Doug Poretz

America's Multiple Choice Economy

How long do we keep saying "recovery from this recession is sluggish" until we start saying "this isn't a recovery at all"? If "recovery" is a synonym for "return," i do not think we are going to have a "recovery" because I do not think we are going back to what we had for at least a decade .... there have been too many cultural changes, including the accelerating (both in speed and impact) transition from a Manufacturing Economy to a global Knowledge Economy.

Zenith Optimedia Sees Global Ad Declines Approaching 7% in 2009

Based on 40 years in the communications business (at high levels, successful by most standards), I would assert that there is no one "future" to marketing communications. The entire communications industry (not only media, but communications services firms such as ad shops, pr firms, etc) is in a radical revolution that is shaking communications to the very core. You can take a look at my blog or some of my previous articles on the topic that have been published in Seeking Alpha for more detailed thoughts on the subject. Whereas it might be possible to make a stock market bet on the industry or some aspect of it, the bet should only be topical -- a year from now the industry will be totally different. Twitter didn't exist as a company 3 years ago, really only started picking up critical mass in the past year or so, and is now considered by many "THE" future of communications, despite the fact that they haven't figured out how to generate revenue, much less a black bottom line. I think it will play a role -- along with the next Twitter that is being designed right now by some guys drawing on a napkin over lunch (or the contemporary equivalent) and that will be declared "THE" future next year. Just as Facebook was "THE" future a year or two ago. And just as SEO was "THE" future a year or so ago too -- hey, it's still "THE" future according to many. It is most likely that there will need to be a total capitulation of the industry (possibly on the horizon now) before we'll be able to predict the prospects of tools and distribution channels into the future. Of course, it is hard to argue with Mr. Hakimglu, who on his Seeking Alpha profile asserts: "I'm infallible and therefore when I say time to buy, it is time to buy."

The Speech Newspapers Need to Hear

There is another part of the communications industry that has "blown it" -- that is the advertising, p.r., interactive, new media, etc. agencies. [Fair disclosure: I am in the business -- you can check my profile linked above to understand my bias.] The agency business has two basic flaws: 1) time is the fundamental criteria for billing, remuneration, and measurement of efficiency -- that is just plain crazy -- clients don't care how busy you are or not -- they care about value received. You can check out what Washington Post Pulitzer Winner Steve Pearlstein wrote about that model here: tinyurl.com/ylobdq 2) agencies are siloed by virtue of distribution channel (advertising, pr, digital, events, etc.) --- why would agencies encourage segmentation in an era when content/message is king and you can deliver that message through a variety of ways in coordination to maximize expense and effectiveness.

It ain't only newspapers that have "blown it" in the communications business.

Standard and Poor's Whacks Advertising Companies

The real problem with the advertising stocks isn't the economy -- the economy will be the straw that breaks the agencies' back -- but the core problem is that they have the wrong business model it is outdated and has at least two basic flaws. I have been in the communications business for 40 years and have written about this extensively at my blog (linked above).

First of all, agencies bill on the basis of time. They remunerate on the basis of time. They measure success, make promotions, award bonuses and are totally driven by the time sheets that dominate their businesses. Crazy. Clients don't care how busy their agency may or may not be. They only care about whether the value they expected to receive is being delivered at a minimum. Time has very little to do with that. Skill, commitment, capabilities have a lot more to do with that. In fact, an agency's interests are just not aligned with their client's interests when the agency is obsessed with time. That is a core fundamental of the agency business, and it will kill them eventually.

Secondly, agencies are structured and organized on the basis of silos defined by distribution channels. That is, there are ad agencies (or "practice groups" within larger firms) that are separately identifiable because they buy time or space on a distribution channel owned by another enterprise. PR is identifiable because that effort seeks to "earn" coverage on someone else's distribution channel. Digital, interactive, events marketing -- go through the list of those specialities of the communications business and they all refer to the distribution channel. But this is 2009 and the way to get a message to an audience is by using whatever distributuion channels work. That goal is undermined when agencies are organized by silos where each practice group seeks to win more of the client's budget for their silo rather than seeking to be part of an integrated team that has the single shared goal of hitting a homerun for the client. This, too, will eventually kill the existing business model.

