Brian Wieser, Principal of Madison and Wall, joins Michael Beach to discuss the challenges of regional allocation for national brands and the importance of focusing on value over cost in the video ad industry. Watch our latest Screen Wars Thought Leader Interview here and read the full transcript below!
Michael Beach: Hey Brian, welcome to Screen Wars.
Brian Wieser: Thanks for having me.
MB: I’ve been reading your content for many years and I remember 8 or 10 years ago we would talk about political spend, back when I was at Targeted Victory and you were at Pivotal. Do you mind telling us about Madison Wall, the problem that you solve, and who your target audience is?
BW: Just to give you some background, I’ve straddled the worlds of Wall Street and Madison Avenue for over 20 years. I worked as a banker, and as an analyst. Then, I moved into agency work. After that, I worked in Ad Tech, and moved back to a Wall Street role afterwards. And then, I spent most of the last four years at WP. Since the end of January, I’ve been working on my own, doing consulting work in what we’re calling “Madison and Wall.” I offer advisory services that sit at that intersection, helping companies be conscious of the issues that providers of capital care about, while also bringing up the strategic issues that companies need to focus on. Bridging those two areas is a sweet spot, and I can help either with one or the other.
For example, when a company might have a strategy question, I can help analyze a given situation. I can help think creatively about the right strategy and the strategic solutions. I can also help if there are private equity investors who are trying to understand where opportunities are, or whether a business is going to grow into an evaluation that they’re considering paying. There are many ways we apply those skills, but that’s essentially what Madison Wall is.
MB: What do you think the biggest blind spot that each side has for the other is?
BW: From a corporate perspective, there’s a lack of understanding that investors don’t want to be focus on the short-term, especially public market investors. Anyone in a private company that’s preparing to become public thinks that they have to focus on an investor base that’s going to focus solely on the current quarter. This is inaccurate, since investors care only about the short-term when they’re not given a reason to not do it. This is a really important point.
I find that most boards tend to be very conservative in how they think and act for a bunch of systemic and structural reasons. This often leads to CEOs who have to be somewhat conservative to keep the favor of their board, which then leads to conservative choices, which leads to a lack of investment in growth opportunities, which then causes investors to be very short-term oriented.
No one’s swinging for the fences, and then investors start to expect it. Using political metaphors, it’s like politicians gerrymandering districts. In a gerrymandering district, politicians choose their voters, and companies choose their investors to some degree. You create a profile that appeals to a certain kind of investors, but deters others. If the profile of your company appears to be short-term oriented, because, in fact, you’re making short-term oriented decisions, your investor base is going to look like that. The opposite can also be true. If you rigidly focus on the long-term, and you have conviction in what you’re doing, and you really believe it, and you are consistently investing against long-term views, you will have a longer term shareholder base. At least in terms of the invested assets against you, not the trading on the day-to-day basis, but in terms of the long-term shareholder base that you have.
I think that’s the biggest misconception on the public company side and private company side. On the investor side, I think that there’s not always enough appreciation for the logic behind why companies make the choices they make. You hear investors who maybe have only ever grown up in financial services, and they say that, “Oh, that’s irrational, these people don’t know what they’re doing.” Or whatever. Well, there usually are valid reasons for why people make certain choices. But sometimes they are really hard to uncover without understanding the business well. For instance, television upfronts. How often do you hear this saying, “Oh, it’s irrational.” Or, “It’s from a bygone era.” But this exists because it’s better than the alternative of not having an upfront, that sort of thing.
MB: Absolutely. It’s a great example. We are recording this mid-March, so we are a few days after the Silicon Valley Bank (SVB) crisis started to calm down. Hopefully when this interview comes out we still have a functioning economy. What’s your take on the overall market, and how is it impacting Madison Avenue?
BW: Well, if we were recording this on March 8th, I would’ve said, “Well, conditions are actually pretty good.” Since about 15 months ago, there were many reasons why a soft landing seemed evident, or at least the conventional wisdom around the downturn was just wrong for most countries. And that it was playing out. But after what happened with SVB, as someone who worked at Lehman Brothers (although I had left in 2002), I was very aware of what can happen to a bank that’s left to hang dry.
