does the revenue come in all of that, how does that work; is it
just advertising pays for the stuff online and the number of hits
that the web page takes says to advertisers "This is an effective
publication"?
Mr Arnold: I think the reality
is basically the advertisers are trying to work out how to get
the revenues in; there is some classified ad money coming in,
but there are very, very few examples where traditional print
publications have been able to make subscription-based models
work online. I think that the Wall Street Journal in the US is
one example; probably the most recent one is the Guardian Unlimited
Ricky Gervais podcast, where the first one they gave away for
free, the second one they charged for, but it is a big issue since
online has grown because it was free. When people go online naturally
they expect a free service; if you give away the content for free
in the first place and then you want to charge people afterwards,
people can go elsewhere. When you are in your own home constituency
maybe it is more difficult to get that content, but as soon as
you go online the whole world is your oyster, so you may be able
to find similar kinds of content elsewhere at the click of a button
or just by typing in a couple of keywords in Google, and that
is the challenge.
Mr Pringle: One of the things
we know—the IPA runs an effectiveness awards competition,
we have done it for over 25 years—is that multimedia campaigns
do seem to work pretty well. On average now about four different
media channels are used for an effective campaign, four and rising,
so, for an individual medium, accessing it through different versions
may be part of that multimedia experience. That is why some of
the big publishing brands have produced exhibitions and why they
have produced a magazine, they have produced an online version,
and so on, because they are trying to enable their customers to
access their brand though all these different channels, so I think
your local magazine is doing exactly that.
Mr Marshall: Consumers now almost
expect it, because the world is information-rich and if you are
an advertiser and you are saying something and a consumer is interested,
they want then to be able to pursue that and find out more information,
and if you do not provide that you go down in the pecking order.
Mr Arnold: I think there is a
final point too, the level of content, so your glossy magazine
will probably feature more features and bigger stories, whereas
your online version may just feature the latest news, and so people
will start digesting content in different ways. The role of the
magazine and newspaper will never die but people will get it in
a slightly different format, slightly different content, from
that site.
Mr Hall: I think you anticipated my next
question which is how you attract new readers; but I think you
have probably answered that.
Q423 Alan Keen: I was not surprised,
that was why I asked the question, you heard me earlier with Pact,
asking them about what research they had been doing on how many
people actually record and watch rather than watch as a theatre
version of television. It is your business, you must have some
sort of research, or is it just guesswork? Pact did not even seem
to have guessed what might happen?
Mr Pringle: There is a lot of
research. We produced a new piece of research called TouchPoints
which was circulated in some of your information packs for this
session, so there is a lot of data there about how different age
groups are using different media, and so on. The question of this
whole business of time-shift viewing and whether or not SkyPlus
boxes are changing the pattern and whether people are fast-forwarding
and so on, there is some research out, some from Sky, some from
the London Business School, and so on. Pact were right, it is
inconclusive because the results are different from different
studies. For example, some people say that the break bumpers are
being used as navigation points in fast-forwarding, so that actually
the sponsored idents at the beginning and the end of the break
are getting incredibly high attention levels because people are
using them to fast-forward to. Some people are saying also that
is happening with some of the commercials at the beginning and
the end of the break, so some of the Sky studies are showing that
brand awareness is as high amongst homes that have these boxes
as homes that do not have them, so it is unclear. The talking,
chattering classes all say that "We fast-forward through
everything and we never watch an ad any longer," but that
does not appear to be true of the public, who are behaving in
a much more traditional way, as far as we can see, so far.
Mr Marshall: In answer to your
question about research, there is a lot of research done and the
IPA has invested in a study called TouchPoints, which is basically
a multimedia, multiplatform study into consumer media behaviour,
which does not sound much but I think it was a £1¼ million
cost. Although we have a lot of data on individual media, we do
not have any standard industry cross-media data, so the Touchpoints
study has been designed to fill that gap, so to speak. It has
produced a lot of very interesting information about how people
behave across media. The issue of PVRs and ad avoidance is a big
issue for the ad industry and, I think, as everybody has said
so far, the jury is out. All the research to date, and we have
done our own research into it, suggests that, yes, there is a
reasonably high instance of fast-forwarding, our own study said
up to round about 70%. At the same time, I think you have to recognise
that people do not stop watching ads for ever, and also, to be
honest, people did not start avoiding ads because they suddenly
got PVRs, people had other ways of avoiding ads in the past.
Mr Pringle: What, making cups
of tea?
Mr Marshall: Making cups of tea,
going to the loo, or just talking amongst themselves; so ad avoidance
is not something that the world has suddenly discovered. At the
moment, PVR penetration is less than 5% of the total country;
there is evidence as well that initial usage and then settle-down
usage is a bit different. It is an issue which is of large concern
to advertisers, it is an issue which is being researched increasingly
and which I think we will understand over a period of time. I
think it brings us back to the point though, more and more, that
for advertising you need a sort of multimedia, multiplatform approach.
