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November 08, 2006

Should We Believe The Hype on Borat?

Whenever something new and unusual comes along in business, it is easy to claim that it is an industry changing event. The of Borat is already spawning such talk. One thread of the discussion centers on whether Hollywood will now turn to "mocumentaries" or TV to movie crossovers. A second thread is whether the success of the movie is due to new internet driven marketing using websites like MySpace and YouTube, and text and instant messaging. The concept is that narrowly focused marketing campaigns seeking to reach only the target audience are going to supplant mass marketing.

For Borat, the conventional wisdom is that the unexpected success is the result of well conceived, narrowly targeted marketing campaign. I am not sure that is really fair as I saw lots of commercials on TV networks that would claim to have very broad demographic reach. But if we accept the premise that the film's success is being driven by internet-based marketing and further accept that this is the game changing event, the implications for movie marketing and broader advertising are significant.....

Movie marketing and advertising is already subject to the big trends wrought by the internet. As far back as The Blair Witch Project, released in 1999, industry pundits were claiming that movie marketing campaigns had changed forever. That hardly seems the case given the massive traditional TV ad campaigns mounted by the studios and available for viewing every Thursday evening on network TV's most watched night. However, given the large and continuing declines in print advertising of movies in the face of rapid increases in advertising per film, it is fair to say that movie marketing has changed and directly the impacted the future of one major industry.

The larger question though is whether the internet and other new technologies like satellite radio, digital TV, and video downloads are forever shifting the advertising dynamic from mass marketing to focused marketing.

Bob Lefsetz, a music industry pundit, wrote in a recent column about Borat, "If you want success today, create something good. Seed the early adopters. And then cease, or at least slow down, your marketing. Because the more you beat people over the head, the less attention they're going to pay. THEY want to feel in control, THEY don't want to feel tools of the system. THEY want to embrace the project…."

Look at Fox's strategy for marketing Borat. The film was pushed hard on MySpace to the exact audience that already knew about Sacha Baron Cohen and his Ali G and Borat characters. Fox put the first four minutes of the film on the internet and as of today on YouTube there have been over 67,000 views. Multiply that by all the other sites where it is available and you likely have hundreds of thousands of views. And I'll bet not too many StreetInsight subscribers were among them. And Fox could care less.

Fox went further and limited the opening to just over 800 theatres (a film like Pirates of the Caribbean opens in close to 4,000). The idea was just what Bob said, "seed the early adopters." In this case you had a quality product (the reviews are fantastic – 96% on Rotten Tomatoes), and now you have buzz driven off a marketing campaign that was narrowly focused and worked. The film will expand to triple the number of locations this weekend and is likely to match or exceed its opening weekend, something highly unusual in Hollywood for the prior weekend's #1 film.

If Borat is the moment that that Madison Avenue opts for a primary emphasis on narrow marketing, the implications on Wall Street are significant. The multiple contraction and sluggish financial performance we have seen across media over the past five years is already discounting the shifting advertising landscape which supplies 25% to 75% of revenue for most media companies. And those companies are primarily focused on delivering a mass market to advertisers. This spells trouble.

If you don’t buy the hype that Borat is a game changer (probably a good idea), keep this big picture trend in mind when looking at valuations for advertiser supported media stocks. Given the dull reception to the Tribune and Knight-Ridder auctions and subdued reaction to the announcement that Clear Channel is willing to sell itself, private equity investors, a group most concerned about terminal values, is already telling us things have changed on a long-term basis.

Media stocks are rallying. Don’t forget to take some profits.

Posted by Steve Birenberg at November 8, 2006 10:43 AM in Media