Recently in Advertising Category

I recommend Frontline's latest four-part piece on the subject, viewable unabridged on line, here.

Before I left for vacation last month, I sketch out for you my undigested thoughts on the emerging aethetics of the game generation (35 and under):  there is a degrading of image quality and techniques that lower-end digital technologies have supplanted into the aesthetic psyche of many younger viewers – just look at the ads created and aimed at the under 30 demographic. Old tricks. Why is that? Perhaps because these kids are expert consumers of electronic stories and know it’s manufactured.... They are deconstructing the image.

Today Patricia Winters Lauro writes in the New York Times that

[s]traight direct-response pitches hardly ever work anymore, and increasingly agencies have turned to spoofing their own industry to attract viewers long enough to deliver a new message...Direct-response advertising as a genre is especially appealing to parody because it’s “so cheesy,” Mr. Jendrysik said. It is an inside joke that the public gets, he added, even the GameTap target audience of 25- to 35-year-olds, who may be too young to recall the ’70s pioneers like Ronco, K-Tel or Ginsu knives.

Mr. Jendrysik said the spoofs were also a good strategic fit for GameTap, which was introduced nationally last year and is trying to build its subscription base.


O.K. Lets assume, as the always insightful Jeff Jarvis has written, that "everybody is a network." "The conversation is king" et cetera. A corollary would be that distribution is cheaper and the barriers to entry are lower with digital tech; so leverage shifts to the content producer (or more specifically copyright holder) and away from distribution...but, what about advertising cost? In a global market, increased competition has lowered the cost of production but creative costs (from design, to marketing, to advertising) have increased significantly. Greater competition means a greater need to differentiate oneself from the glut… If everyone is a network, will these content producers really reap the benefit of their copyright vis-a-vis the traditional network model? Is the advertising model that works in this scenario dependent on viral marketing? How about sustained creativity for anyone individual in the mass of Internet content producers? High quality content takes time and time is money for those not independently wealthy? Doesn’t one need economies of scale to spread risk to maintain creative output et cetera? Won’t media firms (MTV FLUX, YouTube, and MySpace in this case) ultimately reap the benefits of copyright….? Who makes money?

Kagan Research reports that despite a slight erosion of Cable TV's penetration rate over the next decade in the face of satellite TV, "cable revenue from residential subscribers is expected to grow from $68.2 billion in 2006 to $120 billion in 2016." This expansion is largely due to the growth of broadband Internet, telephony and VOD subs as well as the upswing in local advertising dollars.

According to Kagan:

"That doesn't include additional revenue from business customers (see Oct. 19 Kagan INSIGHTS free at kagan.com). The gains are expected despite penetration for cable TV video services as a percentage of all residential TV households slipping slightly from 58.6% this year."

More Excerpts:

"Cable telephony and high-speed cable modems get the most attention among add-on cable services. But the list is much longer: digital video recorders, high definition channels, video on demand and interactive TV."

"'Cable thrived despite stiff competition from satellite TV for a decade,' notes Robin Flynn, senior analyst with Kagan Research. 'Now telcos have arrived too, but cable is bulked up and remains well positioned. Competition increases, but so does the revenue pie with these additional services.'"

"Buoyed by the growing service menu, average revenue per (cable subscriber) unit including all services is expected to climb from $87.04 per month in 2006 to well over $140 by 2016. While consumers pay more, they also get more services. And not all of that ARPU increase comes from residential subscribers. Cable TV's local advertising—a component of ARPU—is fast growing. Kagan databook Cable Futurecast 2006 forecasts net local cable ad billings will increase from nearly $4 bil. this year to $9.6 bil. by 2015."

"Even the slight decline in cable residential penetration forecast for the next decade is not dire. The number of total TV households is growing, so cable's headcount will still rise slightly. 'We estimates multiple system cable operators are on track to recapture a little more than 160K basic subs in '06, a trend we expect to continue in the coming years,' notes Cable TV Investor: Deals & Finance ."

Rupert Murdoch has said that sports are the battering rams of pay television. 

The expansion of distribution methods for television has placed scarcity in broadcasting away from distribution and onto content production.  This gives copyright owners leverage because success as a broadcaster depends upon securing ongoing access to the the rights of distinctive and attractive programming.  So, the bargaining power of television rights owners has increased.  The growth in pay television has lead to bidding wars for attractive content from sustainable producers and inflated the cost of programming rights.  Sports is the perfect example and trends show that sports franchises have moved from mainstream channels to pay channels over the last few years in increasing numbers. With direct payment, costs for outbidding terrestrial rivals are simply passed on to the viewer. Advertiser-supported  broadcasters cannot do this.  So the growth of subscription funding is inevitably shifting not only audiences but also economic power away from advertising-funded channels to pay-television operators.

Even costs for game production are projected to rise as demand for third party intellectual property from proven sports franchises becomes more desirable to game companies looking to mitigate escalating risks from fewer profitable titles

AdAge reports on the brisk Ads sales of NFL games:

Advertising Age - MediaWorks - Broadcast, Cable Execs Applaud Brisk Ads Sales for NFL Games

Excerpts:

ESPN is virtually sold out of its "Monday Night Football" inventory, although it's worth pointing out that cable operators that carry the sports channel get about 30% of the total ad inventory available. Fox has sold between 85% and 90% of its Sunday football inventory. NBC, the new player in town, is 85% sold, and CBS is 80% to 85%. Overall, cost-per-thousand-viewer increases compared to last year outpaced this year's broadcast upfront pricing increases at around 5% to 8%.

MySpace selects Google search system | Business News | Reuters.com

 Excerpt:

News Corp.'s Fox Interactive Media said on Monday that signed a multiyear deal to use Google Inc.'s search and advertising system to direct traffic across its network of Internet sites, including the wildly popular MySpace.com.

One of the main challenges for media firms in the Creative Economy is market retention. "The media content provider resembles a hunter gatherer in that for the creator of the media you start from scratch and need to capture or kill your prey each time, if you wish to prosper," says William Drury, Senior Marketing Consultant formerly with IBM EMEA, "You are only as good as your last effort. Quality, measured as you wish, is primary."

