NEW YORK Now that the broadcast TV upfront market is nearly complete, buyers are setting their sights on cable. Many are wondering whether that market will be as strong, in terms of total dollars and price hikes, as its network counterpart. The answer, sellers say, will depend on whether buyers want to use the new commercial ratings as currency, as they did with the broadcast market. There are indications, and good reasons, that they might not.
Buyers and sellers were both taken by surprise when the network TV upfront market took just 10 days to complete, largely coming to a close by Friday, despite the inclusion of a new currency in the form of commercial ratings. It also turned out to be more of a seller's market than many had anticipated, with some price hikes exceeding 10 percent and total dollars committed reaching $9.2 billion, up an estimated 5 percent from 2006.
In effect, sources said, advertisers paid extra to have ad buys based on the new ratings service. They did so on the broadcast side and would do so on the cable side if the currency is adopted there as well, sellers said. Audiences for ads in prime time are about 5 percent smaller on average across the major broadcast networks than the audiences for the programs, according to Nielsen Media Research.
"A 5 percent falloff means there is 5 percent less inventory to sell, which tightens up supply," said a veteran agency executive. "If it weren't for the currency shift, with demand basically flat, rates would have increased by 2 or 3 percent, normal inflation. Instead, rates were up in the high-single digit, even double-digit range. That means clients are paying for the metrics change."
Now the focus shifts to cable, where deals are expected to take longer because the currency that was almost universally applied to broadcast deals—commercial ratings that include three days of DVR playback audiences—is not as easily applied to the dozens of cable networks selling time.
A complicating factor: The audience falloff for cable commercials, on average, is nearly twice that of broadcast in prime time (10 percent versus 5 percent). And in some cases it can rise above 20 percent.
Within the last few weeks, cable deals have been completed based on three different metrics. Publicis Groupe's Starcom struck a deal with Discovery Communications based on so-called "minute-by-minute" commercial ratings, a metric based on Nielsen Media Research data that calculates audiences for each minute within a program, which is more precise than the average commercial minute ratings used in the broadcast network upfront. GroupM's MindShare, Mediaedge:cia and Mediacom have bought time on NBC-owned cable nets (including Bravo, USA and Sci-Fi Channel) based on live-plus-three. And Starcom and Discovery used second-by-second ratings for an ad buy for Discovery HD.
"It's not a one-size-fits-all equation" when it comes to measuring cable audiences, said Chris Boothe, president and chief activation officer at Starcom.
John Swift, managing director of Omnicom Group's PHD USA, agreed. Given the more targeted audiences that cable networks serve with their programming and the differences in viewing patterns within those audiences, "it's harder for one standard to work for all of cable," Swift said.
According to Nielsen data for May, there are huge differences among cable networks in the audience falloff rates for commercials in prime time. Some of the Viacom networks show double-digit falloffs. In the case of MTV, live commercial audiences fell by an average of 16 percent in prime time compared with the live program audiences. For VH1, the falloff was 17 percent, the data show.
Buyers said those audience shortfalls are a key reason why Viacom CEO Philippe Dauman announced earlier this month that the company's networks had no plans to do deals based on commercial minute ratings this year. Although he did acknowledge that commercial ratings would eventually become the standard, the commercial ratings system, Dauman told investors during a June 1 conference call, needs more "fine-tuning."
There were signs last week, however, that Viacom might be re-evaluating that position, at least for some of its cable networks. Sources said that Hank Close, evp of ad sales for MTV Networks, has told ad buyers he is willing to consider deals based on commercial ratings this year—"under a set of very strict rules," according to one buyer. Those rules could vary depending on the deal. Close was not available last week to comment.
The head of another cable-network ad-sales unit stressed, however, that buyers would pay more for deals based on commercial ratings. "This data is new, untested and risky," the source said. "The clients have to share the risk, just like they did with broadcast."
Meanwhile, Starcom and Discovery are using the cable network's HD channel as a real-time laboratory for ad buys based on the most granular metrics available—second-by-second ratings based on set-top-box data compiled by TNS Media Research. Second-by-second data is currently the only way to determine audiences for specific commercials that are 30 seconds long or shorter.
"That level of granularity will really help improve a client's ROI," said Mike Lotito, co-founder of audit firm Media IQ, which is using TiVo second-by-second data to help advertisers assess the effectiveness and efficiency of their ad buys.
Starcom's Boothe agreed and believes that second-by-second data that measures audiences to specific spots will eventually become a key currency. "Different networks will take different paths to get there, but ultimately we'll all get there," he said.