Welcome to Marketing BS, where I share a weekly article dismantling a little piece of the Marketing-Industrial Complex — and sometimes I offer simple ideas that actually work.
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Thanks for reading and keep it simple,
Edward Nevraumont
Live in Concert
In an end-of-the-decade retrospective, the Wall Street Journal reflected on changes in various industries. On December 26, 2019, they published an article examining trends in the music business. The WSJ highlighted the steady increase in ticket prices for live concerts:
Nine of the 10 highest-grossing concert tours this year had average ticket prices above $100, Pollstar reported. Over the past decade, the average ticket price for the top 100 North American tours has increased 55% to $94.83.
The digital revolution continues to disrupt the music industry. (For a quick background, see my post from last summer, as well as this great Twitter thread that traces the relationship between record labels, streaming platforms, and artists). Over the past few years, revenues in the music industry have steadily increased — almost entirely as a result of expanded streaming services.
Despite the growth in total revenue, many industry insiders debate some key questions:
What’s the fairest way to distribute streaming revenue among artists?
Does streaming create opportunities for new and less known artists, or does it just reinforce the popularity of the top stars?
Can streaming services survive in a crowded marketplace?
For today’s post, though, I want to return to the WSJ quote and ask a different question: why are people willing to pay so much money to attend concerts?
After you have paid for a subscription to Spotify (or Apple Music, etc.), the marginal cost to listen to your favorite artist is zero. Why pay $100 (or more) to hear the same songs at a concert?
This question extends beyond musical performances. Sports fans fork over huge sums to attend live games. Even TED Talks — which are easily accessible online — sell tickets for astonishing prices (standard tickets cost $10,000!).
From 2016-2018, I was the CMO at General Assembly, an education organization with 20 campuses across 6 countries. We taught courses in digital marketing, data sciences, web development, product management, and UX/UI. Instructional materials for those disciplines (in one form or another) could be readily found online — often for free. Nevertheless, tens of thousands of students jumped at the chance to pay thousands of dollars for the opportunity to learn the skills in a physical classroom during specific hours.
In many ways, our experience at a live event is worse than watching from the comfort of our own home. Take basketball, for instance. The game is much easier to follow on television (with multiple camera angles, instant replays, and expert commentary) than from even the best seats in the arena. The disparity between the in-game and at-home viewing experience is magnified by the size of the venue; just think of the massive stadiums used for (American) football and (European) soccer. Almost 300,000 people congregate to watch the Indianapolis 500. One year, I saw the race live in person. More accurately, I “saw” about 1/20th of the track that was visible from my seat.
I do appreciate some of the reasons why people enjoy live events:
Crowded venues can amplify the energy. You’re more likely to laugh at a comedy in a packed movie theatre than alone on your sofa.
People enjoy the feeling of “being a part of something.” Think about 2019’s global climate strikes.
Society has been consumed by Instagram culture and FOMO.
I understand these ideas, but I don’t think they provide the full explanation.
At times, our compulsion to attend live events seems to defy logic. I would never pull up YouTube and watch an hour-long lecture, but I was drawn to go see Bill Clinton during one of his “live in conversation” tours. For an $80 ticket, I sat at the back of an enormous theater, with a view far worse than the one I could have watched on my laptop.
Returning to the reasons I raised above:
Yes, the crowd probably added energy.
Yes, I probably shared the feeling of “being a part of something.”
Yes, I probably enjoyed taking a photo to post on social media.
All of that said, how might I have enjoyed the experience if I were the only person in the audience? I imagine that experience would have been better. Much, much better.
Thus, I don’t think the crowd experience fully explains people’s gravitation toward live events.
My theory: a concept I’ll describe as “real fidelity.”
High Fidelity and Real Fidelity
Before unpacking my concept of “real fidelity,” let’s connect questions about the appeal of live events to some facts about media technology.
Merriam-Webster defines “high fidelity” as “the reproduction of an effect (such as sound or an image) that is very faithful to the original.”
For television, the progression of quality is clear: HD TVs provide much higher fidelity than the cathode-ray tube sets we grew up watching. Without question, a basketball game on an HD TV looks and sounds more like the live version of the sport than on a television with outdated technology.
