The headlines from this year’s upfront television-advertising sales frenzy have been just what broadcast and cable network execs wanted to see.
Business is brisk. Rates are climbing. And the coin flowing in for advance ad commitments looks to grow at least 5% from last year’s $17 billion-plus haul.But the upfronts this year are significant for a reason that’s subtler: All of these deals are based on a dramatic change in the rules about TV ad sales, rules that are probably being changed irrevocably. After years of tussling, the networks and Madison Avenue have reached a compromiseon two key issues — commercial ratings and DVR viewing — spurring the biggest sea-change in the hidebound business of TV advertising sales in two decades.
But, as with all compromises, there is excitement mixed with dread.
Virtually all ad sales will be based on Nielsen Media Research’s newly introduced commercial ratings — which measure the number of viewers who are watching ads, and not just the programs in which the ads air.
Madison Avenue folks think this is dandy. But broadcasters are wary, and many cablers are even more resistant, due to their younger-skewing audiences with short attention spans.
As a quid pro quo, the advertising business had to acknowledge the existence of digital video recorders (DVRs). Most major advertisers will allow networks to measure their commercial ratings by adding in viewing via DVR that occurs up to three days after the initial telecast. (The new ad standard was quickly jargon-ized as “C3,” or commercial ratings plus three.)
Advertisers have resisted this because of their emphasis on timing as being a key to advertising effectiveness. TiVo and its ilk have also been ad-biz pariahs because of their feature allowing fast-forwarding through commercials. But it’s generally accepted that 35%-40% of people who watch programs played back on DVRs still sit through the ads. The networks want those viewers included in their new commercial ratings, on the every-little-bit-helps principle.
While both sides have agreed to these changes, everyone will be poring over the numbers this season to see if the new rules are working. It’s safe to predict there will be plenty of haggling in the year ahead.
No matter how you crunch the numbers, viewership dips (or plunges) when the commercial break begins.
The average audience dropoff between the program and commercial break for broadcasters is around 7%. For cablers, the falloff is more pronounced, significantly so for some outlets, according to a new study by media buying agency Magna Global.
“Commercial ratings help to satisfy (advertisers’) demands for more accountability and also recognize that viewing behavior has changed,” says Jon Nesvig, Fox Broadcasting’s sales prexy. “C3 was the compromise that worked best for both sides.”
But the C3 compromise is not universal. In select cases, deals have been cut to measure commercial ratings only for an ads’ initial airing — or a “live-plus-one” standard (i.e., for one day after the first airing).
This is for advertisers who are ultra time-sensitive, including movie studios looking to ensure that their ads are seen before a pic’s opening weekend, and retailers pushing sales and product launches. Industry insiders predict the higher price marketers have to pay for live commercial ratings will in time spur acceptance of the C3 standard for all deals.
The compromise of ’07 stands in stark contrast to last year’s upfront, when broadcast networks tried to hold the line on forcing ad buyers to cut deals based on program ratings that included cumed DVR viewing from one to seven days after the premiere telecast. Buyers dug in their heels, and a standoff ensued for about a week — until ABC blinked and began cutting deals, followed nanoseconds later by the rest of the Big Four.
“We left viewers on the table last year,” one broadcast net sales exec says. “None of us was going to leave that this year.”
The introduction of commercial ratings gave the networks something to bargain with this time around. Although the lower commercial ratings will cost the nets some coin, the feeling on the broadcast side is that the inclusion of the DVR cume will close much of the gap. At present, DVRs are found in just under 18% of U.S. TV households, according to Nielsen, but that number is expected to rise quickly during the next few years.
“We took a very proactive stance in talking with agencies and marketers about this being the right year to take the step” to the C3 standard, says Christopher Simon, CBS’ executive veep of sales. “Technology is moving our business forward in a lot of important ways. We had a lot of discussions about how this was for the good of the business overall, and it being an opportunity for us to learn and grow together.”
The big risk for the networks, however, is that commercial ratings take a sharper decline in the fall when the broadcast nets’ introduce dozens of new shows. Nielsen has been making commercial ratings available to the networks since around only the first of the year. The nets haven’t had the time to study them through a full season cycle yet. Had the nets not had the ulterior motive of getting DVR ratings into the mix, it’s very doubtful the broadcasters or cablers would have agreed to shift to the commercial rating standard so soon.
“It’s too early for the system to shoulder a currency that $20 billion (in advertising deals) is going to be based on,” admits one network sales exec, who nonetheless inked deals on the new standard.
For sure, the dynamics of this year’s upfront were dictated in large part by which networks were willing to take the leap to commercial ratings. Those that were willing to write business on the new standard found the agencies eager to deal, and even offer healthy rate increases.
Cable remains “inherently a niche medium — some nets do fine and other networks do not translate well,” says Jason Maltby, prexy of media buying firm Mindshare.
In fact, some cablers were resolute in holding off on the commercial ratings shift — until NBC Universal last month cut a $1 billion deal with Group M, the media buying arm of ad giant WPP, which included sales based on the C3 standard for the Peacock and for its cable sibs USA Network, Bravo and Sci Fi Channel. That deal more than any other set the precedent for the industry’s broad acceptance of the C3 standard. NBC U’s mothership broadcast network has been in a prolonged ratings slump and thus had little choice but to cozy up to media buyers.
With older audiences that tend to hang in during commercial breaks, the Turner networks, Lifetime Television and A&E had little hesitation in going with the flow on commercial ratings. It was a tougher decision for others.
Viacom’s MTV Networks were among the nets most adversely affected by the transition. MTV Networks’ chief sales exec Hank Close took a cautious approach to the market. Sources say the net circulated a letter to buying agencies — a “guideline” for doing business — that included a caveat that it be allowed to revise ratings guarantees during the course of the year.
“They have a pretty unique audience, so they are able to take a stand,” says an exec at a competing network. “In the young demo marketplace, it’s tough to buy around Viacom.”
MTV Networks lose 11%-13% of its aud during the commercials — a gap that, even with high CPM rate increases, would still leave the net coming up short.
But independent data from Magna Global show that commercial retention fluctuates, indicating the networks can do things to influence it.
MTV, for example, is switching from two long commercial pods per half-hour to three shorter pods. MTV and other young-skewing networks such as CW and Fox have taken steps to program the pods with interstitials and other short-form programming designed to keep viewers tuned in.
Because Nielsen’s commercial ratings are such a new commodity, there is likely to be some shifting of commercial pod patterns and more emphasis on creative promos to keep viewers from
visiting the bathroom or fridge once the blurbs begin.
One network exec says the coming season is likely to spark the biggest shift in net execs’ thinking since the industry moved away from the broad yardstick of household ratings to more specific, young adult-centric demographic ratings in the late 1980s, after Nielsen introduced its electronic PeopleMeter tracking technology.
“There are so many questions that we don’t have answers for yet,” says the exec. “It’s really a big bet that we’ll be ahead of the game as DVR penetration increases.”