A thousand options fragment the audience for mainstream broadcaster and advertiser alike. What this means for mainstream broadcasters is that marketing television shows that appeal to broad audiences has also becomes more expensive. One of the growing trends in prime time television today is how TV shows with a broad demographic are marketed more like films. "The Premier means everything, says Megan Wolpert, executive VP of Spyglass Television, "just like it does in the film and the music industry. Today, television is starting to put much more stake into the premier of a show. So where it use to be the box office weekend would make or break how many screens you stay in over the next couple weeks in order to see if you can make more money. Today the same phenomenon is happening with television."

What this means for advertisers is that they are paying more to reach those broad audiences, while their effect is less potent. Companies that continue to capitalize on customer relations and experiential marketing are the real winners in this scenario. Market retention is the key to deriving sustainability in the disposable and immediate age of rapid product turnover and new media. Brand awareness or identity alone are no longer enough.

Advertising Age - McKinsey Study Predicts Continuing Decline in TV Selling Power

Excerpt:

"Should everybody shift 30% of their dollars to the web?" asked Amy Guggenheim Shenkan, senior practice knowledge specialist in McKinsey's San Francisco office. "No. There wouldn't be room today if everybody wanted to shift online. Last year [online media] was $12.5 billion, by end of 2007 digital advertising will be $18 to $25 billion. ... So we're seeing a lot of growth, but if you want to match up share of attention and share of dollars it couldn't happen for that reason." The TV ad industry is a $68 billion one.

Reality television is a result evolving market forces.  Certainly, the rising cost of production and the demand for content with the worldwide proliferation of cable is one obvious driver.  Reality television especially of the type that is integrated with the Internet or with direct viewer response is also part of the evolving trend towards interactive media with the younger demographic.  Interactivity is also part of the gaming generation's fascination with role-playing.  Sims in the world of traditional television content is found in the form of reality television.  According to John C. Beck and Mitchell Wade, in their study of the gaming generation's attitudes towards business, entertainment software has trained this generation to expect a heightened relationship based on immediate rewards or consequences with media and the world at large.  I believe this ethos towards role-playing and interactivity is seen in the form of reality-based shows like "American Idol" and the "Apprentice".

With advertising in turmoil on broadcast TV, reality shows - like American Idol or even Tommy Hilfiger's less successful "The Cut" - take product placement well beyond a can of Coke enjoyed by our favorite television show's character. "Idol was simply a marketing tool for me to sell records," says Simon Cowell on "Larry King Live."  "The show was one thing but it was actually my record label, which was the most important thing.  So, my background is I run a record label, and I still run a record label and that's really my passion.

The real winner of "American Idol" is Cingular Wireless. Cingular has an exclusive deal with the show's producers that let customers text their votes instead of trying to call in on busy lines. In Season Four last year, 41.5-million text votes were sent in; Cingular charges between $19.99 per month for a text package with 2,500 messages included and 10 cents per message on a pay-as-you-go plan, meaning the company raked in as much as $4.15-million in text messaging fees from American Idol votes alone last year. When the Apprentice was at its peak, Ad Age writes, Yahoo's product placement was a solid success, "After the ice cream challenge during the second season, viewers were told to go search Yahoo, and “Within three hours of the end of the show, the term ‘Apprentice Ice Cream’ was the third-most-searched term on Yahoo that day. By 5 o’clock the next afternoon, the ice cream was sold out,” says Yahoo VP Jim Moloshok. And the results kept coming.  After the Levis challenge, “[f]our days after that episode ran, viewers were still searching Yahoo avidly for ‘Apprentice Jeans’ to get a copy of the catalog.  And "Apprentice Jeans" was still ranked No. 1 among Yahoo Web searches,” AdAge reports. Using secret tracking devices, Yahoo discovered that “The core demographic for the ice cream was 21 to 34 years old. For the jeans, it was 35 to 44.” Yahoo VP  Moloshok says, “If you can complete the loop, product placements like Mark Burnett is doing are one of the most effective ways to get people engaged with a product.”

Now CNN like MTV Flux are taking "reality" one-step further implementing an infrastructure for user-based content.

Advertising Age - MediaWorks - Dell to Sponsor CNN's 'Citizen Journalism'

    Excerpts:
    NEW YORK (AdAge.com) -- At a time when much of the digital media world's focus is on how to monetize user-generated content, CNN has signed Dell as a major sponsor of its foray into citizen journalism -- iReports and the CNN Exchange program.

      Guardian Unlimited Business | | MTV hooks up with Google

        Excerpts:
        MTV is to supply segments of its programmes to the thousands of websites and blogs affiliated with search giant Google.

        MySpace a launch pad for next-gen media biz

          In late July Diane Mermigas wrote a series on Fox News Corp that included an interview with Rupert Murdoch.  In this piece she focuses on Fox Interactive Media and MySpace.

          Excerpts:
            It's too soon to know the future of paid content downloads on MySpace, having recently launched its first offering: $1.99 downloads of the Fox series "24," sponsored by Burger King. However, paid search represents a considerable revenue-generating opportunity for MySpace and a search partner.

              News Corp. sculpting bold plan for growth

                Late in July, Diane Mermigas wrote a multipart series on Fox News Corp that included an interview with Ruport Murdoch.  Her second piece focused on how the media firm is leveraging its branded content and traditional distribution organs to both build a digital distribution model based on consumer interactivity and to develop its presence in emerging international markets. 

                Excerpts:

                News Corp. in the past 12 months has been forging media's future by buying and riding the likes of social networking leader MySpace.com and video gamer IGN to meteoric heights while also enjoying record performance levels at its core broadcast and cable television, film and print operations, even as they struggle to reinvent their business models.

                  USNews.com: Money: MySpace for boomers

                  Excerpts:
                    Now a new venture, Eons, aims to give baby boomers a place to gather online with other people in the same age group. Jeff Taylor, founder of the popular job website Monster, created this MySpace-like site with features specifically crafted for a 50-plus, Web-savvy user. In fact, you can't even log into the website unless you are over age 50.

