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Monaco--Advertising will not pay the freight for digital media, like it has for newspapers and television, as it morphs into an interactive experience riveted on transactions, according to Publicis Groupe (Pending:PUB) Chairman and CEO Maurice Levy.

"Advertising cannot cover the cost of everything in the new digital media world. Other sources of generating revenues will have to be created, such as having consumers pay for some content. It cannot all be free or paid for with advertising," Levy told me in a weekend interview at the Monaco Media Forum, co-sponsored by Publicis.

"There is no reason why digital media should give away information and other content, when it can target its value to the consumers it is reaching," Levy said. The same is true with advertising, "which can and must be transformed into a link that is brilliant and relevant to specific consumers. It will take creativity to make targeting more precise in a way that is not intrusive, "but creates digital value for content owners, advertisers, agencies and consumers."

Although advertisers and agencies continue paying for the right to use professional music, video and other content, the issue of paid versus free will become even more explosive. It will be difficult, but imperative to change the expectations of Interactive consumers taking all they want gratis.

"Free content devalues everything in the food chain. It is disintermediating everything, including ad agencies and advertising revenues," he said.

"As consumers take ownership of brands and transform them, we are losing control of the message," Levy said. "Advertisers and agencies must make more aggressive use of the Internet as a tool for reinventing themselves."

They can begin by purging the Internet of what Levy refers to as "dreadful, insulting" banner ads. "You bring that banner to life with motion. We must use much more creativity and interactivity in all that we do," he said.

"Five years from now, agencies and advertisers will be very different as they move their messages along the digital food chain. They ultimately will lead to and incorporate transactions," Levy told me during a relaxed discussion.

Publicis Groupe has taken its own advice by redesigning its Web site with more intuitive, interactive features. Over the next 18 months, Publicis will continue experiments and strategic alliances aimed at transforming "from a communications service provider to a value creator for clients that shows them how to change their business models and stretch their brands," Levy said. "In turn, we want a share of the risk and the profit of the client."

That will require a laser-like focus on developing new targeting measurement and dynamics, "the absence of which represents lost revenues and profits," he said.

How quickly transactions become the ultimate goal of interactive advertising depends upon the creation of refined consumer targeting, which is eluding media and marketing companies. "We all are desperate to have measures and metrics to reassure advertisers that when they are investing money, there are people at the other end reacting to their message," Levy said.

The gradual recovery from the global recession may be a catalyst for creating such "fundamental analytics" as reviving consumers and ad dollars continue their digital migration. The creation of new strategic media players, such as the anticipated merger of General Electric's (NYSE:GE) NBC Universal and Comcast (NASDAQ:CMCSA) that could be announced this week, also will hasten the development of new digital metrics and pricing.

"Advertising as we know it will change more dramatically as a result of the economic crisis. But not without the metrics," he said. That includes newspaper and television advertising, which also will come to rely more completely on interactive advertising and payments, he added.

Levy is less optimistic about the ability to monetize even the most prominent online social networks. "There will be terrible disappointment in the end about Facebook and Twitter and their real value and strategy, which will evaporate. When you do the math, there is no way Facebook can be worth $15 billion," Levy said.

During his on-stage presentation at the forum, Levy made the point that, despite more than two decades at the top of Publicis, neither he nor the agency is standing still. In fact, he was noncommittal about the role, or even existence, of advertising agencies 10 years from now.

"I come here to learn as much as to share," he told me, following a panel I moderated on audience targeting. "Targeting is a conundrum. Like so many things fundamental to us now in this new digital environment, it is a catch-22. And the sooner we solve these puzzles and we meet these challenges, the better."

Disclosure: Diane Mermigas does not directly own media or Internet stocks.

Source: Publicis CEO: Advertising Will Not Pay Digital Media Bills