I was a little concerned, but mindful, that they would hopefully guarantee the deposits. And sure enough, we saw that, so we avoided a great crisis. Today, we have Credit Suisse as a potential crisis. So, I am aware that there are real risks that could create systemic problems, but it’s not like when Lehman went under. I remember where I was when I knew they would not rescue it, and what I immediately thought that meant for everything. It was clear it was not good. We aren’t there yet, and it’s always a possibility, but I think your base level assumptions should be still on soft landing in most countries around the world, that are probably not going to see any impact. Advertisers have heightened concerns, but they already had a lot of heightened concerns. In the United States, most of the advertising industry talked itself into a downturn last year, incorrectly assuming that there was going to be an economic downturn.
And last I checked on an inflation adjusted basis, the numbers for 2022 looked pretty normal, besides the fact that there is inflation. I think that any advertiser that believes that advertising drives growth probably missed out on an opportunity if they did cut when their competitors cut. Now, that probably didn’t have much of an impact, because if everybody believes that the economy is going south in the advertising industry, and they all reduce their spending, then everybody’s equally well off. So maybe nobody got hurt in that sense, but you definitely saw the consequences of fear weakening advertising. You probably saw minimal growth in the fourth quarter of last year.
MB: It’s interesting because we sell to mid-market agencies, and you could tell that they had concerns, because of the concerns the brand had about what was going to happen. It was a second order effect tightening along the way, regardless of if it was due to anything real or not, people in the chain were definitely worried.
BW: The effects were evident from the beginning of last year, before the Ukraine-Russia war started. What I saw was a conflation between inflation and stagflation. The presumption was that high inflation necessarily means that an economic downturn will happen. But that logic is wrong. I’m not saying it can’t happen, because it clearly can happen, but not necessarily.
There are plenty of economies around the world with high levels of inflation that still have underlying growth in advertising and their economies. It’s fine to say that a low inflation economy is preferable, and we can also say that efforts to bring inflation down can have a negative effect on an economy. But coming out of the pandemic, we so many people with cash on hand for businesses, it was never the case that we were going to go into a proper recession.
Putting that analysis aside, most economists were relying on old models that said that there must be a recession. But correlation is not causation, and there’s a saying, “Economists have predicted seven of the last five recessions,” so most people in the industry tended to pick up on that. They thought, “it’s going to be like in the mid ’70s,” with high inflation and economic downturn. Actually, as it turns out, advertising still grew a lot in 1974, regardless of what was going on.
MB: On that note, I started my first company the year after the 2008 financial crisis. We were doing digital, native, and a lot of performance marketing, and we took off right away. And when you look back at the numbers of a company like Google, the crisis didn’t seem to slow them down at all. Are there channels that are immune to that? If there are, is CTV something that you think could be immune, or would it get hit with everything else?
BW: If you were to ask me what’s top of mind for the advertising industry, I would say number one is retail media, and number two is CTV. Now, I believe that retail media is mainly capturing a share of spending that will go to other digital platforms. So, when a retailer makes their inventory available, or a technology provider helps make it available, or an app developer like Uber starts selling ads, some money will flow there, but not necessarily most of it. It’s just a shift from other digital channels, so different media owners can benefit. What’s different with CTV, for the most part, is that not a lot of new money comes into television.
In 2021, we probably saw some incremental spending into television from advertisers who were not television advertisers before. But I don’t believe that there’s a systemic, sustained incremental growth because of CTV. So the vast majority of activity is coming from a shift of advertising budgets, that roughly will mirror the shift of consumption, which relates to the shift of content spending. There’s a relationship between share of content spend and share of viewing time on television. These things map out in a straightforward manner, which tells me that CTV will continue to grow, in the sense that it takes share of television, but television itself is not immune.