                      The Brand Underground - New York Times

                        Here is a great article written on branding and the commodification of art for the gaming generation. This phenomenon can be seen as a facet of the experience economy.  See link for elucidation on that topic.  The basic idea is lifestyle as commodity and the disctinct ethos of the game generation towards art and commerce vis-a-vis their predecessors.  See link for elucidation on general ethos of gaming generation.

                        Moving homes today...more soon.

                        Fox News Corp has a brand. Unlike their competitors, they haven't relinquished it to stars or shows et cetera. They are also the exception because they understand market retention. You may have a political bone to pick with Fox News, but only because you are aware of their brand. MySpace has market retention too, because, well frankly, it's quite addictive. It's the internet version of tobacco.

                        This idea of market retention is foreign to media firms in an age where most are hyper-focused on "capturing" markets. Media firms spend millions of dollars on marketing only to toss away their branding in a nano-second. All of this is applicable to Fox News Corp. and MySpace. News Corp's acquisition is on the digital ball. Viacom is not far off, but they are trying to build from scratch (with MTV's new social networking site Flux) what Murdoch had but to acquire. While other media firms are looking in their rear view mirror, Murdoch and Myspace are the perfect and timely diagonal expansion. More on that later. In the meantime...

                        Marketing on MySpace | ForBiddeN fruit | Economist.com

                        Excerpts:

                        Advertising Age - MediaWorks - Digitas Brings in Digital VP From Roo

                        AdAge interviews Greg Verdino as the new Digital VP at Digitas about new media marketing. The segmentation or 'narrowcasting' of cable and internet audiences works for marketing brands like Home Depot or Big Pharma with websites, channels, and specialized social networking sites.

                        Excerpts:

                        "Advertising is in turmoil because of new technology," says Dave Morgan, CEO of Litton Entertainment when I interviewed the leading independent distributor in February this year. More than fragmenting audiences new media allow viewers to bypass advertising altogether.

                        Excerpts from "Amazon Readies Launch of Ad-Free Video Download Service":

                        A year in the works, the e-tailer's digital-video-download service is set for a mid-August launch and will feature a subscription service and a la carte movies and TV shows. Yes, folks, that's more ad-free TV for sale.

                        The service, which is referred to as Amazon Digital Video -- or Amazon "DV" -- has evolved over the past year from a music-themed offering to a video-centric one, according to production-studio and TV-network executives briefed on the plans. The reason? Apple, these executives said, already commands such a large share of digital-music sales that Amazon felt it would be too difficult to break into the market.

                        Amazon's reputation for ease of use could help it capture the video-download market, much as iTunes did with its simplicity in the music market. If that happens, it's sure to speed up consumers' comfort level with paying for ad-free TV content -- at a time when networks are trying to launch their own ad-supported video-on-demand plays. ABC, for example, has offered online versions of its shows that allow the advertisers to ride along and has plans for a more sophisticated offering in October.

                        Revenue from licensed digital-music distribution doubled in 2005 to $653 million, according to PricewaterhouseCoopers, which estimates that by 2010, digital music will be a $20.7 billion market. In contrast, the firm said consumers spent only $1.1 billion on online movie-rental subscriptions and $1 million on digital-streaming movies in 2005. Digital-streaming services are expected to outpace online rentals, by 2010 generating $400 billion in annual spending while online rentals will be a $3.2 billion business.

                        Amazon owns IMDb.com, the database of Hollywood information, and has been trying to get into the content creation business. Its first foray is a promotional program called "Fishbowl," a series of Bill Maher-hosted interviews, sponsored by UPS and Cingular. Mr. Maher's guests include moviemakers, actors and authors -- all of whose products can be bought on Amazon.

                        Marines on MySpace

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                        MTV Think News - Marines Totally Want To Be Your MySpace Friend — And Recruit You

                        Excerpts:

                        The courting of the MySpace generation — the site now claims more than 96 million members — is a nod to the importance of tapping the potential of the Internet to reach America's wired youth, according to Major Wes Hayes, Marine Corps Recruiting Command spokesperson.

                        The site, which features a selection of downloadable Marine wallpaper, also has links to recruiters and, so far, boasts more than 13,000 friends with handles like Promiscuous, Leatherneck and Tha Rock.

                        "The Marine Corps is always looking for new and innovative ways to make sure our target audience, young men and women ages 18 to 24, are informed about the Marines," said Hayes, adding that the reach into MySpace was not related to the kind of missed recruitment goals some branches of the armed services have experienced in the past few years.

                        Given the string of highly publicized incidents involving child predators trolling MySpace to meet underage children, the Army pulled its banner ads from the site earlier this year, according to Louise Eaton, media and Web chief for the U.S. Army Accession Command. But the Army kept in touch with MySpace in the interim, and after the site recently issued new security guidelines and assured the Army that MySpace was more secure, the Army is prepping a return of the ads as well as a profile page. "The purpose [of the Army profile page] is to let young people know about the opportunities Army offers," Eaton said.

                        And why MySpace? "Because young people are there," she said. "We have to go to where young people are." The Air Force advertises on MySpace but doesn't have a profile page, and the Navy has no presence on the site at this point. The Army's profile page is being worked on now by its ad agency, and Eaton said it should be up soon.

                        "The Internet is a very powerful tool and we see it as a new and innovative way to reach our target audience," Hayes said.

                        Murdoch surprised by MySpace growth | Tech&Sci | Internet | Reuters.com

                          The Hollywood Reporter interviewed Rupert Murdoch, chairman and CEO of The News Corp. 

                          Excerpt:

                          The Hollywood Reporter: DO YOU THINK THAT WILL BE A CHALLENGE GIVEN WHAT YOU HAVE BEEN UP AGAINST BEFORE?

                          Murdoch: Probably not. It will be a little bit different in each country. The English-speaking world will be easy. We will have to think about going with a slightly different model or architecture in Japan or Germany or some other countries. It will be driven by exactly the same principles. Young people are the same everywhere. They are curious. They want to take control of things. They want to live in their own world.

