Spots to Rule Upfront Prices

Jul 10, 2006  •  Post A Comment

With the ink barely dry on this year’s upfront television advertising deals, networks and ad buyers are bracing for huge changes next year, when they’ll be able to base price negotiations on how many people actually watch commercials.

Nielsen Media Research agreed last month to provide broadcast networks with new data that counts the average audience during each program’s commercials. The new data is designed to satisfy advertisers who are demanding to know not only who is watching the shows they sponsor, but how many of those viewers stick with the commercials.

Nielsen will begin delivering the minute-by-minute ratings when the new broadcast season begins in fall, giving networks and ad buyers time to analyze the data before next year’s upfront. That information will be at the heart of negotiations over how future ad deals are structured-and may create new sticking points.

“You’re going to see that to be a huge paradigm shift as we migrate” to ratings for commercials, said Mike Shaw, president of ad sales and marketing for ABC.

Mr. Shaw this year was the protagonist in a disagreement with advertisers over whether ad prices should be based on live viewers or live viewers plus those who tune in later using digital video recorders. The shift to commercial ratings is the latest turn in the TV industry’s effort to respond to advertisers who want to know exactly how many people are watching their spots.

“That’s definitely going to be the currency of the future,” Charlie Rutman, president of media agency MPG, said of commercial ratings. “I think the old ways of keeping score are going to change just as quickly as the game is changing.”

The new ratings will force networks and buyers to set a value on each viewer who stays tuned in during spots. Commercial ratings are lower than program ratings, and it remains to be seen whether advertisers will pay a higher price per viewer to reach those tallied under Nielsen’s new system. “The whole supply-and-demand formula needs to be rewritten, and that’s going to be a bit of a discussion,” said Sam Armando, executive VP and media director for Starcom.

Basing prices on commercial ratings is likely to create new winners and losers, Mr. Shaw said, with broadcasters gaining an edge over cable channels. With cable audiences growing, ad dollars have moved away from broadcast over the past few years. But more broadcast viewers than cable watchers stay tuned in through commercials, Mr. Shaw said.

“You’re going to see those dollars that have migrated away migrate right back because the commercials are being seen when you advertise on [broadcast] networks, and that’s a huge, huge, emerging story,” he said.

Mr. Shaw is already putting together a major presentation on commercial ratings that he plans to show to buyers and advertisers in the next few weeks.

“All the data would suggest that network is a really good buy when it comes to buying television commercials, and we’re very anxious to get that story out there,” he said.

Sean Cunningham, president of the Cabletelevision Advertising Bureau, said he is confident that no matter how the score is kept, cable’s ad revenues will continue to grow.

“We feel at the very least, strong, and more realistically optimistic in an evolving trading currency that we’re going to continue to do well and grow dollars,” Mr. Cunningham said. “Whatever the market measure is, the fundamental underlying health measures haven’t changed in 50 quarters and don’t show signs of doing so anytime soon.”

ABC this year was the last of the broadcast networks to complete its upfront sales. This year’s market moved much more slowly than usual, with many advertisers opting to spend later rather than commit funds at the upfront. That gave ad buyers leverage to press for smaller price increases from the networks. Total advertising commitments to the broadcasters fell to about $8.9 billion from $9 billion last year, with some money shifting to other forms of marketing, notably the Internet.

A Digital Dud

Even bigger changes were expected in this year’s market, with advertisers looking for ways to sponsor more digital content from the networks and more integrated marketing programs with network shows. Instead, digital appeared to account for no more than 1 percent of the spending.

Combined with advertisers’ efforts to adjust spending to a changing media landscape, the commercial ratings are likely to shake up negotiations next year, said Starcom’s Mr. Armando.

“It’s going to make it more challenging,” he said, noting that commercial audience measurement will help buyers tell clients how many people their ads are reaching.

The TV advertising market’s history of adjusting to new audience measurements may provide a template for negotiations over how to account for commercial ratings.

When Nielsen shifted to people meters, a move that lowered ratings by about 20 percent, prices for commercial time rose in a similar proportion, keeping network revenue unchanged.

“It was a matter of how the noses were counted,” said Jon Nesvig, president of ad sales for Fox Broadcasting Corp. “You obviously didn’t lose 20 percent of your audience overnight. It was just a matter of how they were counted.”

Ad buyers are likely to balk at automatically passing along any increased costs to their clients that may result from using commercial ratings.

“The market will seek its equilibrium as far as pricing goes,” said Lyle Schwartz, director of research and marketplace analysis for Mediaedge:cia, the media agency that first pushed toward average commercial ratings. “I think this will be a fairer measure of an audience.”

Agreeing to set ad prices based on the number of viewers who watch commercials doesn’t eliminate one of the questions that slowed this year’s upfront sales: how to account for DVR use.

“We’re trying to respond to what our customers are asking for, but we have to figure out an economic, rational way to run our business too, so everybody can’t have everything,” Mr. Nesvig said. “There has to be some form of currency that makes sense for both sides, and so I would think that commercial viewing over an agreed-upon time frame would be what our customers want.”

Using commercial ratings may swing the DVR audience debate toward counting live and delayed viewers.

“I don’t know what argument they could possibly have for staying with live-only if in fact the fast-forwarding will be excluded from the playback portion,” said David Poltrack, executive VP for research for CBS. “I think that covers their concern about playback.”

“What we’ll be doing next year is looking at the pattern of playback, how much is same-day, how much is 24 hours, how much is 48 hours,” Mr. Poltrack said. “Then maybe advertisers who aren’t willing to accept seven days … may be willing to accept four or three or two.”

Any agreements networks and ad buyers reach that are based on commercial ratings will probably be superceded as advertisers seek even better ways of measuring their spots’ effectiveness. Many agencies and networks currently are trying to quantify not only how many people watch commercials but how many recall or react to an advertisement.

“The next level is not only do they stay during the commercials, but are they the type of people who will actually pay attention to the commercials that the commercial has some sort of resonance with?” Mediaedge’s Mr. Schwartz said.