Fox Sees Fewer Ads On TV As Viewers Gain More Control

2016 TV Upfronts: Fox Wants To Cut Ads To Lure Viewers To TV And Video
Courtesy Fox Networks Group

21st Century Fox has never been shy about staking its claim to a piece of the billions of dollars in advertising that make their way to TV networks every year. Yet on billboards that have gone up recently in New York and Los Angeles, the big media company is touting something else – an ability to watch its hit shows online without commercial interruption.

“What’s better than watching ‘Empire’ on demand?” one sign asks, before providing an answer: “Watching ‘Empire’ on Fox.com without commercial interruption.”

After years of functioning as one of the TV industry’s biggest supporters of the commercial break, the company could take a break of its own from some of the many commercials it runs on TV every year. Fox Networks Group, which oversees the Fox broadcast network, cable outlets like FX, FXX and Fox Sports 1 and a majority stake in the company that contains the National Geographic cable networks, is giving serious thought to changing the architecture of the advertising that has supported TV for decades.

“We all believe that the commercial interruption business we’ve been in for the last 40 or 50 years is probably getting a little long in the tooth. We all need to develop better ways for brands to engage with our audience,” said Randy Freer, president and chief operating officer of Fox Networks Group, in an interview. The company is gearing up for the TV industry’s annual “upfront” market, when U.S. TV networks try to sell the bulk of their advertising inventory for the coming programming season.

Fox Networks expects to reduce commercial loads on some shows debuting on FX and National Geographic Channel, Freer said, and will continue to try to refine the ad arrangement on Fox, where hit drama “Empire” already runs with fewer commercials. “We are looking at a number of ways to try and create a better user experience,” said Freer, who added: “We are not in the advertising business. It’s a revenue stream for us.”

To be sure, ad revenue continues to fuel the engines of big media conglomerates like 21st Century Fox, NBCUniversal, Walt Disney and CBS, but many of the companies that have courted commercials for decades have begun to look for other forms of sustenance. Last week, Discovery Communications indicated it would use cost savings from layoffs to invest in sports content and direct-to-consumer outreach. CBS Corp. has for many quarters emphasized its growing revenue from retransmission fees and, more recently, subscription revenue from new digital services.

The maneuvers surface in the wake of big fluctuations in recent years in the stream of advertising revenue that flows to TV. Since 2012, the volume of advance ad commitments made during TV’s upfront market has been flat or in decline. With streaming-video outlets and mobile tablets luring couch potatoes away from the TV screen, media companies need to find new sources of cash upon which to rely.

Fox isn’t looking to lose money with its new techniques. Instead, Freer said, the company believes it can win more dollars by creating  viewing environments that are less cluttered and more in keeping with the experiences people have when they watch video online.  “We think the key for broadcast television is if we can get it over a few years to look a lot more like the non-linear world,” he said. “I think we’d be very, very happy.”

Many TV companies are experimenting with similar ideas. Viacom, Time Warner’s Turner and NBCUniversal have all unveiled initiatives that will cut commercial loads from particular programs or timeslots. Viacom has trimmed ads in primetime. Turner’s TNT will roll out new dramas with fewer commercials and also trim the number of ads aired on TruTV. NBCU recently announced it would cut the number of commercials that accompany “Saturday Night Live” next season by 30%.

Unlike those companies, Fox has tested these waters for years. In 2008, its broadcast network said it would limit the advertising inventory available in two high-concept dramas, “Fringe” and “Dollhouse,” so the programs carried more content for viewers and helped ads stand out in the process. At the time, Fox was prepared to cut the number of ads in the programs by half – just five to six minutes per hour – compared with 10 to 12 minutes, the norm at the time. In 2003 and 2004, Fox kicked off the launches of its popular spy series “24” with commercial-free season premieres book-ended by ads from Ford.

More recently, Fox has tried to keep its ad loads to manageable weight. Based on data from Nielsen,  Fox said the broadcast network season to date as of March 26 has carried an average of 13 minutes of commercials per hour in primetime, compared with 13.9 minutes for CW; 14 minutes for CBS, 14.1 minutes for NBC; and 17.4 minutes for ABC.

Behind the scenes, the company has devised an early ad strategy for viewers more inclined to watch their favorite TV series via streaming-video on demand. In late 2014, 21st Century Fox announced its intention to buy TrueX, a technology company that develops advertising concepts and formats for on-demand video, for a price said to be around $200 million. Since that time, that unit’s leader, Joe Marchese, has talked up the value of commercials viewers choose to watch in exchange for getting access to a chosen piece of video with few or no advertising interruptions.

Experimentation will continue. Late last year, Fox worked with Pepsi to insert the soda giant into a three-episode arc on “Empire.” The story culminated in a special single commercial break, with an ad that continued the plot of the program even as it touted Pepsi. Fox’s Freer said he is interested in finding more chances to let advertisers be “storytellers” in ways that are appropriate around programming.

“Ad revenue has been more challenged over the years for a variety fo reasons. The marketplace hasn’t been as strong, and audiences continue to look for ways that allow them to skip commercials or watch at a time when when they want to watch,” he said. “Those are places where we should be thinking about how we bring brands and opportunities to engage viewers in ways that make sense.”