The end of TV as we knew it: TV Networks Adopt Anything-Goes Ad Rates as Shows Shift to Web

TV Networks Adopt Anything-Goes Ad Rates as Shows Shift to Web

http://www.bloomberg.com/apps/news?pid=20601109&sid=a3MO2jtIbVt8&refer=home

By Michael Janofsky

April 27 (Bloomberg) -- The growing availability of prime- time television shows on the Internet is pushing U.S. broadcasters to jettison their decades-old method of charging for TV advertising.

From almost the dawn of television, the networks set standard rates for all advertisers based solely on the popularity of a program. Today, with spending on broadcast TV in decline, they're scrambling to capture more of the ad dollars aimed at video on the Web.

ABC, Fox, NBC and CBS are telling advertisers they can shape any deal to suit any need, according to ad agency executives. That means companies such as Coca-Cola Co. or Procter & Gamble Co. can choose any combination of advertising - - on TV, over the Internet or on mobile phones -- and work out individual terms.

``Instead of one deal for 100 different clients, we may see 100 different deals,'' said Jason Kanefsky, a senior vice president at the New York-based MPG agency, whose clients include OSI Restaurant Partners Inc.'s Outback Steakhouse and Royal Caribbean Cruises Ltd. ``It would be fun to watch if you're not involved in it.''

Pam Zucker, a senior vice president at MediaVest, a division of Starcom MediaVest Group, which represents Procter & Gamble, Wal-Mart Stores Inc. and Coca-Cola, also says network executives are offering to tailor deals.

`Openness on All Sides'

``This year, there seems to be a willingness, an openness on all sides to achieve the right solution for the right client, rather than a one-size-fits-all approach,'' said Zucker, whose brother Jeff Zucker runs NBC Universal, a studio that produces TV shows for NBC and other networks.

ABC spokeswoman Susan Sewell and NBC spokeswoman Liz Fischer confirmed that their networks are making the offers to the agencies. CBS last week announced the creation of a new sales unit, CBS Connections, ``to meet Madison Avenue's growing need for cross-platform solutions.''

Scott Grogin, a spokesman for Fox, declined to comment on any financial aspect of the annual process of setting ad rates.

Advance negotiations between advertisers and networks for next season begin next month in New York at an event known as the ``upfront.'' Agreements reached typically account for about 85 percent of the $18 billion that advertisers will spend on broadcast this year, according to Jack Myers, who runs the Jack Myers Media Business Report, a New York-based research company.

`Complicated, Elongated'

During the upfront, networks each spend a day showcasing their new programs and announcing their lineup for the U.S. fall season. Advertisers then decide how they will divide their spending.

Last year, CBS, NBC and Fox wrapped up their discussions by the end of June. NBC agreed to cut its rates by 5 percent, reflecting its decline to fourth place in audience ratings. Fox, driven by the success of ``American Idol,'' increased ad sales by 13 percent. CBS's rates were unchanged and totaled $2.4 billion. ABC didn't disclose the results of its talks.

This year, the new strategy, plus the ongoing disagreement between networks and advertisers over how to measure delayed TV- watching on digital-video recorders, is threatening to prolong negotiations. In past years, the talks have concluded within a month or so.

Bill Cella, vice chairman of Draft FCB, a division of Interpublic Group of Cos., which represents Microsoft Corp. and Home Depot Inc., said many advertisers anticipate ``a very complicated, elongated upfront process.''

Advertisers are pushing harder than ever to take advantage of the shift to the Internet. The pace picked up this year because of the expansion of the networks' own Web sites and their partnerships with other sites, such as AOL or Microsoft's MSN.

NBC, CBS

NBC Universal, a division of Fairfield, Connecticut-based General Electric Co., and News Corp., the New York-based parent of Fox, announced last month that they would join to form a video distribution Web site for their TV shows and movies.

They were followed this month by New York-based CBS Corp., which plans to provide a rotating lineup of previously aired shows free over AOL, MSN, and eight other Web sites, including veoh.com, which calls itself a ``virtual television network.''

``Clients want to be where the consumers are,'' Pam Zucker said. ``We continue to see the fluidity of dollars to the Internet.''

Steven J. Farella, CEO of the ad agency TargetCast, says demand is rising partly because prime places to advertise on the Web such as AOL and MSN are filling up quickly.

``The issue is, can the Internet take as much money as I can spend?'' he said.

Web Spending Rises

The Myers Report said spending for Internet advertising will rise to $16.7 billion for the 2007-2008 viewing season, from $14 billion a year earlier. Ad spending on broadcast network television for the season coming up will fall by 3 percent to $18 billion, after increases of 8 percent in each of the previous two years, Myers said.

As advertisers seek to take advantage of digital outlets, the networks are renewing a fight they lost last year over viewing on digital video-recording devices such as TiVos.

Buyers held firm against paying the networks for any additional viewers who watched programs on a delayed basis, arguing successfully that viewers use DVRs to fast-forward through commercials.

This year, advertisers are willing to pay for those viewers, provided both sides agree to measure audience size based on the numbers watching commercials, rather than those watching programs, advertising executives said.

`Big Topic'

``Commercial ratings is the big topic this year,'' says Andy Donchin, an executive vice president at the New York ad agency Carat USA.

Nielsen Media Research is refining a commercial measure, though no agreement has been reached on how to measure delayed TV-show viewing. Several possibilities are under consideration, including the number of viewers who watch within 24 hours of the live broadcast, within two days, three days, seven days, or some combination.

Other companies are providing even more data for advertisers and networks. Two agencies, Starcom USA and Interpublic Group, the parent of Draft FCB, have signed on with TiVo Inc., based in Alviso, California, to receive a second-by- second measure of all delayed viewing on TiVo recorders.

IAG Research, which measures the impact of advertising on television viewers, provides information to more than a dozen broadcast and cable networks.

``If you ask 10 major buyers how it's all going to turn out, you'll get six different answers,'' said Bill Carroll, vice president of Katz Television Group, which sells advertising to affiliates. ``It's all very confusing.''