Washington Post Pulitzer Prize winning business reporter Steve Pearlstein wrote about this outdated model about three years ago and his points are still valid. You can read where he said here: tinyurl.com/ylobdq

A Paperless News World: Kinsley Nails It Again

Here is the perspective of someone who has spent 40 years in the communications business (p.r., investor relations, interactive/digital, advertising, etc.). We are seeing the end of the Fourth Estate. tinyurl.com/ced8ku

This will be an especially dramatic loss at this time when the world is so volatile politically and the truth can be corrupted, rumors can be created, communities and be coalesced and moved into action via the Internet, globally, real time, 24/7/365. The agendas of online writers who do not necessarily need to subscribe to journalistic standards, who can even deceive their readers as to who they are, what credentials they may have, and what their goals are is just not equivalent to the professional journalist. I know papers like the Washington Post and the Wall Street Journal have their own biases, but they also have a fundamental priority on accuracy and clarity. That's going to exist in the future but it will not set the tone of news as the newspapers/journalists do today. It will be a very costly loss when journalism ebbs more and neo-journalists assume their former role. It just isn't going to be the difference between reading something on a sheet of newsprint versus reading what's on a screen.

Newspapers Can't Compete with 'Us'

There is a major problem on the horizon. Along with vthe death of mainstream media (most assuredly happening) we are also seeing the death of journalism and the rise of neo-journalism. The consequences are very significant. Seekling Alpha published my more robust comments for those interested: tinyurl.com/d5m63x

So How Good Was Housing Data in March?

Statistics can be deceiving -- I just posted an article (drawing on four years experience as VP of NVR and numerous consulting assignments with other homebuilders) tinyurl.com/co7dpw that explains that the vigor of first time homebuyers is basically meaningless to the bottoming process because they are buying those houses from creditors and distressed sellers who will not use their proceeds to buy another house, as in a normal market. The difference is that under normal circumstances the seller of the first home becomes a buyer of their first move-up home and the people that sell that house become buyers of their second move-up home and thus a food chain is created and the market becomes vibrant. But that doesn't happen when the seller of the first time home doesn't become a buyer of another home. So the figures of "health" in the market are basically meaningless except for the fact that inventory is being absorbed for an eventual recovery.

Additionally, the low mortgage rates are not impressive because the qualifying standards are so high and because appraisals are so fluid that they are torn up at the settlement table and new debt:equity ratios need to be established, sometimes killing the deal.

We are so far off from a residential real estate bottom. "Glimmers of hope" may exist, but that flicker of light that you may see from them is very faint and very off in the distance.

Government's Failure to Communicate

Sorry, but I disagree with your premise, based on my 40 years or so in the communications business.

First job in communications is to define your job this way: 1) I want to achieve these specific goals; 2) to do that, I need to develop well-crafted messages (researched and tested); 3) to these specific targets; 4) whom I can reach by these distribution channels. Let's take a look at how Obama is doing that.

1. The primary goals (it seems to me) Obama is seeking is enough support for his platform of "change" (which is more philosophical than topical) so that he can continue to experiment with aggressive ideas in the hopes that one or two or more will actually accomplish something. The agenda for Obama is "change" and change translates into "action" and to do that he needs to create the environment and support that will allow him to "act." And he hasn't stopped moving and acting since he won the election.

2. His messages have been crafted, researched, tested, polled, focus-grouped and honed to resonate. I believe that is why his messages remain very broad -- because the mood of his supporters is broad in nature: they dislike certain people and institutions (bankers, financial services companies, certain corporations and corporate executives, and many politicians whom they identify as against them and their interests in favor of their own partisan vested interests). This is an attitude that demands the very agenda of "change" that Obama seeks to promote. The ability of the Obama campaign to develop a message, refine the message while staying consistent, and then to stay on message has been extraordinary and will be studied by communicators as a successful case history long into the future.