                          The Hollywood Reporter: THIS IS A REMARKABLE TIME. YOU HAVE CALLED THIS THE GOLDEN AGE OF MEDIA. WHAT WILL IT EVENTUALLY MEAN TO THE INDUSTRIES YOU ARE IN AND TO YOUR COMPANY?

                          Murdoch: There are new capital advantages to get things done. You go to these conventions and see all the new technologies being rolled out. But they are all meaningless unless they have content. There is going to be more and more demand for content, and there will be more ways for us to develop more content. And we've got to use these platforms to monetize all of our existing content.

                          A specter is haunting America - a specter of the creative economy.  Its expressions are the lifeblood of our nation's economic muscle, and the metamorphoses of our social and economic organs are symptoms of its manifestation.  Yet, we are largely unaware of its existence, and its ideation remains unarticulated in our public discourse - obscured as it were by the rapping bare knuckles of narrow-minded extremities on the left and right hands of our cultural divide.  The more opposable of left-handed thumbs call the phantom menace capitalism and condemn the corporatization of art and the commodification of culture.  On the right, all fingers - except pinkies - point to the sun setting in the West and call the umbrage Hollywood.  For it is better, that one of your fingers should perish rather than have your whole hand cast into Gehenna. 

                           

                          I have reduced these analogue dubs into binary code - comprised of the numeral zero and - for the increasing number of this magazine's bilingual readers - the numero uno.  I then filtered out discordant noise using compression algorithms that preserved each sound bite's ideological fidelity, but I scrambled the signals so that left and right channels reversed stereophonic polarity.  Presto change-o!  At zero decibels, the human ear perceives near silence - or the sound of both hands clapping for the "no brow" culture of today's youth. The canine ear, however, would still detect the looping chant of hippies asking if that is freedom rock they hear, and if so, that the volume be turned up.

                           

                          Friends, country/city men/women!   Before you hand cyanide to the old man behind the curtain - excuse me, 35mm camera - or have postmodern nightmares of movie executives screaming, “What are our theaters now if not the tombs and monuments to Film?” Before you condemn the blasphemy of Technicolor's "technology agnostic" e-cinema rollout; or become a digital Bolshevik, shooting at the heart and mind of film's aristocracy with your web clips of skateboarding dogs; before you write that long-procrastinated blog manifesto on the weak social capital of myspace friendship; or, better yet, one to educate our Prince de’ Medici; keep in mind: This is no joke.  Call it what you will, but the creative economy is here, and our nation's and your region's wealth depend upon it.

                           

                          Our means of production is no longer capital, natural resources, or labor, declares economist Peter Drucker. It's information. Yet, one in four IT jobs and ten to twenty percent of financial services jobs in the United States and Europe will be offshored by 2010.  Forrester Research estimates that from 2000 to 2015 some 3.3 million white-collar jobs and $136 billion in wages will shift from the U.S. to lower-cost countries like India, China, and Russia.  Manufacturing bore the brunt of outsourcing in the past.  Today, the service sector, which employs four-fifths of the labor force, is increasingly affected.[1]

                           

                          “In the old days," says computer scientist Vernor Vinge, “anybody with even routine skills could get a job as a programmer.  That isn’t true anymore.  The routine functions are increasingly being turned over to machines.”[2]  Appligenics, for example, a small British company, has created software that writes software.  The application is "up to 500,000 times faster than human programmers and completely error-free," says Jim Close, the company's business development director: "That means whereas a human would consider four hundred lines of computer code a good day's work, our software writes that in under a quarter of a second."[3]  Even online à la carte legal services have made inroads into the legal industry.  Analysts say, "As online resources grow, the demand for traditional services force lawyers to lower fees."[4]

                           

                          More provocative than outsourcing, is the magnitude of convergence between telecommunications, digital technology and industry.  This development has hastened the transformation of our economy from one based largely on information and knowledge to one driven principally by creativity.   John Howkins categorizes the creative economy to include fifteen creative sectors - such as research and development, software, design, and content industries like film, music, and video games  - that produce intellectual property in the form of patents, copyrights, trademarks and proprietary designs.  The annual global revenue for Howkin’s fifteen identified sectors was $2.24 trillion in 1999.  The U.S. share represents forty percent of the market with revenue totaling $960 billion.  The U.S. share also accounts for more than forty percent of research and development, forty percent of television and radio, and thirty percent of film.  Howkins calculates that core copyright industries will be worth $6.1 trillion internationally in fifteen years.  U.S. dominance in these segments - more than productivity improvements related to new technology and new manufacturing methods - is responsible for much of the nation’s global economic competitiveness since the nineteen-eighties.[5]

                           

                          core_industries.jpg

                          The creative economy suggests more than technological progress or the growth of media and entertainment.  However, the latter development is important to emphasize.  Most of us are oblivious to the considerable role that content industries play in job and wealth creation - not only in terms of regional economic development and growing high-tech industry, but also in terms of our nation's global economic competitiveness.  In fact, the media, entertainment, and cultural copyright sectors create new jobs at a rate three times faster than the remaining economy.  In 2002, these sectors employed 5.48 million workers and accounted for six percent of U.S. gross domestic product.  These sectors also generated $89.26 billion in export revenue - surpassing every other category including automotive, aviation, agricultural, as well as chemical and allied products.[6]  Foreign sales of motion pictures alone totaled $17 billion in 2002.  The motion picture industry is the only U.S. sector that boasts a surplus balance of trade with every other country in the world; and the international sale of filmed entertainment plays a significant role in our nation's overall trade surplus in services.[7]  U.S. sales of entertainment software also totaled $8.2 billion in 2004, and U.S. game designers exported an additional $2.1 billion the same year. [8]    Deutsche Bank forecasts that global revenue for game software will grow at thirteen percent annually over the next four years, while PricewaterhouseCooper projects that the U.S. media and entertainment industries will be worth $690 billion by 2009.[9] 

                           

                          U.S. regions are increasingly unable to compete against places like Bangalore, India or other lower cost localities for the routine information and knowledge jobs considered to be the holy grail of economic development.  Emphasis is frequently placed on attracting and growing high-tech to the exclusion of all else.  In reality, the high-tech sector does not grow in a vacuum.  It certainly will not grow without the creative forms of the content industries that drive technological advance for fields as diverse as real estate and medicine, and that also add high-value to technology products and consumer goods in today's glutted marketplace.  “You can’t have high-tech innovation without art and music," writes urban planner Richard Florida: "All forms of creativity feed off each other."[10]  Ultimately, high-tech requires a creative social milieu - what Florida has termed "the creative ethos".  This chief ingredient underpins the entire creative economy and those fertile regions that establish tangible high-tech hubs.

