August 2013

The Digital Advertising Alliance (DAA) recently issued guidance explaining how its Self-Regulatory Principles for Online Behavioral Advertising and Multi-Site Data apply to certain types of data in the mobile space.  The DAA’s Self-Regulatory Principles are a direct response to the Federal Trade Commission’s (FTC) call for advertising industry self-regulation in the digital space.

The DAA clarified that its Self-Regulatory Principles are applicable to three newly-defined classes of mobile data: (1) data collected from a particular device regarding app usage over time on non-affiliated apps (Cross-App Data), (2) data about the physical location of the individual or device (Precise Location Data), and (3) calendar, address book, phone/text log or photo/video data created by a consumer and stored on a device (Personal Directory Data).  In addition, the DAA reaffirmed the applicability of the Self-Regulatory Principles to the collection of data over multiple sites (Multi-Site Data).   Significantly, the DAA acknowledged that it may not be feasible to comply with the Self-Regulatory Principles on mobile devices in the same manner as on desktops.  For example, devices with small screens might make it difficult to provide notice of Multi-Site Data collection on the same webpage where this data was collected.  In such instances, the DAA stated that notice would be acceptable as long as it is “clear, meaningful, and prominent.”

Data collection for operations and systems management, market research, product development and reporting for ad delivery purposes are all exempt from the Self-Regulatory Principles’ notice requirements.  In addition, de-identified data that does not associate or connect an individual with a particular device is carved out from certain compliance obligations.  Note, however, that none of these categories of data may be used to determine eligibility for employment, credit, healthcare treatment or insurance.

Notably, the DAA made clear that the new guidance is in an “implementation phase” and that, during this phase, the guidance will not be in effect or enforced by the DAA.  However, once the DAA announces that this new guidance is effective, it will begin to enforce any non-compliance through its accountability mechanisms.

The Way I See It

2013 has certainly been a landmark year, and we have seen both social and financial gains dance across the headlines of various news publications. We watched as the S&P 500 hit an all-time closing high of 1,682.50 in July, and we watched history be made with the United States Supreme Court’s ruling on DOMA.

While I still do not have access to a crystal ball, the fiscal outlook for 2013 will certainly determine a large portion of the way the growth within the Advertising Industry, among other industries, will play out.

The Way I See It

  • I see the industry continuing to evolve to adapt to changing consumer trends, marketer needs and media evolution.
  • I see the advertising industry continuing to be an important engine of business growth and job creation.
  • I see the advertising industry as the storytellers that allow marketers to better inform the public and help businesses promote their brands and sell their products and services.
  • I see the advertising business working hard to do with less, while attracting and retaining the best and most creative talent.
  • I see the advertising industry needing to be fairly and reasonably compensated to do all that I just said.

The Way The Industry Sees It

I sat down with Neal Grossman, Chief Compensation Officer of TBWA Worldwide and Chief Operating Officer of TBWA\Chiat\Day’s Los Angeles office, to discuss the economic outlook and agency forecast for the industry in the year ahead.

There has been a great deal of press lately surrounding advertisers extending their payment terms.  What are your thoughts on this?

I don’t see this as anything new or as the sign of a new trend.  Larger advertisers in particular have for years been looking for ways to extend payment terms.  Aside from media spend, agency fees and production represent a significant portion of their remaining marketing spend.  Agencies, however, are not able to, nor should they have to, act as banks for their clients.  In terms of agency fees, we don’t have much flexibility in the payment of our own costs.  80% of our costs (such as staff costs, rent, taxes, etc.) are paid within 30 days or less and less than 7% are paid after 60 days.  To accept extended payment terms effectively is accepting a reduction in the agency’s profit margin and for smaller agencies it can create significant cash flow issues.  With smaller agencies, it could even put them out of business.  With regard to production companies, they are similarly situated where a significant portion of their costs are talent related and costs that need to be paid up front.

A lot has been said about value compensation in recent years and most advertisers seem to equate that with implementing some form of pay-for-performance.  Does this address value compensation as agencies see it?

While the adoption of pay-for-performance has become more common place, it’s not been meaningful because there is often not a significant and achievable upside.  The criteria is often subjective and we’ve seen examples where it’s been used as an excuse not to pay the agency, where junior clients are given equal weighting as senior clients in their evaluations of the agency and where procurement criteria related to cost savings and process are weighted more heavily than marketing criteria.  Further, a common way pay-for-performance criteria are scaled uses a minimum threshold of “meets expectations” before any portion of the bonus is earned.  And yet, most people’s expectations are that work be “above average.”  So, the scales are biased to begin with because “meets expectations” (above average) as a beginning threshold for earning a bonus might not yield any bonus for above average work, and 100% of the bonus is often not achieved even when the marketing results are exceptional.  As a result, pay-for-performance is generally not material and won’t be accepted by agencies as a substitute for base compensation they feel is inadequate.

Continue Reading A Candid Conversation on the Economic Outlook & Agency Midyear Forecast with TBWA\Chiat\Day’s Neal Grossman

Spamming has taken a new form in this era of mobile phones and text messaging.  In addition to fighting the clutter in our e-mail inboxes, we are also faced with clutter on our cell phones.  In the words of the FTC, text message spam is a “triple threat.”  First, mobile spam often uses the promise of free gifts or product offers to get you to reveal personal information such as bank account, credit card, or Social Security information.  Alternatively, clicking on a link in a text message can lead to the installation of malware that collects information on your phone and sends it to a third party.  Second, the spam can lead to unwanted charges on your cell phone bill. Third, these unsolicited messages can slow your cell phone’s performance.

