Auto Ads No Longer Sure Bet for Stations

May 29, 2006  •  Post A Comment

For WXII-TV President and General Manager Hank Price, the challenges facing the auto industry are an all too sober reminder that it is no longer business as usual for the country’s local television stations.

As declines in auto sales lead some automakers to pare back their advertising spending and others to redirect their ad dollars to alternatives such as the Internet and cable TV, broadcasters are learning quickly that an advertising category that has long been their lifeblood is for the first time slipping from their grasp.

“Go back 10 to 15 years ago, and car dealers looked at TV advertising as a fixed allocation-a certain amount of advertising went to newspapers, a certain amount of money was spent on TV,” said Mr. Price, whose station is the Hearst-Argyle Television-owned NBC station in Raleigh, N.C. “Today there are no fixed allocations whatsoever. They are thinking about the best use of their advertising dollars.”

The stakes are huge for local TV stations.

Automotive advertising is by far the largest form of advertising in the United States, totaling more than $17.1 billion last year, according to TNS Media Intelligence. Car ads account for 20 percent to 30 percent of most TV stations’ overall annual revenue. If automotive advertisers begin to look elsewhere to spend their money, it could devastate stations as they stand now.

The looming losses have prompted people such as Mr. Price to rethink their relationships with their biggest and once most reliable advertisers.

“Some station groups are becoming more creative, packaging multiplatform [advertising plans], but it is still in its infancy,” said Steve Ridge, executive VP for Frank N. Magid Associates, a TV industry consulting firm based in Des Moines, Iowa.

In many cases, a significant mind-set change is necessary for stations to survive. Station executives must develop creative ways to keep their auto advertising revenue amid heightened competition, Mr. Price contends. Mr. Price has launched a series of initiatives designed to deepen WXII’s relationship with automotive advertisers, including sponsorships of events or programs such as the Athlete of the Week. He also has designated a classifieds section on WXII’s Web site for local dealers selling used cars. The station’s Web site now has several car-themed sections covering topics such as insurance and financing that provide advertising opportunities as well.

“The thing we have to come to understand is that this is not about selling spots, it’s about helping [dealerships] move product,” he said. “We have to avoid being the commodity in the marketplace.”

Even as more TV stations begin to embrace the Internet by unveiling robust Web sites, a large number of stations still view Web ads as something to toss in at the last minute when trying to ink a deal for a 30-second TV spot, according to a number of people in broadcasting industry. Only a small number of broadcasters are aggressively trying to sell ads on their Web sites, these people say.

“We are not just going in and saying, ‘Have we got spots for you,'” said Don Perry, president of Clear Channel Broadcasting, which owns 42 TV stations. “We are now saying we understand you need different ways to reach consumers.”

It is a philosophy more station executives will have to embrace as the auto industry looks to work through its problems of selling vehicles that have fallen out of favor with consumers as gas prices soar and domestic auto dealerships begin to consolidate.

“There is worry about an industry shakeout causing closer scrutiny on investment returns, including marketing investment returns and whether they can be more accurately calculated from Internet marketing,” said Lee Westerfield, a broadcasting analyst for Harris Nesbitt Gerard.

Shifting Gears

Until recently, an auto advertiser’s best way to reach potential car buyers was to reach as many consumers as possible-and TV’s broad reach fit the bill.

However, as consumer tastes have shifted and sales have slowed, automakers and dealers have had to work harder to bring people into their showrooms. That has triggered many advertisers to change their strategies to go after specific types of consumers with specific messages, spending more on Internet advertising and teaming with cable companies to direct highly targeted ads to specific ZIP codes.

Comcast Spotlight, the advertising arm of the giant cable company, has been particularly aggressive in trying to lure advertising dollars away from local broadcasters. The cable company offers car makers and dealers opportunities to create video-on-demand channels that can offer profiles of specific cars as well as video-based classifieds. Comcast Spotlight is also able to direct specific ads to specific cable systems, creating opportunities for auto advertisers to target specific types of buyers-something broadcasters can’t do over the air.

“In the past, [auto advertising] was about reach and frequency,” said Kevin Cuddihy, Comcast Spotlight’s VP and the divisional managing director. “The industry is getting away from that. Now it’s more about interactivity, engagement and targeting.”

To be sure, no one is predicting auto advertisers will stop doing business with television stations altogether. TV remains the best way to reach large throngs of consumers. However, as people spend less time watching TV in favor of surfing the Web, playing video games or listening to iPods, traditional 30-second TV spots are not as effective as they once were, industry players and analysts said.

“We still spend big on TV, but we have been shifting ad dollars for some time to the Internet because we are going to where the consumers are,” said Ryndee Carney, a spokeswoman for General Motors.