3. His targets -- his supporters -- are well-defined. He is the first politician in a very long time who has been able to create passion among the broad economic and political middle. Look into his poll numbers and the singular characteristic that stands out is not his large numbers of support, but the ardor of his supporters. The amazing thing is that such passion is usually associated for single issues (guns, abortion, ERA, environment .... just think of the major campaign issues of previous campaigns) -- but in Obama's case he kept focusing on mood issues: discontent, lack of faith in the government, belief that the nation was going in the wrong direction, etc. Every poll I read (including many proprietary polls taken by the research group within my own firm) showed that the people who possessed that "mood" was very wide and deep. Those were Obama's targets in the primary, the general election and his presidency thus far.

4. Distribution channels. Let's get real. The Obama campaign has put in place a remarkable infrastructure for campaigning (including during his term in office) and he has merged that with incredible communications skills and the ability to do a town hall meeting in any city in the US, in a town in France, and on the Internet. He is on TV every day, using both news opportunities and creating his own, including prime time news conferences and exclusive interviews to TV news hosts.

I think Obama can fine tune his communications campaign, sure. But it is totally baseless to assert: "All the substance of the government’s plans has been released through channels that simply don’t get the attention of most Americans. Op-eds written by unknown government officials in the Wall Street Journal, appearances on news shows by these officials, press releases, and the creation of new websites such as financialstability.gov just won’t cut it." So is the assertion that "The President himself must expend some political capital to get the people on the side of the government."

That just does not make sense to me. If you want a communicator's view of Obama's successes and failures, I've written a bunch on the subject that you can find at my blog, linked above.

Markets Have Hit a Bottom, But Is It THE Bottom?

Your article is excellent but it is based virtually entirely on looking at the economic/market crisis as solely an economic/market crisis -- I don't think it is. I think this is primarily a cultural problem of widespread irrationality from all quarters (governments, individuals, institutions and the investment/finance community as a whole). As such, cultural change will be one of the results -- among the cultural changes will be a much more conservative consumer, and that will be important because the consumer accounted for somewhere around 70% of our economy at the peak. In addition, it is becoming increasingly clear that the world is on the precipice of major political issues -- take a look around the world (see this narrated, self-running PowerPoint for details: tinyurl.com/daaua9) -- what will happen to markets worldwide if any of the massive protests erupt into something more than just "ordinary" protests? If you missed it (which wouldn't be difficult given the US mainstream media virtually totally ignoring it), 3 million people protested throughout France last week -- and look for major events at the G20 meeting coming up. The threat is very real and growing as the recession spreads. Then there are the issues of a globally interconnected financial market. And there is also the turbulence that comes from the transition from a manufacturing to a knowledge economy. And volatility not only in the price volatility but the access to basic commodities such as oil and food. So, the analysis of whether we are at a bottom that is based on economic and capital markets issues is enlightening but too shallow. Personally, I am not worried about whether the market is at a bottom of not at this moment -- I am much more worried about non-economic news that could blow away the entire cocept of a bottom.

The End of News Media or Just an Accidental Business Model?

I would not worry about the end of news media. There are plenty of distribution channels to get messages (including news, ads, etc.) to audiences. The distribution channels will increase and change. That isn't the problem -- the problem is that JOURNALISM as we have known it is dead and we are beginning to see the rise of neo-journalism. That is really a very serious issue, espeically as the world is in turmoil. More thoughts on greater detail here: tinyurl.com/b8b5ey

If You Believe Bernstein's Estimates, It's Time to Buy Ad Related Stocks

I am the co-founder of a 100-person communciations firm based in DC and I have 40 years of experience in PR, advertising, and (more recently, of course) interactive. I will focus these comments on your comments about WPPGY, OMC, and IPG. I believe they all have inherent and very major flaws in their business models. Rather than reiterate those views here, if you are interested, I laid-out my thoughts here: tinyurl.com/dk8ked

Beyond the analysis at that link, I can tell what is happening simply because I am on the receiving end of emails and phone calls from people who are leaving the big agnecies. Many have been laid-off; many more are afraid (with good reason) for being laid-off in the near future; and many (especially the most talented) just want to get out of a big ship that will take a very long time to turn around. If this was a topical isolated and temporary phneomenon, it might be an opportunity for the big agencies to pare expenses and eliminate some deadwood, etc. The problem is that in this business when people go and client teams experience rapid turnover, clients become impatient, especially when their own budgets are under pressure and their bosses are yelling for new ideas and approaches.

