Reaching the Unreachables
The most important demographic in advertising--18- to 34-year-old males--is also the most elusive. How do you make them sit up and take notice? By turning away from TV and finding clever new hooks to get their attention.
(Business 2.0) – We all know the type. He's a 25-year-old dude who spends about four hours a week playing videogames. Squanders five or so more hours each week watching movies. Fritters away another nine hours on the Internet, reading blogs or forwarding gross-out humor shorts to his friends. Other times, you might find him picking out new wheel rims for his Honda Civic. But he spends increasingly less time gaping at the old boob tube, and when he does, he's probably tuning in to Comedy Central after a late-night beer run. Television, in fact, accounts for only a fifth of the time he spends with various media, according to Forrester Research.
His slacker tendencies may make his mother despair for the future, but by one group, he is celebrated, catered to, and coddled. That group, of course, is advertisers. And despite their best efforts, they're losing him.
Our man's evolving media-usage pattern, frankly, scares the daylights out of marketers. Television is the medium they count on most to reach mass audiences, and 18- to 34-year-old males are the audience they obsess over most. These guys are among the country's top spenders on cars, stereo equipment, and sneakers, according to Scarborough Research, and on Internet purchases alone, the demographic shells out $13.5 billion annually. But winning their affection can be even more valuable. "At that age, especially the younger end of it, people are forming the brand loyalties they'll have for the rest of their lives," says Jim Nail, a principal analyst at Forrester. Yet TV's no longer doing its part in reaching them. The alarm first sounded in 2003, when fall Nielsen ratings revealed that prime-time network TV viewership among 18- to 34-year-old males had declined 7.7 percent. Among men 24 and under, it had slipped 20 percent. Though the numbers have bounced around a bit since, no one doubts that the long-term trend is heading down. Young men have been the first to embrace DVR technology that lets them skip commercials, and the programming that is popular with this demographic--such as Chappelle's Show on Comedy Central and Adult Swim on the Cartoon Network--are based on short skits that may be better suited to the Internet than to half-hour TV segments.
Advertisers are desperately trying to stay in contact with the migrating herd of young men, but that's more easily said than done. Their efforts have contributed in part to the rise in online ad spending--up 23 percent this year to $14.7 billion. And, more significantly, a handful of media companies are beginning to figure out how to target the ad-resistant demographic. They aren't advertisers; think of them as wranglers who are drawing guys together in large numbers, which advertisers can then pepper with highly targeted pitches (some of which, by the way, might not be allowed on network TV). What follows is a look at four upstarts--Action Media's custom-car show Hot Import Nights, gaming network Xfire, online video venue Heavy, and blog newsfeed advertiser Pheedo--that are helping big-name brands develop new strategies that reach young men. These four companies are also surprisingly smart about keeping costs low, so each stands a solid chance of making money; two, in fact, are already profitable. More important, they're all pioneering new forms of marketing that could alter mainstream media. "Videogames, cell phones, stuff like that is all still in the testing stage for advertising," says Steve Sternberg, executive vice president and director of audience analysis at Magna Global Media Research. "But it's very real, and it's going to explode."
• Cool Car Shows
THE COMPANY: Action Media THE HOOK: Use sexy women and sleek cars to bring big brands to custom-auto junkies.
A fleet of 500 tricked-out cars has descended on San Diego for another Hot Import Nights extravaganza. Row upon row of inexpensive imports sport purple paint jobs, neon lights, and more video screens than most people have in their living rooms. In every direction, car freaks indulge in videogames, flock to stages featuring hip-hop emcees and break-dancers, and mingle with models who are handing out product samples and posing for photos.
Held 20 times a year, in various U.S. cities, the Hot Import Nights car shows, put on by parent company Action Media, celebrate the kind of aftermarket improvements popularized by MTV's Pimp My Ride. But unlike at traditional auto shows, the cars at Hot Import Nights are merely an excuse for the party. From a marketing perspective, the medium offers companies a chance to sell their wares to a specific subculture in a street-credible atmosphere. As a result, not only are auto advertisers lining up to rent booths, but big-name lifestyle brands like McDonald's, Pepsi, and XM Satellite Radio have been scrambling to sponsor the events.
When John Russell, now 34 and VP for sales, and two friends founded Hot Import Nights in 1998, the shows attracted mostly Asian and Latino fans involved in the custom-car and low-rider scenes, plus the obvious automotive sponsors: high-end paint companies, parts makers, and, eventually, Mazda. But as the subculture has gained national exposure, the audience and the sponsorships have expanded. Now Hot Import Nights draws about 60 percent of its marketing revenue from automotive brands and 40 percent from non-automotive. "Car culture is a phenomenon," says James Miller, marketing director at Pepsi-Cola North America.