MB: Okay. Last week we had Mike Shields on, and he recently wrote an article about YouTube, and its slow growth last quarter, and we were trying to figure out what caused that. One of the theories we were talking about was the actual convergence of teams. If you look at all these surveys of convergent buying and planning, everyone says that they are converging teams, but we are not actually convinced that that’s the case. There seem to be a lot more silos somewhere in the process. For example, if you’re cutting your budget, maybe you’ll cut YouTube first, because it’s not perceived as real TV, or as a premium video. What’s your theory behind why their ad growth is nowhere near the pace that their time spent with streaming is?
BW: There are a lot of questions that we can ask, and few answers that we can know with certainty. First, do we have any idea how much of their revenue is coming from the US? We can make an estimate about what the constant currency growth rate is, which would be higher than the headline number everyone focuses on, by a few percentage points, at least. That’s one thing to consider. Second, we don’t know if they were exposed to a market like India or Indonesia, where for any reason they had a disproportional impact. There’s no way to know that. Another thing to consider is that roughly 200 advertisers would be about 90% of network TV, or 60% of all TV, rounding numbers. They typically have a $300 million media budget, or, at this point, something like $150 million on television, each.
YouTube is probably only getting a very small share of that budget. If we estimate that all television has a budget of, let’s say, 70 billion, we have to separate YouTube TV, and the vMVPD (which is plainly television, and able to capture CTV from the vMVPD), and other YouTube inventory, which is not universally viewed as television. It would surprise me If the resulting number was 1.5 billion. There’s no clear way to know, but Youtube will get a relatively small share. So, think of that 70 billion for total TV, and assume a 45 billion for national TV, and a low single digit percent is part of a television budget. There is also other spending that comes from search.
YouTube is the second most important search engine after Google’s main search engine. That’s something to consider. The other moving piece would be if there was any impact in performance based advertisers. How much was crypto? How much was e-commerce? There’s all these different category related things that we just can’t know.
So, it’s hard to say what the driver is behind that. But regarding the large brand theory, I don’t think that large brands spend a lot of money on YouTube. YouTube is increasingly important. It’s very likely that deceleration occurred to a very low level of growth for large brands across all YouTube spending, as was true generally in the fourth quarter. But I think that that’s the macro trend. It is not a macro industry level trend, it’s not about being holistic or not being holistic.
MB: You are thinking of roughly 2 or 2.5% of the 70 billion budget, right? According to Nielsen, YouTube counts for 10% of total TV time. That’s a way underinvested channel.
BW: You’re hitting on it. An important point that I don’t think enough people considers is that when Nielsen gets that number, they include the vMVPD in the YouTube number.
The vMVPD has roughly 5 million subs. That means that they have 5 million out of what the number is right now, around 60 million, if those are paid TV subscribers.
And even if you assume they undercount total TV viewing, the YouTube line item on the gauge includes all TV viewing that goes through YouTube’s vMVPD.
That’s going to be the majority of the YouTube tracking. So the money that’s flowing into YouTube TV really is TV money. It’s comparable to Pluto, Tubi, or Sling, and it even is comparable to Comcast Legacy Spotlight (Effectv), and Spectrum. The point is, part of that money is national money, but it’s part of what historically is included as part of the local number. After separating that, you end up with a much smaller share of total time spent on YouTube, the non-professional produced content. And related to the time and money thing, you have to remember that when you’re capturing the YouTube vMVPD inventory, they don’t have the right to sell most of it. If you’re watching Bravo, or ESPN, on YouTube’s vMVPD, that’s tracked as YouTube in the dataset, but they still don’t have the rights to sell it.
MB: Interesting. And they are still showing quite a bit of promo spots with relaxing landscapes and music for whatever reason.
BW: They still have a lot of opportunities. Let’s make sure that we analyze them clearly. There’s an interesting opportunity for YouTube, and even TikTok, for that matter. Pay TV penetration’s in the United States should fall below 50% within a couple of years. That’s a catalyst for thinking about what does that do for region frequency in a typical advertiser’s campaigns. It’s already really bad when you’re trying to get past a 50th percentile reach. Think about what the cost incremental point of reach at that level will be in two years for a typical campaign. The gap will be astronomically different. If you’re an advertiser who cares about reaching frequency, how are you going to manage that reach curve if you don’t include YouTube and TikTok (until it gets banned)?