In music, on the other hand, we may have moved in the other direction. Bitrate describes the amount of data transferred per second (measured in kilobits per second). In theory, higher bitrates deliver a better listening experience. The bitrate for a standard CD is 1411 kbps. Spotify actually plays tracks at a significantly lower bitrate: 320 kbps, the same level commonly used for MP3s. Some streaming platforms, like Tidal, offer high fidelity options that stream at a CD-level 1411 kbps. Back in 2017, Spotify tested a hi-fi version of their streaming service, but it was never rolled out for widespread launch.
There’s just one problem: most people cannot hear a difference in quality between songs that are streamed at 160, 320, or even 1411 kbps. (Try this fun quiz!)
How does vinyl — the beloved medium of audiophiles — fit into this conversation? The comparison is complicated by the fact that vinyl is an analogue format that cannot be measured according to digital metrics like bitrate. Contrary to the lecture from your friend with the extensive record collection, digital formats provide the most accurate reproduction of the songs that a band records in a studio. So why do so many people cherish vinyl? Audio engineer Adam Gonsalves explains: “I think this is what people like about it: it pins very closely to the way that human beings hear music organically.”
CDs are high fidelity. But vinyl is real fidelity.
“Reality” evokes more powerful sensations than any type of artificial reproduction we have currently invented. We might not be able to put our finger on why we prefer one thing over another, but that doesn’t mean it’s not a valid impulse.
From the ear to the eye
Let’s take a look at some technological advancements in what we can see, and how it relates to notions of fidelity.
Do you remember the first iPhone? The original model couldn’t record video. Here are some landmark developments in the video settings for iPhones:
iPhone 3GS (2009): VGA 640×480 resolution
iPhone 4 (2010): 720p (high definition)
iPhone 5 (2012): 1080p (full HD)
iPhone 6S (2015): 4K HD video
As you can see, iPhones are getting better at reproducing images that are very faithful to the original.
Despite the clear technological improvements in iPhones’ camera settings, something about video calls still seems awkward. The unnatural feeling is the result of the phone’s camera placement. During a video call (using FaceTime, Skype, etc.), you look at the screen to see the person you’re speaking with. On their end, though, they see your eyes tilted at a peculiar angle.
To address this issue, Apple recently released a beta feature called FaceTime Attention Correction. Check out the difference (posted on Twitter by Will Sigmon):
Although this new feature involves sophisticated digital manipulation, it feels a lot more like an in-person conversation, with two people sustaining eye contact.
Improving the resolution of the iPhone’s video settings is high fidelity.
Adjusting camera mechanics to track your eyes is real fidelity.
In many cases, the greater the feeling of “reality,” the greater the enjoyment of an experience. I think that’s why many people prefer the sound of vinyl. And why people flock to live events.
How might this theory of “real fidelity” apply to the marketing world? Two ways: productivity and advertising.
Productivity
Last year, Prithwiraj Choudhury and two other researchers published a Harvard Business School Working Paper that studied the productivity of employees when given the option to work from “anywhere.” Building on earlier research that found working from home increased productivity by 15%, Choudhury showed that allowing employees to move anywhere (i.e., no physical meetings were ever required) increased their productivity by an additional 4.4%.
For the study, they reviewed patent examiners, a profession with some unique attributes. First, their work is very measurable. You can count how many patents they have examined and approved in a given period of time, so it is easy to measure their relative productivity from person to person and for a single employee over time. Second, much of the work of an examiner is singular — they can do the work on their own without cross-functional dependencies.
For many professionals neither of these assumptions hold. When I was a VP at Expedia, my entire day was blocked from 8 am to 5 pm in meetings. Any “singular” work I did fell outside of those hours. I expect something like this is true for many of you.
Working remotely offers benefits to both companies and employees, but unlike patent examiners, many of us need to connect with colleagues and/or clients on a regular basis. Business travel is one solution, and we are witnessing rapid growth in this area ($1.7 trillion in 2018, increasing at 7.8%/year).
More commonly, employees communicate with one another via digital means. And here’s where real fidelity matters.