                           

                          Even firms cannot compete exclusively with technology in today's global market.  Technology is cheap and ubiquitous until it acquires the high-value-added context of creative forms like branding, content, and design.  “At Sony, we assume that all the products of our competitors have basically the same technology, price, performance, and features," says Norio Ohga, former chairman at Sony. “Design is the only thing that differentiates one product from another in the marketplace.”[11]  Global competition has pushed quality so high and prices so low that the pressure to add value is intense.  “We can’t compete with the pricing structure and labor costs of the Far East," remarks Paul Thomson, director of the Cooper-Hewitt Museum in New York City. “So how can we compete?  It has to be with design.”[12] 

                           

                          Stock from companies that place a heavy emphasis on design outperform their counterparts by a wide margin.[13]  For every percentage of sales invested in product design, a company’s profits increase by an average of three to four percent.[14]  In 2001, Whirlpool introduced its Duet line of washers and dryers.  By 2003, the company had nineteen percent of the front-loading washer market, up from zero, two years before.  "If you looked four or five years ago, the average life of a washing machine was something like thirteen years," says CEO, Jeff Fettig: "We're surveying owners and finding out a lot of people are replacing their washing machine with the Duet after five, six, or seven years because they want it, not because their old machine broke or wore out."[15]  Coleman Coolers was long considered the industry standard until competition began to erode the company's market share.  In 1999, Coleman redesigned its coolers.  Two years later, the company's cooler sales increased by forty percent and Coleman led its product market for the first time in years.[16]

                           

                          “Jeff Grady, CEO of Charleston based DLO,” remarks Director of the Charleston Digital Corridor, Ernest Andrade, “was smart enough to figure out that you've the iPod, but you don't have the little accessories to go along with it.”  Design also has the powerful capacity to create new markets - whether for ring tones, medical devices, or cutensils.  “Abundance, Asia, and Automation turn goods and services into commodities so quickly,” explains business writer Daniel Pink, “that the only way to survive is by constantly developing new innovations, inventing new categories.”[17]  “Every product from sneakers to software is constantly being upgraded," writes Florida, “and everything from mutual funds to potato chips now comes in an ever-proliferating variety of types - because the Creative Economy is largely based on selling novelty, variety, and customization.”[18]  "Design has expanded its definition to include creating, recognizing, and developing opportunities to build business," says Tim Brown, president and CEO of IDEO, a design firm based in Palo Alto.[19]

                           

                          While the creative economy does not represent the first time application of the high-value-added context of creative forms to technology products or consumer goods, it does embody the large scale and pervasive use of this methodology - what Virginia Postrel has termed the "aesthetic imperative" - and the considerable bearing that this approach has on the profit margins of every major industry sector.  “Manufacturing and technology generate wealth only when they make matter and information serve human desire," writes Postrel: “Desire is the true source of economic value.”[20]  When The New York Times asked GM Vice Chairman, Bob Lutz how his approach differed from his predecessors, Lutz responded, “I see us being in the art business.  Art, entertainment and mobile sculpture, which, coincidentally, also happens to provide transportation.”[21]

                           

                          Branding, like design, can distinguish a product from the glut of global competition, but firms today cannot succeed with a brand strategy based on awareness and identity alone. “Mastery of design, empathy, play, and other seemingly, 'soft' aptitudes," explains business writer Daniel Pink, is “the main way for individuals and firms to stand out in a crowded marketplace.”[22]  "It may seem odd to hear a designer discuss brand positioning," writes John Tanz in Fortune: "Get over it.  No longer the wacky freethinkers whose work may never exist anywhere beyond their sketchpads and computer screens, designers are developing serious business chops, becoming better versed in the concerns of the manufacturing, finance, and marketing departments."[23] 

                           

                          When I asked media-christened branding expert, Rob Frankel, how companies protect brand in the digital age with its lower barriers to market entry, he responded: "Most of these guys confuse 'brand' with identity or product. Identity is one small fraction of brand and products are merely 'proof' of your brand's promise."  Frankel distinguishes himself from "old school" marketing consultants like Jack Trout and Al Ries "by redefining brand in a way that impacts the bottom line."  "Branding," Frankel continues, "is not about getting your prospects to choose you over the competition.  It's about getting your prospects to see you as the only solution to their problem. Everyone makes a PC, but why do some people insist on a Mac, when it costs more and ostensibly has less software?"

                           

                          When you look at the size and scope of the global advertising industry, you can appreciate how creativity factors into our economy.  Zenith Media estimates that global expenditure on advertising totaled $403 billion in 2005.[24]  According to economists Deidre McClosky and Arjo Klamer, persuasion, advertising, counseling, and consulting account for twenty-five percent of U.S. gross domestic product.[25] Economist Gillian Doyle also notes that when “expenditure on advertising is calculated as a percentage of GDP, the pattern that emerges indicates that as the national economy has grown over time in real terms, advertising has not just grown in parallel, but has grown even faster.  So the amount of advertising activity in an economy is related to the size and growth rates of the economy itself, and advertising has tended to account for a progressively more significant portion of GDP as time goes on.”[26] 

                           

                          The convergence of digital technology, telecommunications, and industry has also eroded product market boundaries.  Sectors that were once distinct and unrelated now overlap through their shared use of media and information technology.  "What we do in medicine now relies on digital imaging.  It also relies on high-resolution, high-speed data processing," says Dr. John Raymond, Vice President for Academic Affairs and Provost at the Medical University of South Carolina.  So do digital cinema and entertainment software.  "MUSC was one of the first institutions in the U.S. to have a sixty-four slice CT scan that gives amazingly high-resolution pictures of the heart," continues Dr. Raymond, "Some people believe that this technology may even supplant doing cardiac catherizations for diagnosing cardiac disease.  But trying to enhance the images, learn how to use computer algorithms to read them correctly, or transfer the data rich files to a distant site to be read by an expert; those are issues we have to deal with, that we haven't dealt with adequately."  