If you don’t include them, you’re going to find yourself challenged to manage your costs. I think other advertisers will ask themselves, “Do we really care about reach and frequency? Does it really matter? That academic underpinning to why we do it comes from the 1890s? We should revisit that.” And some advertisers may say that recent frequency shouldn’t matter, and they will reorient all of their TV budget around a totally different paradigm. It could be performance, or it could be something else, but they could throw all the conventions used to drive budgets in the past out the window. They will start again. Other advertisers will say, “If we’re going to use region frequency, we need to use YouTube.” I think we’re at a tipping point, where large brands have to think about which side they want to be on. I don’t think status quo will hold at all.
MB: Yeah. I’ve always been challenged with performance, especially with video. It’s hard. Anytime we’ve done direct response TV with anything other than really low cost inventory, our customer acquisition cost has been really high, but you’re driving other value in their top of funnel and branding and things like that. But if you’re only looking at it… Do you think people are sophisticated enough to make a value judgment with a mix of outcomes?
BW: Manipulate data long enough, and it’ll tell you anything you want. I think sophistication will grow, and marketers will start with the premise of, “Here’s the organizing principle we need now. Now let’s go find the best way to make this happen.” And it comes down to belief, more than anything else. For example, if you believe YouTube is like television, and television is important. Video, sound, motion, and adjacency to content, will be your primary focus, and targeting and performance will be secondary.
Now having decided that this is an important part of your strategy, how do you make the most of it? That’s where the data matters, and you’re going to look at it to give you signals to justify an allocation. What I’m suggesting is that YouTube and TikTok have so much inventory, relatively speaking, that the incrementalism that it offers in terms of reach potential is substantial.
I think that people will look for the metric to justify the choice they need to make, based on the strategic view that they have. Of course, there’ll be other advertisers that will find models and do AB testing all day long before making a choice. But I’ve noticed that most large brands are not able to do proper AB testing due to many reasons, so they end up with medium mix models. It will make one suggestion or another, but again, they keep tweaking the medium mix model until it gives them the answer they need.
MB: Well, we are very familiar with local. And you wrote a story before about recommending a market by market plan to a big brand, and the wheels fell off. Do you mind telling us that story, and why you think that happened?
BW: So, the year is 2003. I showed up in agency land knowing nothing but advertising. Earlier in my career I worked on a nonprofit, no advertising, radio. So I was really removed from advertising in the mid ’90s. Afterward, I worked as a banker and analyst. I covered telecom and media, and then cable, but not advertising. So I knew nothing about it. And I remember asking the head buyer at the time, “If we can identify 20% of the local markets that drive 80% of the variation of outcome of a given campaign, wouldn’t we want to allocate as much as we could to those 20% of markets?” And they said, “Oh, Brian, we don’t do local.”
And what they meant was that the client doesn’t do local. The clients in general, having selected an agency with a certain kind of scope of work, and a certain amount of spending going to non-working spend, don’t want to bear those costs. Moreover, because it’s more expensive. Every dollar you spend on local requires more spending on services agencies, and you have lower quality measurement, and all these other things. We know that, and it doesn’t matter whether it’s more effective. That’s the sad thing. And that’s where I go back to, anytime someone says, “Oh, it’s all about ROIs.” No, that’s a thing you focus on once you’ve already made a different choice. Similarly, there is another issue. Let’s say you’re a nationally oriented brand, are you really going to go to your national retailers that distribute your products and say, “You know that 100 million dollars we spent doing national last year? We’re actually going to sacrifice half the country to focus only on certain parts. You will still keep our store shelf placements, and you will still keep supporting us like normal, right?”
