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BOB GARFIELD:
This is On the Media. I'm Bob Garfield.
BROOKE GLADSTONE:
And I'm Brooke Gladstone. As you may know, in his other life, Garfield is a columnist for Advertising Age, and he is pretty much a 900–pound gorilla in that world. Recently he moderated a panel on the marketing implications of the digital revolution, a panel that included a 9–million-pound gorilla named Bill Gates.

Afterwards Bob sat down with Gates for a brief discussion about the digital future and, in particular, Microsoft's big plans for digital TV.
BOB GARFIELD:
Well, let me start with something simple. What happens next?
BILL GATES:
Well, everything's going digital. Over time, the whole way you record the memories of your kids growing up, that will be digital. The way you think about buying products, how to learn about them, choose them, organize things with their friends, that will be digital. And so these things are bringing together what used to be offline, you know, paper-based, inefficient things onto the Internet.

TV was a broadcast medium. Now it, too, is coming to the Internet, not as far along as, say, music is, but within the next decade, virtually all the shows you watch will be delivered that way.
BOB GARFIELD:
The digital world, from the PC to the Internet to – excuse the expression - iPod has altered our media behavior on a grand scale, obviously. But the marketing world, and even Hollywood, it seems to me, have been very, very slow to catch up. First of all, is the old paradigm the Titanic, and are a lot of people going to go down with the ship?
BILL GATES:
No, I think it's more evolutionary than that. The idea of creativity, great storytelling, those things exist in the new medium. But you have to take advantage of the new tools and the new ways that you can do that targeting.

And so, you'll see a little bit more turmoil in terms of who succeeds and who doesn't. But it's not some overnight cataclysm. It's year by year, particularly young consumers working in a different way, and there's a lot to be proven out here.
BOB GARFIELD:
Now, you used the word "evolution," and I constantly hear references to the transition from the old model to the new one. But it seems to me that the old model was built, both on the content side and on the marketing side, by the mass audience, and the new model is all about targeting individuals or very, very narrow groups.

Can you evolve from one to the other, or is it really just two entirely different ways of doing business?
BILL GATES:
You can definitely evolve. If we know what 19-year-olds are watching, even if it's a thousand different things, technologically letting you buy the space to be on all one–thousand of those things will be as easy as it used to be to buy that single show that everybody was watching at the same time.

Advertising will be less on the blind than it has been. So the ability to hit large numbers and even learn to get the feedback of how did they respond to it: did they click on something, did they indicate favorability, that means ads that really didn't work will receive less payment and the ones that work well, that will be clear, and people who do those will get more value.
BOB GARFIELD:
Tell me about your work with AT&T to develop IPTV – Internet Protocol TV – basically Internet TV. What effect will that have on our consumer habits and what effect will it have on the broadcast industry?
BILL GATES:
Well, what we call IPTV is enabled by the fact that the Internet has enough bandwidth to carry even high-definition video signals. So instead of getting just a broadcast signal that goes the same thing to every household, there's data over the Internet that's targeted specifically at that TV set.

And so if you're watching a news segment, the areas of great interest to you are made longer and the ones of less interest to you are made shorter. The sports you want are [LAUGHS] more in-depth. Likewise, the ads are based on what would be interesting to you. So not everybody watching the news show is seeing the same ads. And if during that ad you want more information, you just push a button on your remote control and it'll show up in your mailbox, or immediately you'll get more information, but, of course, you don't miss any of the show that you're watching at that time.
BOB GARFIELD:
And what happens to local broadcast stations in this environment?
BILL GATES:
Well, it's great for them because they have ad buyers, like, you know, take the plumbing shop that serves only a small part of the TV footprint. They can actually buy the viewers that are in their territory and have this ad that only their potential customers are seeing. So that's an advertiser. Well, the old system had such fixed costs in creating an ad and such brute force delivery that it would be too expensive.
BOB GARFIELD:
Local stations actually broadcast the signal of programming that networks produce, and in exchange for doing that, they get a cut of the revenue. So when I'm watching Lost on my local ABC station or the cable transmission thereof, my local station's getting a cut of the revenue because, after all, they've delivered it to me.

But on the Internet Protocol Television, is it not going directly from the content producer - let's say, the network - directly to my PC or a large screen, just cutting the local broadcaster out of the loop entirely?
BILL GATES:
No. The way affiliate contracts work is that any method of delivery of that content into the affiliate's region involves that affiliate getting advertising that they get to fill in and some portion of the advertising revenue that is delivered there.

Now, these affiliate contracts are always subject to negotiation, but it doesn't matter that it's the Internet bringing it in. What matters is that the value of those ad minutes has been increased because somebody who really wants to buy young women is paying more per viewer, and the people who want to buy the young men, they're paying more per viewer. And so as it all adds up, it's a more valuable ad minute, and the affiliate will get whatever their share is of that.
BOB GARFIELD:
I want to ask you one more thing. Those Mac ads, how do you feel about the John Hodgman character?
BILL GATES:
Yeah, I can't comment on someone else's ad.
BOB GARFIELD:
Okay, but he's you.
BILL GATES:
Yeah, I'm not going to comment on someone else's ad.
BOB GARFIELD:
Okay. Well, Bill Gates, thank you so much for joining us.
BILL GATES:
Thank you.
BOB GARFIELD:
Bill Gates is co–founder and chairman of Microsoft.
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