Mr Pringle: One possible salvation
in this technological era is that if there is a proportion of
the market, probably the majority of the market, that likes to
get its editorial for free because it is funded by advertising
and they do not want to pay a subscription charge. You are probably
paying £35, £40 a month for your Sky subscription and
then your broadband subscription on top of that, so that is why
the amount of money spent on media is going so high. The vast
majority of the country do not want to spend that kind of money;
they want to carry on with the contract of free editorial in exchange
for watching your ads, so there are technological solutions to
enable that to continue to happen. I think we will see subscription
services which will be cheaper for people who watch the ads and
the technology will be there to enable that to happen. I think
it is a question of when that technology is deployed, because
if you were selling subscriptions right now you would not want
to deploy that, would you, just yet?
Q424 Alan Keen: Sky have not tempted
me to buy a box, as you can probably guess; if you were a betting
person, you would bet on that. Sky had a product which, by convincing
people to pay a subscription for, adds very much to their income;
that was their incentive, they did not do it for any other purpose,
presumably. Can you tell us about the balance, with regard to
Sky, because, obviously, Sky potentially were going to damage
their own advertising income by producing a box which enables
people to skip the adverts. What is the scenario there?
Mr Marshall: I think we have to
recognise that Sky is what is known as an ARPU business, which
is `Average Revenue Per Unit. Their advertising revenue is not
inconsiderable but it is not that important, it is less than 15%
of their total revenue. They are a business which is all about
driving up the average income that they get from the individual
household, and consequently they are, I would describe it as,
catering for the privileged end of the market. What we have seen
with Freeview is that it has grown at a far greater rate than
Sky over the last 18 months or so and will overtake Sky at some
point towards the back end of this year or early next year. There
are a lot of people who want a cheaper, less complicated and less
comprehensive service; people actually do not want 400 channels.
When you look at most people, on average they watch between six
and nine channels, they have a repertoire of those and do not
go much beyond that. Also, all of the complicated gismos, most
people are not terribly sure how they work and are not overly
sure they particularly want them. Interestingly, Freeview has
seemed to cater for that particular market much more successfully
than Sky. Sky is a hugely important business but it is an ARPU
business, it is about subscription television, and it is certainly
a very different business from the terrestrial broadcasters.
Mr Arnold: Sky bought Easynet
the other day which is a UK ISP, so I am sure, to that point,
if Sky could persuade 20% of their subscribers to take broadband
via them and pay £15 or £20 a month, probably they would
be far happier doing that than maybe getting some incremental
advertising revenue.
Mr Marshall: They will drive broadband
very aggressively, as a business, because they see its revenue
potential in the next three to five years.
Q425 Alan Keen: On another issue,
your evidence is very valuable, because most of the time we are
listening to people in the industry itself; you are slightly detached
from it. Hamish mentioned the words that advertising income is
finite, so really you do not mind where it comes from as long
as it comes through you?
Mr Marshall: We are not proud.
Mr Pringle: We are absolutely
agnostic, as far as the media is concerned; we really do not care.
Q426 Alan Keen: The Chairman said,
and we are saying it in different words, that the cake is the
same size, there is only one-size cake. You are unhappy about
the BBC's intentions, presumably not because you will get less
money, because it is going to come to you anyway, wherever the
advertising is, you are unhappy because you think it will damage
the other broadcasters. Do you want to expand on that a little?
Mr Pringle: We fear that it will
take a bigger share of viewers, because it becomes more commercial,
so the audience available to the commercial broadcasters will
fall, advertising revenues will fall, and that is when the programme
quality will fall and that could produce a downward spiral, exacerbated
by some of these other effects that we have been talking about.
The BBC is a very powerful thing, as everybody keeps saying, but
it just needs to be kept in balance. It is not for us to say where
that balance should be struck, that is for you to say, but I think
all the evidence suggests that they are over-powerful and have
been for several years now, and over-commercial as a result, and
that is damaging commercial broadcasters and their ability to
deliver audiences. As Jim said, for the branding side of the business,
for the display advertising side of the business, big audiences
are still very important for companies and we need to be able
to deliver those audiences. This is why we have always been opposed
to advertising on the BBC, because that would certainly dilute
the finite amount of advertising spend, reduce the size of audiences
and produce less than critical mass for programme making.
Mr Marshall: Whatever the BBC
does, it has a dramatic impact on the commercial sector, both
positive and negative. We have huge admiration for the BBC, but
our concerns are that the BBC often acts more successfully from
a commercial point of view than the commercial services, but admiration
needs to be balanced with a fear for what it can do. When Hamish
talks about a balance, we recognise that it has a hugely important
role within broadcasting, but that role we think should be more
accountable and there should be more checks and balances. At the
very parochial level we look at it and say "why do the BBC
need to put out an extra episode of EastEnders, why is
it transferring Panorama out of peak viewing time?"
We know why that is, because it is competing with the commercial
services, it is as simple as that, and it is gaining audience
share by doing that. We do not think that is to the benefit of
the public service remit. What we know for certain is that it
damages the commercial sector, and particularly I think the problem
is ITV. ITV is in the grip of a bit of a pincer movement because
it is under a lot of pressure from the other commercial services,
the other media, and, of course, its main competitor for large
audiences continues to be the BBC.