Held in an expo center or sporting arena, each Hot Import Nights event draws 15,000 to 20,000 attendees who pay $25 a pop. The sponsors, meanwhile, get spots among the thousands of gearheads gawking at huge tires and tiny bikinis, and Russell and his partners work closely with the largest sponsors to help them design campaigns. "We don't want people to feel like they're being merchandised to," he says. For McDonald's, Hot Import Nights put together a contest called "Are You Mac Enough?" in which audiences use SMS to vote for the coolest car. The company signs on about 10 such major sponsors at a time, and those deals can bring in more than $300,000 a year. Though privately held Action doesn't release revenue figures, the money from advertising, ticket sales, and other income streams adds up to roughly $15 million a year. Russell says the show has been profitable for several years, and in 2004, Action Media was purchased by Great Hill Partners, a Boston-based equity fund. "Traditional media is having a tough time reaching the young male demo," says Michael Kumin, a Great Hill partner. "Hot Import Nights has shown a talent for live entertainment."
• Networked Videogames
THE COMPANY: Xfire THE HOOK: Build a community that puts online ads and video downloads in front of fanatical gamers.
Dennis Fong, 28, knows as well as anyone that videogames are cutting into TV viewing. In his late teens and early 20s, he was a professional gamer who practiced for hours on end to play in big-money tournaments; he even won a Ferrari. Frustrated by how difficult it was to find PC game matches online, he co-founded Ultimate Arena, a site that let players put money on online bouts. Growth was swift, but so was churn--people stopped playing if they lost. As an online betting venture, the company was a failure.
As an online advertising business, however, the company--renamed Xfire and relaunched in early 2004 with a new product--is working. Today, Xfire's platform lets gamers set up online head-to-head matches in more than 400 PC games, from first-person shooters such as Unreal Tournament to massively multiplayer titles like World of Warcraft, and then taunt each other via instant messages. The application window where players IM and track their progress provides plenty of available ad space, and firms including Best Buy, Dodge, and Pepsi have all signed on to buy some. "At first we had endemic advertising, like gaming PCs," says startup veteran Mike Cassidy, 42, Xfire's CEO and co-founder. "But Pepsi is a billion-dollar organization, and they want this demographic."
Few marketing execs need to be sold on the importance of videogames: The industry is growing at a time when television ratings and print readership are mostly on the decline. So far, though, most advertising in videogames has taken the form of product placement negotiated by agencies like Massive. The problem is that some of the most popular titles aren't suitable for ads: Halo is too futuristic, Grand Theft Auto too gritty. By selling ads through its gaming network, Xfire avoids that problem. It has 2.1 million registered users, more than 90 percent of them 14- to 34-year-old males, who log on an average of 70 hours a month. It's exactly the audience advertisers are struggling to reach elsewhere: A 2004 Xfire survey revealed that 89 percent of users spend more time online than they do watching television. Though Cassidy won't divulge sales figures, he says third-quarter 2005 revenue nearly doubled from the second quarter, which itself doubled from the first. By the end of 2005, he expects Xfire, funded in part by Draper Fisher Jurvetson, to be generating positive cash flow.
The banner advertising that Xfire sells in its application window costs $18 per 1,000 viewers. Recently the company also started selling "skins"--the opportunity to customize the IM window--and space for movie-trailer and game downloads on its network. Each new format now accounts for 10 percent of sales. This summer Fox bought space for Fantastic Four trailers, while Electronic Arts let users download a demo of its military game Battlefield 2. "The cool thing is that Xfire can track everything," says Eric Hartness, director of marketing at EA Online. Not only did EA know that 100,000 people downloaded the demo, but because Xfire can tell what games are installed on a user's PC, EA also knew how many of them had bought the game, even if they had done so offline.
Xfire does face a few hurdles, however. Because the IM window is easy to ignore in the heat of virtual battle, some advertisers still prefer to buy placement in games themselves. To compensate, Xfire rotates its ads much less frequently than a typical instant-messaging client would, attracting advertisers who appreciate the chance to be part of a platform that gamers return to obsessively. "It's an opportunity to build a one-to-one relationship with the gamer," says Kelly Egan, director of business development for entertainment at Best Buy, which is launching an Xfire banner campaign. "An ad doesn't have to be in a game to be part of the gaming experience."
• Online Video
THE COMPANY: Heavy THE HOOK: Sell against dorm-room humor that's too outrageous for TV.
With Pac-Man and Galaga machines in the lobby and a small army's worth of action figures occupying its desks, Heavy's New York headquarters looks like it was designed by a college-age stoner with a wicked sense of humor. The same could be said for Heavy.com, an online library of video shorts meant to leave dorm dwellers in stitches. Browsing the site turns up everything from an animated parody called "SpongeBong Hemppants" to "Paris XXX," a riff on the Paris Hilton burger commercial that shows a hirsute fat man soaping himself up while washing a car.