Email is easy. But writing full messages to people can seem more formal and inefficient than leaning over the cubicle wall to ask your officemate a quick question. Slack provides a “more real” way of connecting with colleagues, so it’s no surprise that the company’s platform sees more than 12 million daily active users.
Videoconferencing is an even more organic way to communicate. When it works.
For a long time, Skype occupied the dominant position in the videoconferencing world. But as Bloomberg reported in 2018, Skype hit some rough patches:
Since acquiring Skype from private equity investors, Microsoft has refocused the online calling service on the corporate market, a change that has made Skype less intuitive and harder to use.
The complexity of the corporate software (security, search, and the ability to host town halls) crowds out the simplicity consumers prefer (ease-of-use and decent call quality).
Enter Zoom. The company launched in January 2013, and by May of that year had over 1 million users. By February 2015, just two years from launch date, they were at 40 million. Zoom no longer reports the total number of users, but paid user growth has been more than doubling every year, en route to a $19 billion valuation for the company.
How, specifically, does Zoom outperform Skype (and Google Hangouts, etc.)? Ask a Zoom user, and you are likely hear responses like “It just works” and “I don’t know, I just think it’s better.”
If you ask Zoom, the company will boast about their customer-driven focus. Here is Nick Chong, Head of Product Marketing:
We have a relentless focus on making the best product with the best user experience. This is ultimately what every customer wants. Toward this end, we spend much of our time listening to customers and fine-tuning our software to fit their needs.
In terms of image and audio quality, Zoom does not deliver “higher fidelity” videoconferencing than its rivals. But its user interface, which lets people communicate without requiring everyone to sign up for an account and exchange use information, feels a lot like the experience of picking up the phone to call someone. Less friction, more natural communication — that’s real fidelity.
Advertising
One of the core metrics in advertising is CPM — “cost per thousand impressions.” Most advertising is paid on a CPM basis, or at least quoted on a CPM basis. When looking at your advertising spend, CPMs allow you to compare “apples to apples.” Depending on the advertising medium, CPMs can vary dramatically:
Digital advertising is often bought on a CPC (Cost per click) basis, but it’s easy to back into the effective CPM rate. Twitter and LinkedIn tend to be around $6 CPM, Facebook around $9 CPM
Why are these rates so different? The easy answer: “because that is what the market clearing price is.” But why are marketers willing to pay so much more for an ad on television than for an ad on a billboard (per person who sees the ad)? Targeting explains some of the cost differentials, but as I described in “Sign in with Apple,” targeting is overrated.
The difference between these marketing channels comes down to fidelity.
In terms of high fidelity, marketers pay more money for channels that better “reproduce sounds and images that are very faithful to the original.” Television beats radio beats billboards.
In terms of real fidelity, what is the “real-est” marketing channel? For that we need to leave the world of print and media altogether. As everyone from Avon to politicians have discovered, door-to-door sales is a powerful way to convince someone to consider your product.
What is the CPM for door-to-door sales? Here are estimates for the costs and average metrics:
~20 doors knocked/hour
~40-50% door answer/contact rate
all-in costs for a D2D salesperson and manager oversight is roughly $30/hour
Multiply those numbers out, and the CPM rate comes in at roughly $3000. That’s a lot higher than a billboard ad. But it also provides customers with a live experience of your product.
Does your product need real fidelity? Usually not (which is why most companies no longer invest in D2D as a significant marketing channel). In some cases, though, I think D2D can be very effective. In the last year, I have seen more and more clients dipping their toes into D2D (as well as “street teams” — which are essentially D2D sales in a big public space instead of actual doors). I wonder if there is some sort of connection between the growth in concert attendance and the growth of in-person marketing channels. Maybe that is the trend for the 2020s that no one else is talking about. You heard it here first.
Keep it simple,
Edward
If you enjoyed this article, I invite you to subscribe to Marketing BS — the weekly newsletters feature bonus content, including follow-ups from the previous week, commentary on topical marketing news, and information about unlisted career opportunities.
Edward Nevraumont is a Senior Advisor with Warburg Pincus. The former CMO of General Assembly and A Place for Mom, Edward previously worked at Expedia and McKinsey & Company. For more information, including details about his latest book, check out Marketing BS.