In short: from someone inside the business ... I see absolutely no reason to think that the big agencies have a bright future in the short-term.

Housing Starts Rebound: Don't Get Too Excited

"Spin Meisters" and homebuilding companies. In the late 1980s, I was VP of NVR, then the nation's largest homebuilder (and now probably the best in financial terms and still very large), and I was focused on investor relations, corporate affairs, etc. So, I guess I did my fair share of "spinning." But I've noticed something different between the current homebuilding crash and the one that happened in the late 80s/early 90s (which was very difficult period with lots of Chapter 11 filings, including NVR). This time, if you simply listened to the homebuilders during their conference calls, read their earnings releases, and followed their own buying and selling, they were very clear about what they thought was on the horizon, quarters (several quarters, in fact) ahead of the actual crash. They were sellers, and they were hardly hiding it. They were pessimists, and they were candid about it. Have the homebuilders begun to articulate more positive vibes? Have they become buyers of their own stock? I haven't seen it. The homebuilders are the closest to the action -- watch what they do before you rely on the "statistics."

Toll Brothers is among the most candid and outspoken of the homebuilders -- they issued their most recent earnings release on March 4 -- just several days ago -- take a look at their release here : tinyurl.com/dapd4p -- see any optimism at all? They aren't even willing to give any earnings guidance at all. The most they could rustle up in terms of optimism was along the lines of "if this happens and then if that happens because of it, well then this might happen and then that might be reason to say the market has bottomed." That's the extent of their optimism.

But beyond the issue of where is the bottom, then the question becomes: what happens then? I believe there are major fundamental changes in residential real estate that will translate into a very long period when the market basically bounces along bottom (of course there will be some spikes and some local markets better or worse than others). I wrote about my analysis of new fundamental problems here: tinyurl.com/cvz8ky

Two More Reasons I Think Housing Has Hit Bottom

Whether the housing market has hit bottom (I peronally find that hard to believe) is one question -- I think the more formidable question then becomes: so it's hit bottom; what now? The likelihood is slim of a recovery that is anything more than a long-term bouncing along bottom -- I was VP for 4 years for NVR and posted my thoughts in the for-what-it's-worth department here: tinyurl.com/cvz8ky

Trends in Stocks Remain Down

great article .... also, factor in global political uncertainties. Massive protests of the middle/working class around the world -- two governments (Iceland and Latvia) already forced to step down -- growing disillusionment with government, financial services, corporations among large segments of populations that are most usually complacent -- and the prospect, in the words of a leading London police official of a "summer of rage" starting with protests at the upcoming G20 meeting. Look at probabilities, and you'll add political ferment to the mix and if that occurs to a substantial degree, a recovery of the market will be even further off. Want to take that close look to determine the probabilities? see this link: tinyurl.com/daaua9

What Could Have Averted the Housing Bubble?

I do not buy the argument that the housing bubble was simply a consequence of financial creations that allowed irresponsible mortgages. The housing bubble was a cultural phenomenon, part of the same culture that gave rise to the growth of large flat screen TVs, new car sales, cruises, name it. The idea that financial instruments allowed the market to grow is correct, BUT those instruments responded to a MARKET DEMAND -- are we going to continue focusing on just the suppliers of nthe tool or the abusers who created the tool? If and when we place blame where it belongs -- to our entire culture versus a few financial instruments -- maybe then we will realize that the "change" we are going to end up with is going to be largely cultural/social/politi... in nature? Isn't that what is actually happening? Well, watch what's happening around the world -- the headlines are about to change: tinyurl.com/daaua9