In Depth

The Once and Future King

Technology Brings New Challenges, New Opportunities

The television business today faces daunting challenges. But it’s moving quickly—and often smartly—to meet the demands of a digital marketplace. Reports of the medium’s demise were clearly exaggerated. The industry is determined to reinvent itself and remain the channel of choice for advertisers.

“We have all of these digital natives who use broadband as a principal or supplemental way of consuming what used to be called television,” said Lori Schwartz, senior VP of Interpublic’s Emerging Media Lab. “You can’t swing a dead cat without hitting a broadband portal.”

Here’s how Mike Lotito, president of media consulting firm Media IQ, describes it: “The television business has been entering the mature side of its lifecycle for a while, but it’s really finally coming to terms with it. Mature businesses have more competitors, price pressure and infrastructure challenges, and they’re not the most popular thing in town anymore. In the last year, the heads of the networks have realized that and are figuring out how to change their processes.”

Anne-Marie Schaffer, senior VP of media for Los Angeles agency Ignited, who formerly ran the giant Cingular account at Mediaedge:cia, observes, “The broadcasters have been pretty quick to develop good content for the Web and are providing a really engaged opportunity for advertisers to create some unique placements we can’t do on television.”

Nielsen research shows the networks’ own Web sites are the most popular destinations for viewers when they watch streaming television over the Internet. Half of all viewers in that study went to ABC.com, more than any other site, followed by NBC.com and CBS.com.

“Obviously, there is significant fragmentation of the audience and increased choice, but that’s created increased viewing,” said Ed Erhardt, president of ESPN and ABC Sports customer marketing and sales. “Industry factors like the writers strike and other things ebb and flow, but television is growing.”

Indeed, television today has leapt out of the box—a cavalcade of content, from broadcasters and cable networks, all mashed up in true digital fashion, served over various screens and controlled in various ways by the viewer.

Ad inventory on Hulu, the video-on-demand online service launched by NBC and News Corp. in March, is already sold out, NBC Universal CEO Jeff Zucker told attendees at the International Advertising Association conference in New York.

At a February earnings call with analysts, CBS Corp. President-CEO Leslie Moonves said, “The Internet is truly an extension of our existing network business,” and noted that the CBS Audience Network “has more than 300 affiliated Web sites and is the No. 1 provider of online television programming in the business.” He also said CBS might eventually join with its competitors and offer content.

So far from being done in by the Internet, the present-tense version of TV may actually provide solutions to the thorny problem of how to monetize advertising online beyond the booming search category. “The irony is not lost on me that, beyond search, the Web’s best prospects for advertising growth rely on how much it can look like television, the medium it most denigrated during its ascent,” said Initiative Executive VP Fred Sattler.

And in the everything-old-is-new-again department, the frequently heard argument that TV, network or otherwise, is still the best way to build a brand remains a powerful one. “What really pisses me off is it seems like pundits and sometimes clients say TV’s got to be more like the Internet,” said Jon Nesvig, president of sales for Fox Broadcasting. “We’re not the Internet. You use different media for different reasons in your communications planning. If you have a really cool product people want to find out about, you can do viral marketing, but you still need to get the word in a scalable nature that gets people excited about it. And, as with some of our big categories like automotive and food, with immediacy.”

Counting the Changes
That’s the good news. The bad news is that viewer erosion from the networks to cable and from both to the Internet continues apace. “Where I see things changing is really the measurement of how people are actually defining what is successful and what is not,” said David Levy, president of Turner Entertainment ad sales and marketing and president of Turner Sports. “We will become more granular in how we evaluate and post for our agencies and clients, which will put a strain on both sides of the business.”

The advent of the digital video recorder hasn’t killed either advertising or the 30-second spot, as the overheated hype of a few years ago thundered, but it will hit 35% penetration sometime next year, and the marketing implications of that hugely disruptive technology are still not well understood. Moreover, 60% of TiVo owners still zap ads—the “dark cloud sitting on the present,” as Tracey Scheppach, Starcom USA’s senior VP and video innovations director, described it.

Last year’s move to live-plus-three (C3) commercial ratings during the upfront did improve things. DVR viewers are captured more effectively, and measuring average commercial minutes resulted in some positive changes, like shorter commercial breaks. But industry insiders consider C3 an interim solution at best. There’s still no consensus, let alone standards, for effectively measuring television programming when it’s actually on the television set. And not coincidentally, C3 delivers lower ratings.

“As an industry, we moved too quickly to the C3 solution,” warns Initiative’s Mr. Sattler. “The small but growing issue with time-shifted viewing drove the discussion and ultimate compromise. While time-shifting was the WMD pretense for the C3 tarantella, the topic was recast as a large one about commercial ratings. Truth is, twice as many people leave the room as change channels in prime time. Let’s do something about capturing this, rather than kidding ourselves that C3 is any significant improvement in exactitude.”

That argument would certainly resonate in Starcom’s Chicago headquarters. The shop cut deals with TNS Media Intelligence for second-by-second ratings last year using DirecTV and Charter Communications set-top box data in Los Angeles; this year it has made upfront deals with high-definition networks using the same audience measurement tool.

