AdExchanger: Facebook has been making a play at the local advertising market. What’s your take on how successful they’ve been so far?
They’ve been phenomenally successful. Within 12 to 18 months they’ve gone from 2 million to 4.5 million businesses. Twenty-five percent or so of what they make is from local advertisers. Those local advertisers spend, on average, $2,000 a year. Nobody has ever effectively been able to tap that group of advertisers.
Not even Google?
Not without high churn. And that remains to be seen [for Facebook] because it’s early. In the 2006-2007 time period, Google’s churn rate was phenomenal. It didn’t give [local advertisers] what they thought they were buying.
Why do you call Facebook a “phenomenal success?”
We had a survey that ran from April 15 to the first week of August. We asked local advertisers, “Are they buying ads on Facebook?” A year ago, 32% said yes. This year, 62% said yes. We have never seen a thing grow as Facebook has, and most of it happened this year. The other thing we look at is the satisfaction rate. Ninety percent of the businesses are satisfied with their Facebook advertising, and 36% are “very to extremely satisfied.” and that is phenomenal. That means it will probably have low churn. It’s big and getting a lot bigger.
Mobile location data seems like a huge opportunity for local advertisers. How far along are we there?
If it were the history of the world, it would be a weird amoeba. You will see a really big explosion of that soon. Within a year, some practical and understandable ways of [location data] being used will happen. I just had lunch with someone who had the ability, using Acxiom data, to deliver an ad to your cell phone for a Subaru car because at that moment you are sitting in a Hyundai dealership. Once you can deliver to the exact type of person you want, but also to the exact time and the exact location, anything that’s untargeted in terms of advertising will be too expensive.
Has the political ad spending lived up to that $11.7 billion forecast you made earlier this year?
We have to revise it downward. Who could have predicted this? Donald Trump has unwittingly given us a lesson that we don’t need to spend so much in television to look like an idiot if you want to win an election. Had he spent $200 million, $500 million on TV advertising – which he hasn’t – I don’t think it would have changed anything.
But what we’ve learned, and what The New York Times reported, is that you get a lot of earned exposure if you know how to act or what to say. This election has forever changed political advertising. I can’t tell you what it will come down to, but many local markets are down 7% to 12% [in revenue] below 2014.
Let me put that in perspective. 2014 was an election year but not a presidential election year. They should be up 30% to 40% from 2014. That has shocked and hurt television quite a bit.
Do you think Gannett buying Tronc would be a good thing?
How do I talk about two clients? I’ll say how I feel. I don’t understand it. I understand that there is still cash flow, and that might yield additional opportunities for acquisition or growth in other ways. But Tribune owns Tronc papers in large markets, and those are the types of papers that are going to suffer the most.
The acquisition of businesses in decline is always a curious thing. Wouldn’t you want to acquire great things that are smaller that would grow? You’re acquiring a $300 million business with a 10% EBITDA. It might be a nice chunk of cash flow, and create efficiencies. If you look at it from a pure financial standpoint, it makes more sense.
What does the complexity of the digital ecosystem – especially around fraud and viewability – mean for future of local advertising?
It provides a bit of good news for local media companies. Who in that market understands marketing the best? Media companies. The marketers themselves don’t have time to keep up with the difference between Instagram and Pinterest, and the difference between a post and boosted post on Facebook and how to target an ad. It’s not as simple as writing a 30-second radio spot. People that understand media can come in as the saviors and explainers.
Is that a conflict of interest when the media company is also the ad agency?
Yes, there are conflicts. But there are also benefits. You have to trust, and it’s not well-placed in some cases. Back in January, a private school I send my kids to said, “We have $25,000 to recruit students in the fall. We need to fill 30 seats and there is a new school opening up so we are afraid we won’t be able to fill them.”
I called around, to an SEO expert, a billboard company, a TV station, a radio cluster, a newspaper. Every one of them except one heard “blah blah blah $25,000.” Their solution was $25,000 of billboards. Or $22,000 of radio and $3,000 of banner ads.
The newspaper company said, “We can take that money and put it into newspaper advertising, but people are going to go to the web and look for your school. Your school name isn’t hypertext-linked but the competitor’s is, and you don’t have a notice on your page saying the fall registration is open…so here is how we are going to spend it: $7,000 in reputation management, a video we’re going to shoot and $18,000 in newspaper advertising.” Who do you think won that? The one that listened.
What trend do you have your eye on?
It’s all about following the money. You can see that businesses are spending less on advertising as a percent of gross revenue. So advertising as we know it – a banner ad, a radio TV spot, a giant billboard – is less attractive to them. But the amount of money businesses are spending to market themselves is going through the roof. They are spending more and more money on media, but it’s media that they own and control, and a lot of it is waste. There will be some level of backlash.
This interview has been condensed and edited.