Advertisers, TV Networks Go to Battle Over Streaming Ad Rates


Rob Master loves the idea of putting commercials into new Hollywood streaming hubs like Peacock, HBO Max and Paramount Plus. But he’s not so enchanted with the costs being demanded by the media companies that own the sites.

NBCUniversal, WarnerMedia and others are seeking a premium from sponsors eager to attach their ads to streaming shows. “There is a challenge they are going to face with advertisers, ourselves included, that they need to sort out,” says Master, vice president of media and digital engagement at Unilever, the large consumer-products company behind Dove, Hellman’s, Lipton and Ben & Jerry’s. “I think we are definitely, like, ’Whoa.’”

Madison Avenue and Hollywood are squabbling over advertising rates for some of the industry’s most interesting new venues. Both sides acknowledge that streaming video is all the rage, and that younger consumers are migrating away from big-audience TV in favor of on-demand binge sessions with streaming-video venues like Hulu, Tubi and Pluto. But that’s where the agreement stops. The entertainment industry wants to charge rates that are akin to primetime TV and top sports broadcasts. And the advertisers say the nascent video venues, quite simply, haven’t gotten to that point.

“There is no denying there has been a notable shift away from linear into streaming. It’s an area of opportunity,” says Geoffrey Calabrese, chief investment officer for Omnicom Media Group North America, one of the region’s biggest buyers of commercial inventory. But the rates being sought by TV companies, he says, “are probably a little inflated at this point. We need to course-correct that.”

The back and forth over a very new type of media shows just how quickly streaming video is hooking consumers who have a yen for high-quality dramas and comedies — and the advertisers who need to reach them to keep revenue flowing. “It’s the first time that we are in a marketplace where it’s being led by our streaming conversation, and not being led by our linear conversation,” says Rita Ferro, president of Disney’s advertising sales.

There is likely more to come. Fox Corp. in March suggested to investors that, over time, ad revenue for its Tubi streaming outlet could exceed what the company captures for its Fox broadcast network. Walt Disney Co. said in a March filing with the U.S. Securities and Exchange Commission that ad sales at Hulu, ABC.com and other direct-to-consumer businesses rose 47% to $882 million last quarter — not far from the $984 million that came to ABC, which notched a gain of 5%.

NBCUniversal is already acting as if streaming is here for the long haul and has made a point to ask for rates for Peacock that are on par with traditional primetime. “I think it’s fair to say in a COVID year, when streaming consumption is through the roof, it has really become the norm,” says Laura Molen, the company’s president of advertising sales and partnerships. “We are getting a lot of interest.”

Before they can plan for the future, however, the TV companies need to contend with the present. At issue in current talks is a measure called a CPM, an expression of the cost of reaching 1,000 consumers that is central to the industry’s annual “upfront” talks, when advertisers and TV networks haggle over commercial inventory for the coming year of programs. In an era when audiences for TV are in significant decline, the networks are eager to replace them with streaming viewership. And they are pressing for big CPM increases that often surpass those being asked for traditional TV.

Madison Avenue will have to act quickly. Buyers and sellers agree that there has been a rush of interest in old-school TV advertising. With ratings down, big TV sponsors need to buy up more inventory to get their 30-second pitches in front of the base level of consumer eyeballs required to spur interest in and awareness of their products and services.

But acting quickly doesn’t mean acting rashly. The advertisers know that the networks can’t escape basic arithmetic. Skyrocketing CPMs aside, TV still gets the bulk of its ad revenue from TV ads for crowd-pleasing programs like “The Masked Singer,” “Grey’s Anatomy,” “Sunday Night Football” and “NCIS.” If the networks want higher rates for streaming, they may have to offer a host of sweeteners to do so — and even cut CPM demands for less-popular venues, such as smaller cable networks. They may also have to capitulate to new demands for flexibility. Advertisers want to be able to move their ad dollars to the places where their most likely customers are gathering. Why keep money on NBC broadcast, for example, if a company’s most likely consumers are found to be streaming? Networks may not embrace that concept.

Unilever’s Master is someone the networks want on board. Unilever spent around $549.9 million in traditional media advertising last year, according to Kantar, a tracker of ad spending. Of that, approximately $381.2 million — around 70% — was devoted TV venues.

The executive sees a lot of Madison Avenue potential in the new technology. Unilever is already a charter sponsor of Peacock, and has teamed up with NBCU to test out new formats and examine research around them. He thinks the rise of streaming means “a fresh start” for the advertising industry and many of the media companies it supports, a chance to cut back on the dozens of commercials that annoy viewers of traditional TV and to create “a new handshake agreement” with consumers not to pester them with ads that interrupt their viewing experience. Instead, he says, his company and others can create new ads that help viewers shop, learn about products in which they really have interest and are potentially more welcome than the umpteenth pitch from Flo from Progressive or Jake from State Farm.

Unilever has experimented with new kinds of commercials that it can’t put in place on traditional TV. On Peacock, NBC has tested ads that consumers can ask for by using voice technology, and others that highlight its ability to use data and interactive technology to send consumers more commercials that match up with their lifestyle and buying habits.

But in order for streaming to demonstrate its real value, says Master, the venues need to get more people to watch. “You have to have the eyeballs, so you can use targeting capabilities, so you can charge a reasonable price. It all starts there.”

The networks won’t apologize for seeking rates some might consider aggressive. TV executives believe they are offering a better quality of programming than many of their upstart rivals and think their ability to carve out audience niches around people who might want to see a movie or buy a car is worth a little extra.

“You get what you pay for,” says Katrina Cukaj, who leads ad sales and client partnerships for WarnerMedia, speaking about HBO Max. The company is slated to unveil a new ad-supported version of the service in June that features a cheaper monthly rate than its current incarnation. “It’s a premium brand with premium pricing attached to it.”