“We need to continue to find ways to engage our audience through commercial pods, whether through shorter pods, mini-dramas, product integration throughout, and so on,” counseled Turner’s Mr. Levy. “But it will also add strain because we’ll understand a lot more on the creative side of the advertising itself. In the future, I might say to a client, ‘I can no longer take your commercial because your creative is making people turn away.’”

Beyond the metrics, the industry’s digital evolution also has forced very visible changes in the organizations of both sellers and buyers themselves. Underneath the media agencies’ ongoing enthusiasm for substituting the word “activation” for “buying” are dramatic changes in the way they organize their buying units, with most moving at least to an all-inclusive, “video” structure that follows the content wherever it appears. The need to marry traditional television with digital content has similarly transformed the providers’ sales organizations.

“The old picture of the network salesperson as waiting for the phone to ring is gone,” said Fox’s Mr. Nesvig. “These jobs have gotten a lot harder and require a lot more interaction and creativity. We’ve evolved from people who sold time to clients into a deeper, problem-solving partnership with them.”

The key is the brand, whether a network or a show. That’s part of the present-day television plan, at least for those lucky enough to have strong brands. At ESPN, which combined its sales efforts before most others, Mr. Erhardt said, “I do think over time there will be versions of prime-time shows that accumulate audience across multiple screens. Our sales organizations are connected and work together. You have to organize and compensate your people to work together toward a greater good and not silos. Those who have that will succeed.”

Addressing the Future
Since the first set-top box was first placed atop a television set, advertisers have salivated over the prospects of mining the data these things collect. Now all sides of the television industry are unanimous in saying a revolution is under way.

“Addressable” advertising offers the ability to custom-target different creative to different audiences, target more effectively, and deliver “telescope” ads in which consumers watching a spot can, with the push of a remote button, be taken to longer-form advertising or provide sales lead data. Digital technology is bringing addressability within reach, and the industry is giddy with the possibilities.

MindShare North America CEO Marc Goldstein calls addressability “the Holy Grail” and says, “In the next couple of years—I really mean the next couple of years—we’re going to see a really concerted advancement. It has been something we have all believed is an important next step in our marketing capabilities, and we now have the technology that will allow that.”

There are a slew of initiatives, innovators and entrepreneurial enterprises working on delivering on that promise. During last year’s holiday season, for example, Kmart used customizing technology from one of those hot new firms, Visible World, on Nick at Nite and TV Land to target TV ads to specific audiences. GroupM has a financial stake in Visible World, and also was one of several companies to invest $25 million in another purveyor of addressable ad technology, Invidi.

Up in Boston, meanwhile, Backchannelmedia is about to realize the fruits of a decade of labor and launch consumer beta testing for its interactive television technology that allows viewers to link TV promotions and offers to an online portal. The tech would allow consumers to buy products they see on TV with a click of the remote button. Backchannelmedia is talking with TV station groups and networks.

Cable also has gotten serious about addressability. A consortium of cable networks is working on a set of advanced ad services under the name Project Canoe that will provide advertisers with the ability to run cable ads nationally that incorporate targeting and addressable abilities.

“The future of television really is an innovator’s dream come true,” said Ms. Scheppach. “It’s a wide-open canvas for people like myself. When I look at the current and future potential of measurement, I am excited.”

Fast-Forward
One hanging chad the industry is going to have to deal with even more profoundly in the near future than it already does is the failing economics of television production, which means some of the current changes, including a surfeit of reality programming, less money going to pilots, year-round launches and other new TV tricks, are sure to accelerate.

MindShare’s Mr. Goldstein warns, “Deficit financing is at a higher rate than it was years ago.
There is no reason to believe that this is going to change in the short term. Networks have rumbled even recently about abandoning nights of the week such as Saturday because of lack of profitability. You could argue that Friday night is the next to be challenged. And at least one senior executive has commented on the fact that Fox only runs 22 hours a week (several hours less than its network rivals) and has a distinct advantage in having a smaller number of hours to program. Balancing that to some extent is the growth of original content being produced by cable networks. …

“My concern is if the economic model starts to shift even more and the networks continue to move away from the production of scripted content because the deficit model becomes untenable, where is the original content going to come from? The networks make up deficits from foreign sales and syndicated sales. Nobody has yet proven that a cable repeat sale can do the same thing.”

So challenges will persist, but there is much to look forward to as televised content marches boldly, if a bit uncertainly, into the future.

Will mobile ever realize its potential in the U.S.? And if it does, what form, if any, will advertising take on this smallest of small screens? Most observers expect opt-in approaches to be the stickiest advertising approach on cell phones. As yet, though, Americans have shown no real desire to watch television on their phones.

The migration of televised content to the Web, however, may have even greater potential than it has shown to date. Broadcasters and cable networks have barely tapped consumers’ growing appetite for Web-exclusive content. Observers expect more competition for Web-only studios such as Sony Pictures Entertainment’s C-Spot, a six-show online comedy channel, which debuted online this month.

Where are you watching? How, when and on what screen are you watching? It really doesn’t matter today, and it will matter even less tomorrow. Because it will all be television. And you can be sure that no matter the future brings, the show will go on.