But that’s not going to happen. So you’ve got all these other stakeholders and constituents to think about, and you just can’t do that, because this doesn’t exist in a vacuum. So there are practical reasons from a commercial perspective for the marketer. And then, there are contractual and operational issues in terms of the relationship between marketer and agency. The reality is that the whole world has increasingly oriented itself around national, not international operations, hollowing out local operations. You can blame Dwight Eisenhower, for that. Actually, you can blame Al Gore Sr. Someone told me once that the creation of the interstates helped create more of a nationally oriented economic system, unlike what existed before, which was much more regionally skewed.
I’m Canadian. So we’ve had an integrated economic system since around the 1870s, because we had the railroad connecting British Columbia to Quebec. We also had an integrated economic media system with the CBC. The United States had nothing like that. There were broadcast networks, but from an economy perspective pre-war, you didn’t really have that. That came afterwards. So, with every passing year, the American economy became more nationally oriented, and that fundamentally is what hollows out local media.
MB: All that happened, and we did not get hockey night in Canada down here. So it doesn’t seem like a fair trade.
BW: Exactly.
MB: How do national brands that buy regionally think about allocation, and how should they think about it?
BW: What I observe is that it’s specific to the business model. If you are an auto manufacturer, you negotiate with dealer associations, and there are many moving parts in that. I’ve never been in the room for those conversations, but I assume that different sides make different cases for one thing over the other, and they come to an agreement based on different trade-offs. It’s the same for quick service restaurants.
You have different pressures, and different considerations, but at the end of the day, the winning argument generally will be more nationally skewed, just because any efficiency argument will always favor a national skewed. I’m talking about efficiency in a very narrow sense, meaning what costs less for a given number of impressions, because it’s so hard to isolate cause and effect when it comes to sales. You can market mix model things all day long, but we can’t capture so many things properly. The things you can capture with certainty are going to cost, and what you got specifically for that cost, tends to favor national media.
MB: Excellent. Well, I’m going to get you out of here on a couple more questions. One, as a former and future podcast mogul, what was your favorite question to ask us?
BW: “Who are you?” One of my favorite former colleagues from my radio days is a person known as Nardwuar the Human Serviette. And his intro question on his weekly radio show was always that one. There are plenty of celebrities he’s had on, and it’s always great to hear the answers.
MB: That’s great. Looking over all the video ad industry, if you could wave a magic wand and change one thing about it, what would it be?
BW: That marketers need to focus on being as holistic as possible. That means focusing on value, not cost. There would be so much good that would follow from that. I think that cost unfortunately trumps value in most cases.
MB: Definitely. Well, I can definitely talk to you all day here and appreciate your time. Where can our audience find you?
BW: They can reach me at [email protected]. There’s Madisonandwall.com, the website where I’ll actually host certain archives of things I’ve written in the past. And then there’s my Substack, madisonandwall.substack.com.
MB: I thought the archive you posted last week was awesome. I got a little rabbit hole in there. It was great.
BW: I plan to include some of the different things every month. I’ll update that.
MB: Well, I appreciate your time. Thank you.
BW: Thank you.
See the rest of the Screen Wars Thought Leader Interviews here!
Brian Wieser, CFA is principal of Madison and Wall, LLC, a provider of strategy consulting services related to the advertising and technology industries. Brian is a strategic financial analyst of global advertising, technology and marketing services businesses, informed by relationships with investors as well as media company, marketing, agency and ad tech practitioners. He’s worked on Wall Street (at Lehman Brothers, Deutsche Bank and Pivotal Research) and Madison Avenue (at Interpublic’s Magna Global, Simulmedia and WPP’s GroupM). As a securities analyst he was cited for excellence by Institutional Investor magazine, and in his most recent role his work was cited as a key factor behind an award GroupM received as agency holding company of the year for 2022.
Cross Screen Media is a leading CTV activation managed service for marketers and agencies, built on a proprietary technology platform that enables advertisers to plan and measure advertising across Connected TV and audience-driven Linear TV at the local level. We seamlessly fit into existing workflows to help agencies scale, differentiate and deliver high-impact campaigns for their clients. For more information, visit CrossScreenMedia.com.