With few exceptions, it is illegal to send unsolicited commercial e-mail messages to wireless devices, unless the sender gets your permission first.  The FTC has taken an active interest in preventing this spamming from continuing.  In March 2013, the FTC filed eight different complaints in courts around the United States charging twenty-nine defendants with collectively sending more than 180 million unwanted text messages to consumers, many of whom had to pay for receiving the texts.  The messages promised consumers free gifts or prizes, including gift cards worth $1,000 to major retailers such as Best Buy, Walmart, and Target, in exchange for providing sensitive personal information, applying for credit, or paying to subscribe to services.  The text message spamming network involved the individuals sending the spam, who got paid by website operators based on how many consumers entered information on each website, and website operators, who were paid by businesses that gained customers through the process.

In July 2013, the FTC continued its campaign against these spammers by filing another complaint in the U.S. District Court for the Northern District of Illinois naming another set of defendants in this network.  Cell phone companies as well as major big box retailers, fearing that this practice tarnishes their brands, have also warned their customers and provided avenues through which to lodge complaints.

 The Way I See It

  • I see that, while text message spamming was inevitable, it, unlike e-mail spamming, may have an end in sight since there are direct costs to the consumer from simply viewing the message, there are direct effects on cell phone service, and there are many ways for consumers to prevent this spamming from occurring (i.e., putting one’s number on the National Do Not Call Registry or submitting a complaint to a cell phone company, retailer, or the FTC).
  • Continue Reading “Canning the Spam” – The FTC on Mobile Spamming

Foxwoods, Mohegan Sun, Harrah’s: these are a few key players in the gaming industry. And many who frequent the craps tables or drive past their billboards know that these casinos (and many others throughout the country) are owned by Native American tribes. Although regulated by the Indian Gaming Regulatory Act, Native American gaming has recently been on the rise, largely due to the government’s limited ability to prohibit gambling on Indian reservations and other lands of tribal sovereignty. In fact, according to a recent analysis by Bank of America Merrill Lynch, Native American gaming represents 43 percent of U.S. gaming industry revenue – with Las Vegas representing only 10 percent and regional commercial gaming the remaining 47 percent. Two hundred thirty-six Native American tribes operate four hundred twenty-two facilities across around twenty states. How does the Native American gaming industry continue to grow in the midst of the down economy while some Las Vegas resorts and casinos have shuttered their doors?

The Way I See It

  •  I see casinos working with agencies to direct creative, which needs to differentiate the casino from any other gambling institution and drive visitors to take their gambling dollars there. To many people, all casinos are the same, so the real challenge is brand development and recognition.
  •  Many Native American gaming institutions are in key localities and thus focus largely on target marketing and securing local attention – and driving tourism. Say you’re driving down the highway through Chicago toward Northwest Indiana, you’ll see billboards advertising casinos to encourage you to get off at certain exits, or if you’re somewhere regionally close, you may see commercials during local programming advertising casinos. For casinos, understanding the local target market is key.
  • The Native American gaming industry has grown into a $27 billion business from almost nothing twenty years ago, alongside the rise of online gaming and Internet gambling, which have only increased the competition. I see casinos using new marketing and advertising tools to reach new target audiences in order to build brand reputation and attract future visitors.
  • I see many Native American casinos taking advantage of social media to grow brand identity and draw new visitors with tactics such as sweepstakes on Twitter and photos of recent parties at various casino locations on Facebook.

The Way The Industry Sees It

I sat down with Jim Diamond, an expert in Indian Law, to discuss the recent rise of Native American gaming and casinos.

Being an expert in Indian Law, could you explain the history of Native American sponsored gaming and its regulation?

Many people aren’t aware that games of chance are a part of Native American – Indian – culture and are not a recent invention.  Even before the arrival of the Europeans, American Indians played individual games like dice, or team sports, for example, and wagering was a common element of the activities.  Large scale commercial gaming sponsored by American Indian tribes proliferated in the 1980’s when Reagan-era budget cuts forced tribes to find alternative sources of operating funds. States then ventured into expanded reliance on lotteries.  The result was that a number of tribes like those in Florida and California expanded gaming, first by expanding bingo games.  This met with opposition by the states, who said the expanded gaming ran afoul of state anti-gambling laws.  The tribes sued in federal court and a federal regulatory scheme, Indian Gaming Regulatory Act (IGRA), with permissive Indian tribal gaming was the result.  IGRA forced states to enter into agreements – compacts – with Indian tribes, but under a framework established under federal law.

By remaining on the outskirts of the federal government’s regular gambling jurisdiction, how do you think Native American casinos have impacted gamblers across the nation?

First, states that permit Indian gaming have come to heavily rely on the whopping $1.4 billion tribal gaming contributes to state tax revenues.  Most significantly, Ron, I think the American experience with Indian gaming has led to a change in popular opinion that the social harms feared to result from expanded gambling have been largely unrealized. So, with the reduced fear of gambling addiction or organized crime and the dependence on the tax revenue, gaming is now everywhere.  The popularity of Indian gaming has led states to vastly expand non-Indian casino and other gaming. Around twenty states now have commercial casinos.  The popularity of Indian gaming has also led states to be more open to expand other forms of permissive non-Indian gambling like the popular riverboat gambling, racetracks, and off-track betting.  Charities and religious groups have also benefitted from the permissive atmosphere with expanded “Las Vegas nights” and bingo.  So the overall resulting expansion of legal gambling has meant consumers don’t have to travel as far to gamble.

Continue Reading Exploring the Rise of Native American Gaming