Q427 Rosemary McKenna: On that point,
those of us certainly in the nations and regions watched ITV remove
the services from the nations and regions, centralise it in London,
and actually the BBC are just moving in to fill that gap. It is
chicken and egg, is it not, but who is responsible?
Mr Marshall: If you talk to ITV,
and I am not necessarily an advocate for ITV in everything that
it does, I think ITV would argue that it removed a level of services
because of the consequences of the `92 franchise review and the
situation it has found itself in now, the crazy auction system,
and the reason the BBC has moved into that particular space is
because it has been able to afford to. It is largely an economic
consideration. I think that would be ITV's argument and I think
probably I would buy that.
Q428 Rosemary McKenna: Certainly
there is a vacuum and the BBC are moving in to fill that and I
think people outside London would be happy about that?
Mr Marshall: Yes, I think if there
are vacuums then it is fair for the BBC to move into them. I think
what the BBC is doing is moving into are areas which are not necessarily
vacuums. On a Saturday night, when ITV was running the X Factor,
or whatever, then putting up very similar programming to counter
it, I do not see as moving into a vacuum. I just think it is clear
competitiveness, without the same degree of commercial pressures
or accountability that the commercial sectors have.
Q429 Helen Southworth: Can I ask
you about creativity. We were talking before about people wanting
to skip the adverts and, I have to say, I have had occasion, when
I have been looking at a rather dull programme, when I have wanted
to skip and see if the adverts were any better, and quite often
some of the adverts are absolutely exceptionally good. You were
doing some work to try to develop creative skills and creative
recruitment, were you not; can you let us know a little bit more
about that?
Mr Pringle: What we are trying
to do is identify, or enable people to self-identify, whether
they are good at creative industries, because at the moment no-one
is really quite sure what those qualities are. We keep talking
about creativity and how good it is for the country, and all the
rest of it, but we have not actually defined what it is in a commercial
communications context. We have a hypothesis, which is that people
who are good at this business, (we started with the advertising
business but we believe it may extend into all sorts of other
creative industries), are very good at inductive logic and rational
thinking. They can analyse data and come to some conclusions in
a logical way, but also, at the same time, they are capable of
creative leaps, of intuitive lateral thinking. What is particular
about them is that they can do both of these things to a very
high order, hence the idea of `Diagonal Thinking', and we are
trying to prove that our hypothesis is actually the case. We have
run a small pilot with some so-called "stars" in our
industry and the industrial psychologists that we have hired to
do this job for us have shown that these five high-flyers are
indeed extremely high, compared with the national average, on
two proprietary tests for inductive logic and creative thinking.
We have now researched a cohort of people who are in the account
management or client relationship management sector and they too
are showing extraordinarily high scores, compared with the national
average, on both these dimensions; so we are gaining confidence
that this thing called "Diagonal Thinking" exists. Very
recently, Creative & Cultural Skills have co-funded with us
the balance of the research to go through the other job functions
in our business—creative people, media planning and buying
people, strategy people, and so forth—and by the end of
this year hopefully we will have a validation at the first level
that this thing exists. If that is the case, we are then going
to develop a test, a self-test, which will probably be delivered
online, which will enable people from all sorts of backgrounds,
particularly people from ethnically-diverse backgrounds, and from
disadvantaged socio-economic backgrounds, to be able to do this
test for themselves and get some instant feedback as to whether
or not they have some of this Diagonal Thinking skill. At the
moment, many of these creative industries are actually quite closed
shops to people who are not already in them. The work experience
goes to the friends and relatives of people who are already in
the business, and so on and so forth, and we are very conscious
that the gene pool is rather narrow, and that if we are really
trying to compete on a global stage we need as much talent as
possible to be able to get into this business. That is really
what the project is about. The Government is currently proposing
a new Diploma, as I am sure you are aware, for 14 to 19 years
olds, a parallel track to GCSE and AS and A Levels, and we are
all for that, as long as it takes into account this idea that
the people who are good at this business often have a combination
of arts and sciences in their educational background. We also
want to make sure that what is taught in these courses is as much
to do with business skills as craft skills, because we know that
works in this sector. I guess the thing that we are really looking
to is for the Government to ensure that the teaching of this Diploma
is actually delivered appropriately and there is a question-mark
about where the teachers are going to come from. One of the things
that we would like to see is the practitioners, people in the
business, actually being enabled to go and teach in schools, as
visiting lecturers, and that kind of thing. I think I am right
in saying that it is usual that in this country these people are
not paid to do this, it is all done on a pro bono basis,
whereas in other EU states there are fees paid for these visiting
lecturers. I think, as an industry, we really could make a huge
impact on this Diploma, if that little financial contribution
were made. It is never going to compensate for these peoples'
day rates but it might just cover the trade fare, cover the hotel,
and get them there to do this work, so we are very keen on that
idea and we would like Government to cover that. Maybe the Diagonal
Thinking test could be part of the process of kids self-identifying
themselves for the creative industries?
Chairman: It is one o'clock. Thank you
very much indeed.
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