                           

                          The CELL based Mercury Computer blade server is a perfect example of a direct technology transfer from entertainment software to medicine.  Video games rely on powerful CPUs for the high-speed data processing required to render 3D images in real time.  As gamers demand a more heightened experience and greater realism, the data rich digital graphics and audio require more processor speed. Advanced scanning techniques - like the one described by Dr. Raymond - lead to huge amounts of data.  Using a traditional computer processor, reconstructing an image takes two seconds per slice, or over five minutes for a full image, but using the CELL processor, a central processing unit developed and optimized for gaming and broadband by Sony, IBM, and Toshiba, an image is processed in seconds. 

                           

                          Digital cinema technology has repercussions for any application where the display and transmission of high-speed high-resolution data rich images are required: for example, high-resolution satellite imagery or telemedicine.  Consequently, the National Institute of Standards and Technology developed scientific measures and test materials to assess image quality and the effects of compression for the display and transmission of digital content in collaboration with the Digital Cinema Initiatives LLC - a consortium formed by seven major movie studios to create a digital equivalent to 35mm film.  Before a cinema can screen digital movie content, the presentation is compressed using high-speed high-resolution algorithms, encrypted, and transported to theaters via satellite, broadband, or hard drive.  In the end, "networks don't care what kind of data you are sending over them," says Bob Gibbons, Director of Marketing and Communications at Kodak Digital Cinema.

                           

                          Military surveillance, targeting, and weapons testing also use technology that was developed for motion pictures and entertainment software.  The U.S. government currently employs Panavision's 300x compound zoom lens for military surveillance.  The lens made its television debut during ESPN's coverage of the Mercedes Championship in Maui this year.  Applying Panavision's lens technology with a high-speed high-resolution digital camera like the Panavision HDMAX - that incorporates the QuadHD CMOS sensor - detailed images of test missiles or objects of interest can be captured for analysis or target verification.  The Mercury Computer’s CELL based blade server can also handle the requirements of sonar and radar computation for military or scientific applications, because of its ability to process real time data streams.  “The Cell BE processor was originally designed for the volume home entertainment market," says Craig Lund, chief technology officer of Mercury Computer Systems, "but its architecture of nine heterogeneous on-chip cores is well-suited to the type of distributed, real-time processing that will power tomorrow's digital battlefield.”[27] 

                           

                          Hollywood and video games drive the development of high-speed high-resolution digital image capture, management, transmission, and display that have implications for fields where these advanced technological applications would be economically unviable to develop on their own.  Digital Light Processing technology (DLP) from Texas Instruments uses Digital Micromirror Device light modulators (DMD).  DMD technology has made significant inroads into both the home and theatrical digital projection display markets, but the technology also has applications ranging from volumetric display, holographic data storage, lithography, scientific instrumentation, and medical imaging.  Entertainment software has lead to faster introduction and deployment of processors, broadband networks, and high definition disks like HD-DVD and Blu-Ray. The “media richness demanded by gamers and game developers drives progress in graphics and audio for the entire PC industry,” notes John C. Beck and Mitchell Wade in their study of the game generation's influence on organizational values in business.[28]  “IBM places value on chips made for entertainment software that goes beyond revenue and profits," says Dr. John Kelly, senior vice president and group executive for IBM Technology Group: "These chips help drive technology in other areas."  Online gaming and game downloads are one of the fastest growing uses for bandwidth connections, and entertainment software stimulates the demand for third and fourth generation cellular telephony with broadband speed capability.  PricewaterhouseCooper projects that wireless games in the U.S. will grow from $142 million in 2003 to $2.8 billion by 2008.[29]  

                           

                          Despite a prima facie assumption regarding technology's cardinal role and inherent value in our local and national economies - technology, while an important catalyst, is not the central driver of long-term economic growth.  Although, we are not used to "thinking of ideas as economic goods," writes economist Paul Romer, "they are surely the most significant ones that we produce." Unlike traditional goods such as raw materials or machines that diminish or deteriorate with repeated use, ideas offer us increasing returns and actually grow in value the more they are used.[30]  The increased competition and shorter product cycles of the global market, however, have made time a scarce commodity.  As Florida writes, "Time is literally worth more than it use to be."[31]  Therefore, sustained and consistent creativity is the keys to deriving durable economic growth in today's economy.  The "only way for us to produce more economic value-and thereby generate economic growth," continues Romer, "is to find ever more valuable ways to make use of the objects available to us.”[32]  

                           

                          The changes in our economic, social, and cultural organizations that have been developing for decades and define the landscape of the creative economy are not the result of new forms of technology.  Technology, innovation, and creativity are the products of these broader and deeper shifts; because, it is these structures, and not technology, that consistently support and elicit the very conception, production, and transmission of ideas that generate economic wealth.  The “most important ideas of all are meta-ideas," writes Romer, “ideas about how to support the production and transmission of other ideas.”[33]

                           

                          Creativity is expensive and time consuming.  The production of commodities in the creative industries, which include film and television, is said to suffer from "Baumol's disease":  Costs in these sectors tend to climb faster than the rate of inflation, chiefly because creativity is dependent on highly specialized human capital and inherently labor intensive. Labor costs in the creative sectors also tend to rise more rapidly than others do. [34]

                           

