How Commerce and Mass Media are Connected

Commerce and media are interdependent. You can’t understand commerce without understanding the media environment.

The union of advertisers and Mass Media shaped post-World War II commerce. Major media outlets, such as television networks and newspapers, had a monopoly on distribution to customers. Centralization in distribution mirrored the centralization in advertising agencies and media conglomerates. The four major advertising agency holding companies (Omnicom, WPP, Interpublic, and Publicis) were built for a Mass Media world with limited media outlets. These agencies lived at the heart of cultural influence. They influenced advertising, design, marketing, media buying, and public relations. Likewise, six global media conglomerates (Time Warner, Disney, NewsCorp, Vivendi Universal, Bertelsmann, and Viacom) controlled the production and distribution of content. Financed, in part, by relationships with the aforementioned advertising agencies, these powerful conglomerates cross-promoted their own films, magazines, books, and television series.

Skeptical and unaware of obscure brands, people with money to spend flocked to big brands with big-time name recognition. Habits formed. Once a person trusted a brand, they kept buying its products. From 1923-1983, in the top 25 CPG categories, 20 market leaders maintained #1 share the entire time. Spurred by steep barriers to entry for emerging competitors, advertising and shopping environments—which were defined by scarcity—ensured the continual success of America’s biggest brands.

Fueled by economies of scale, the big got bigger. In 1958, the average company in the S&P 500 had been there an average of 61 years. Only the biggest brands could afford television advertising and endure costly funnel inefficiencies. As Charlie Munger, Warren Buffett’s longtime business partner observed:

“In effect, if you didn’t have a big volume, you couldn’t use network TV advertising — which was the most effective technique. So when TV came in, the branded companies that were already big got a huge tailwind.”

With a near-monopoly on television advertising, America’s biggest brands sold average products for average people in average households. Here’s how Simon Cowell, the famous American Idol judge explained his gift for identifying musical talent:

"I have average tastes. If you looked in my collection of DVDs, you’d see Jaws and Star Wars. In the book library, you’d see John Grisham and Sidney Sheldon. And if you look in my fridge, it’s children’s food — chips, milkshakes, yogurt.”

Big brands lined the shelves of Wal-Mart and the aisles at Walgreens. Small brands with unique value propositions were impossible to find. Television equalized culture. The rich and poor consumed the same entertainment at the same time. In the 1950s, 70 percent of American television sets sometimes tuned into I Love Lucy. Millions of Americans were in sync. They watched the same shows at the same time.

Social cohesion, at the scale of major events like I Love Lucy and The Super Bowl, was impossible without Mass Media. Before television, so many people had never watched the exact same event at the exact same time. The Super Bowl is the biggest collective event left. It’s a national ritual. Every year, on the first Sunday of February, America stops to watch helmets clash on the field and celebrities perform at halftime. For most of the game, our attention is scattered between food, friends and the game. We care mostly about the chips and guacamole until the commercials, when all conversation stops and across America, 100 million sets of eyes focus on the television in front of them. At work the next day, as you wait for your coffee to brew, everybody talks about their favorite commercials. Television networks and advertisers grew on the same prosperous vine.

As a kid, back when I was no taller than Spongebob Squarepants, I read the sports section of the newspaper every morning. Growing up in San Francisco, I had four choices: The San Francisco Chronicle, The Oakland Tribune, The San Jose Mercury News, and The New York Times. Reading the newspaper was my favorite ritual. But now, my daily sports entertainment comes from internet bloggers who tweet in their underwear. Unless I’m on an airplane with no Wi-Fi and out of battery on my phone, I won’t read the newspaper. The internet is better on every dimension: cost, convenience, depth, speed, personalization. You name it. Location no longer limits my choices.

The Mass Media ecosystem worked in perfect balance: television networks were intertwined with the advertisers who supported them, the products they sold, and the ways consumers bought and sold products. Television. Cars. Newspapers. Beer. Radio. Deodorant. It’s an integrated system.

Mass market products were designed to reach the largest group of people. They served the broadest tastes. Procter & Gamble, which topped the list of America’s largest advertisers operated with a simple formula. As Ben Thompson wrote in Dollar Shave Club and the Disruption of Everything:

"P&G leveraged these resources in a simple formula that led to repeated success: 1. Spend significant resources on developing new products (more blades!) that can command a price premium. 2. Spend even more resources on advertising the new product (mostly on TV) to create consumer awareness and demand. 3. Spend yet more resources to ensure the new product is front-and-center in retail locations everywhere."

For multiple decades, Procter & Gamble dominated consumer goods. You undoubtedly know their products, such as Charmin, Old-Spice, Vicks, Oral-B, Swiffer, Tide, and Mr. Clean. P&G grew its total addressable market with mass media advertising and distribution agreements with every major supermarket and pharmacy. They went into big box retailers, purchased finite shelf space, and expanded in-store real estate through brand extensions and favorable product placement. Gillette (owned by Procter & Gamble) raised prices, increased their margins, and sold “more blades for more money,” sometimes without improving the underlying product. Here’s Ben Thompson:

"That’s exactly what had happened with the Mach 3, Gillette’s previous top-of-the-line model: Gillette increased blade and razor revenue by nearly 50% with basically no change in underlying demand, easily making back the $750 million it cost to research and develop the razor, simply through its ability to charge a premium for new technology, create awareness and demand through advertising, and capture consumers through retail shelf dominance.”

Procter & Gamble's success was locked-in and impossible to deny. That lock-in was made stronger by P&G’s long roster of brands, which gave the company massive scale efficiencies in logistics and manufacturing. The world’s largest advertiser basically doubled its revenue every decade from 1950 to 2010. Without the consent of Retail Buyers, products didn’t make it to the shelves. Propelled by strong relationships with those buyers and access to shelf space, a scarce resource in the pre-internet economy, Procter & Gamble ensured prime product placement in retail stores and commanded a price premium as a result.