Heavy.com's humor library is attracting big-name brands in droves. The site operates a bit like a TV network, albeit one that makes MTV look like PBS. Content is divided into channels, with names like "Behind the Music That Sucks," each launching a series of shorts preceded by video ads. Some of the content is dreamed up by Heavy's founders, Simon Assaad and David Carson, both 35. Other programs are created by enterprising young animators; Heavy then distributes the shorts on the site and sells ads against them. The sheer volume of the content--about five hours of new stuff a week--gives fans plenty of reasons to return and advertisers plenty of inventory to buy.
When Assaad and Carson founded Heavy in 1998, they figured that soon everyone would have broadband, so there'd be high demand for Internet video. Technology lagged behind their vision, and when the tech bubble burst, Assaad and Carson kept the company going by offering consulting services. Now the broadband world they envisioned is coming to pass, in a post-Nipplegate age when TV can't always compete with online content. "If they did cool stuff on TV, guys would watch more," Assaad says. "TV has to appeal to the broadest possible audience, so it doesn't appeal to guys."
Heavy, meanwhile, is all about guys: 88 percent of its audience is made up of 18- to 34-year-old men. With anywhere from 1.3 million to 5.3 million unique users per month, according to ComScore Media Metrix, it's small compared with a cable channel. But those users spend an average of 45 minutes per visit on Heavy.com, a figure matched by few other websites. As a result, Heavy charges substantial cost-per-1,000 (CPM) rates for its pageviews: $15 to wallpaper the site and $35 for a video spot. Big companies like Coca-Cola and Sony have taken notice of this captive audience. After following the site's progress for several years, Coke this summer bought space promoting Coca-Cola Zero, its new diet beverage aimed at young men. "Heavy has used its positioning in the marketplace to bring legitimacy to brands," says Scott Witt, digital group director for the MediaVest division that buys space for Coke.
Other marketers value the site's flexibility in presenting ads. When Sony wanted to promote the PlayStation 2 game God of War, it worked with Heavy to produce three animated shorts and then presented them as if they were regular programming; the first short was downloaded 1 million times in the first 10 days. In old-media terms, this would be thought of as advertorial, but to Heavy, it's simply adding value for clients.
As a result, Heavy is growing quickly. Advertising revenue is up 500 percent over 2004, Assaad says. And with total revenue approaching $10 million, Heavy--which is owned by the co-founders and some angel investors--recently turned profitable. The company also wants to offer content on mobile devices. Its video is already available on the Sony PSP, and Assaad wants to bring it to 3G phones next. "It's very fluid," he says of the business model. "We're a branding machine."
• Blog Newsfeeds
THE COMPANY: Pheedo THE HOOK: Go after the tech-savvy by advertising where they're reading.
Like most Internet entrepreneurs, Charles Smith and Bill Flitter consume a staggering amount of online media. "I must go through 20 sites a day, and Bill is the same way," Smith says. So two years ago, they started experimenting with RSS, or real simple syndication, a technology that sends alerts to users in digest form as content is updated. "The first thing we noticed was, there are no ads here," says Smith, 35. So in late 2003, he and Flitter, 34, founded Pheedo to put them there.
As newspaper and magazine readership declines among young men, blogs and RSS are becoming increasingly powerful. Forty-five percent of RSS users, in fact, are between the ages of 18 and 34, according to Jupiter Research. Blogs, however, have proven tough for advertisers: Audiences are small, banners are ignored, and pop-ups are easily blocked. So Pheedo is trying to become a one-stop shop for reaching RSS consumers. The company works with more than 8,000 blogs and media sites, which offer advertising inventory in their RSS feeds in exchange for a cut of the revenue. Pheedo then sells text ads integrated into the RSS feeds and even lets advertisers buy across categories like politics, technology, and automotive. Because anyone uninterested in an RSS feed can opt out with a single mouseclick, Pheedo's is a loyal audience--which means the company can command higher CPM and cost-per-click rates than most websites. "If they stay subscribed, they're interested," says Cailin Pitcher, senior marketing manager at Citrix Online, a software maker that was one of Pheedo's first clients. It's no surprise that Pheedo's early advertisers were tech firms like Citrix and Sun Microsystems. The first week after software company Mindjet signed on to advertise, its website traffic jumped 35 percent, half of which the company attributes to Pheedo.
Now nontech advertisers are also expressing interest; Subaru, for example, recently bought space on Pheedo's automotive and other blogs. "Subaru saw RSS as a way to get guys who are turning off the TV for the TiVo," says president and COO Smith. Though the startup isn't profitable, Pheedo is on track to hit about $5 million in revenue for 2005. This year it got funding from Transcosmos, a Japanese media firm that sees the company as a strategic investment, since it targets users who are getting harder to reach in other ways.
Blogs may not be the ultimate solution, but Pheedo, Heavy, Xfire, and Hot Import Nights all have the right idea: Slice off a subset of the 18- to 34-year-old male demographic and find a smart way to reach it. "What we're seeing could lead to permanent changes in how advertisers divvy up their budgets," says Jon Swallen, senior vice president and director of research at TNS Media Intelligence. "The real question is, what happens over five years? Everyone has their eyes on that."