                          Conventional creative sectors - like high tech and entertainment - have always fallen under the traditional research and development model with its characteristic high production and low replication costs; intrinsic risk; and dependencies on intellectual property and human capital.[35]  Once the first generation of a pharmaceutical like Lipitor or a movie like Episode III: Revenge of the Sith is produced in its expensive and lengthy R&D phase, it costs comparatively little to reproduce and supply it to extra customers.  In the United States, the period from development, to FDA approval, to market for a new prescription medicine is ten to fifteen years, and typically costs $802 million.[36]  While corresponding data for the time it takes an average feature to make it to market varies, the industry slang "development hell" is frequently used to emphasize the notoriously long periods projects can remain in development before they are finally scrapped or "green lit."  Spiderman, for example, was announced as a film in 1986 but not released until 2002.  In 2005, the cost of an average feature released by MPAA members was $96.2 million. About thirty-seven percent of, that was spent on marketing.  The norm for expenditure on an hour-long television episode is $2 million, not counting development costs.[37]  Console game development costs between $3 million to $10 million per title,[38] with time from inception to market ranging from one to four years.[39]  Meanwhile, costs are projected to rise as demand for third party intellectual property becomes more desirable to game companies looking to mitigate escalating risks from fewer profitable titles.  Along with the increase in licensing fees from proven sports and movie franchises, development costs for three dimensional graphics, artificial intelligence, and enhanced voice and sound effects for the next generation game consoles are also projected to rise.

                           

                          Creativity carries tremendous risk.  Only five of every five thousand medicines tested, according to the Pharmaceutical Research and Manufacturers of America, make it to clinical trials.  Based on research by the Tufts Center for the Study of Drug Development, only one of these five is eventually approved for patient use. Of the roughly forty thousand feature scripts that are written on spec in any given year, three thousand are optioned and a mere fifty actually made.[40]  In 2005, new releases totaled five hundred and forty-nine.  One hundred and ninety-four or roughly thirty-five percent were released by the majors and the other three hundred and fifty-five or sixty-five percent by independent distributors.  According to media analyst Christopher Gasson, only two out of every ten films made by even the most successful Hollywood studios, make a profit. [41]   Most films lose money.  "It’s a very frustrating process," remarks Megan Wolpert, Executive Vice President of Spyglass Television, "In terms of television very little work is done on spec.  Development has a seventy-five percent failure rate every year and that’s part of the game.  You buy eighty projects knowing that fourteen will be good enough to shoot.  Then of that fourteen, six will be on the air, and the rest just go away."  In 2004, three percent of PlayStation 2, Xbox, and GameCube titles accounted for 30 percent of the firms' combined 2004 revenues.  The total market for games included 1,751 separate titles, of which 91.3 percent sold fewer than 500,000 copies.[42]

                           

                          Writers like Thomas Friedman and others have referred to the flattening or horizontal effect of globalization on business.  The trend is fundamentally a direct result of the emergence of the creative economy.  Urban planner Richard Florida notes how the formal venture capital system, high-tech startup phenomenon, and rise in research spending have now combined with the creative factory and subcontract-manufacture systems - translate outsourcing - and a new creative social milieu to form an “age of pervasive creativity that permeates all sectors of the economy and society.” [43]   Focus on creativity, while outsourcing or automating production, provides firms with the most efficient division of labor.  According to Timothy Sturgeon of MIT’s Industrial Performance Center, this model has another benefit; subcontracted manufacture can also capitalize on risk spreading and economies of scale.   “I think that quality wins in the long run.  Now, quality can also mean that it is downsized that means that you may be the best but you’re not the biggest," says Bob Harvey, Vice President of Worldwide Sales at Panavision: "I believe that Panavision is the best but we are not the biggest.  We manufacture everything here in this country for the most part.  That isn't fair with digital obviously, but we design everything here.  That is fair with digital.”

                           

                          Despite our old-fashioned notions about creativity as something relegated to the fringe, or worse, the elite, creativity is mainstream.  More Americans work in art, entertainment, and design, than as lawyers, accountants, and auditors.[44]  In the United States, professional artists, writers, and performers have increased three hundred and twenty-five percent from 525,000 in 1950 to 2.5 million in 1999.[45]  Graphic designers outnumber chemical engineers by four to one, and more Americans are directly employed in film production than in the steel industry.[46] 

                           

                          Corporate recruiters visit graduate art schools looking for talent, and design schools emphasize corporate skills along with draftsmanship.  Northwestern's Master's program in product development at the McCormick School of Engineering and Applied Science includes courses in basic accounting, marketing, conflict resolution, statistics, and ethics. Design programs at Stanford and the Illinois Institute of Technology are also adding business courses to their curriculums.[47]  The “MFA is the new MBA,” writes Daniel Pink, because, in today’s Creative Economy, “the high-concept abilities of an artist are often more valuable than the easily replicated [left brain] directed skills of an entry-level business graduate.”[48] 

                           

                          Meanwhile, firms in the gaming industry, the fastest growing entertainment sector, search for gifted grads with degrees like Carnegie Mellon’s new Masters of Entertainment Technology or MET.  “The larger FX houses are constantly asking us about our students," says Professor John Kundert-Gibbs, Director of Clemson’s Digital Production Arts Program - whose alumnae work for the likes of ILM, Pixar, EA, and Nintendo.  As one game developer put it to columnist Tom Loftus, “Changes in the way games are built indicate less of a future demand for coders, but more of a demand for artists, producers, story tellers, and designers.” [49]    

                           

                          Film and video games are to this generation what journalism was to Bob Woodward’s.  Media and art programs are busting at the seams.  Enrollment at the Savannah College of Art and Design has increased fifty-two percent in the last five years.  “When I arrived at USC in 2000,” says Susan Hogue, Media Arts Instructor at the University of South Carolina and documentarian,  “there might have been two-hundred and twenty majors in Media Arts, and now it’s over four hundred.”

                           

                          In his prescient and aptly titled book, The Rise of the Creative Class, urban planner Richard Florida identified the emergence of the new economic and social class of “thirty-eight million Americans roughly thirty percent of the entire U.S. workforce,” whose creativity is the driving force of our nation’s economic growth. [50]   The key difference between the Creative Class and other classes lie in what they are primarily paid to do.  Those in the Working and Service Classes are primarily paid to execute according to plan.  The core of the Creative Class includes people in science and engineering, architecture and design, education, arts, entertainment, and the media whose economic function is to create new ideas, new technology, or new creative content and intellectual property.[51]  Around this core, exists a broader group of creative professionals in business, finance, law, health care and other related fields, who engage in complex problem solving that involves a lot of independent judgment and requires high levels of education or human capital.[52]   Today in the United States, the Creative Class is larger than the traditional Working Class.  The Service Class, totaling fifty-five million workers or forty-three percent of the U.S. workforce, is the largest of all.  The growth of the Service Class, according to Florida, is also largely a response to the demands of the creative economy.  “Members of the Creative Class, because they are well compensated and work long and unpredictable hours," writes Florida, “require a growing pool of low-end service workers to take care of them and do their chores.”[53]

                           

                          Our collective blackout about the central driver in our economy flows partly from the intoxicating polemics of the previous generations’ culture war that eclipse most public discourse about the shifting boundaries of our social geography and economic life.  On the left, critics bemoan the commodification of art and corporate America’s cooption of the symbols from the former bohemian and newer alternative counterculture.  “Hip is how business understands itself," writes Tom Frank, suggesting that the emerging culture is just another aspect of capitalism.[54]  On the right, detractors echo related themes about the devolution of society.  David Brooks describes the members of today’s generation as “The Organization Kid," part of the “Future Workaholics of America, obsessively career conscious and deferent to any authority that will get them ahead."  Brooks argues that the game generation lacks defining concepts of “character and virtue," because they have "been reared in a country that has lost, in its frenetic seeking after happiness and success, the language of sin and character-building."  "When I asked about moral questions they often flee such talk and start discussing legislative questions," writes Brooks: "These young people are not part of an insurrection against inherited order. They are not even part of the conservative reaction against the insurrection.  It's not that they reject one side of that culture war, or embrace the other. They've just moved on.” [55]    

                           

                          Yes, they have, and the notion illustrates a fundamental difference between today’s generation and the boomers.  The latter are wired to view creativity as a choice between “selling out" or “sticking it to the man”, and the quest for the great society as a battle between the mediocrity of relativism and the virtue of absolutes.  To use former bohemian terminology, today’s generation do not have those hang-ups.  Perhaps like earlier dissident antipoliticians from the former communist Czechoslovakia, who used satire and absurdity to highlight the fact that in a post-modern consumer society the “line of complicity runs through each of us," this new American generation distrusts political grandstanding and even traditional forms of organized politics.  “Ideology is a specious way of relating to the world,” writes Vaclav Havel former antipolitician later turned President of the democratic Czech Republic - especially when it fails to find solutions that arise organically outside the limits of its proverbial box.  “All of us,” writes Virgina Postrel, “must give up the cultural baggage we've inherited from the romantics, who set art against tech, and feeling against reason; from the modernists, who treated ornament as crime and commerce as corruption; and from the efficiency experts, who valued function while disdaining form.  We must abandon our prejudices regarding the sources of economic value. The production of wealth comes not simply from labor or raw materials or even intellectual brilliance. It comes from new ways to give people what they want. By matching creativity and desire, the economy will renew itself.”[56]

                           

                          The discussion continues online.  For an in-depth look at this and other related topics, visit http://www.alexaobrien.com/TheSecondSight.  If you would like to share your thoughts with me, or if you are a Nigerian official seeking to bequest the estate of a distant O'Brien relation who died unexpectedly without an heir, my email address is email@alexaobrien.com.



                          The term "no brow" is attributed to writer John Seabrook, Nobrow: The Culture of Marketing, the Marketing of Culture (New York: Alfred Knopf, 2000).

                           



                          [1] Paul Taylor, “Outsourcing of IT Jobs Predicted to Continue," Financial Times 17 March 2004; John C. McCarthy. 3.3 Million U.S. Service Jobs to Go Offshore. Forrester Research, 11 November 2002.  Online.  Available: http://www.forrester.com/ER/Research/Brief/Excerpt/0,1317,15900,FF.html

                          [2] Daniel Pink, “Revenge of the Right Brain,” Wired February 2005.  Online.  Available: http://www.wired.com/wired/archive/13.02/brain.html

                          [3] Software That Writes Software. Futurist Update, March 2003. Online.  Avaliable: http://www.wfs.org/futuristupdate.htm

                          [4] Jennifer 8. Lee, “Dot-Com, Esquire: Legal Guidance, Lawyer Optional,” The New York Times, 22 February 2001.  Online.  Available: http://www.nytimes.com/2001/02/22/technology/22LEGA.html?ex=1150084800&en=35db8cfb8e6f2494&ei=5070

                          [5] John Howkins, The Creative Economy: How People Make Money from Ideas (New York: Allen Lane, Penguin Press, 2001) 116.

                          [6] Copyright Industries in the U.S. Economy: The 2004 Report. International Intellectual Property Alliance, 2004: 7-8.  Online.  Available: http://www.iipa.com/pdf/2004_SIWEK_FULL.pdf

                          [7] Jack Valenti, president and CEO, MPAA, Too Much, Too Little, or Just Right? Intellectual Property Protections and Technological Innovation in the Broadband Economy.  Forum On Technology and Innovation, June Lunchtime Policy Briefing, Washington D.C., 27 June 2002.  Online.  Available: http://www.tech-forum.org/upcoming/transcripts/062702COC.pdf; Bureau of Economic Affairs, U.S. Department of Commerce. The Migration of U.S. Film and Television Production Impact of "Runaways" on Workers and Small Business in the U.S. Film Industry.  Export.gov, Office of Public Affairs, 2001: 10. Online.  Available: http://www.ita.doc.gov/media/filmreport.htm

                          [8] PriceWaterhouseCooper, Global Entertainment and Media Outlook: 2005-2009 (June 2005).

                          [9]Charles Van Horn, president of the International Recording Media Association. State of the Industry Address: All the world's a game: but are you a player? IRMA's 35thAnnual Recording Media Forum in Indian Wells, California, 15 March 2005.  Online.  Available: http://www.recordingmedia.org/news/speechforum2005.html; PriceWaterhouseCoopers, Global entertainment Outlook: 2005-2009, (June 2005).