Why advertisers can profit from station average price - It may be the latest bete noir of the industry, but SAP could help advertisers in the battle against inflation. The negotiation of fixed rates is key, Mike Wood believes

By MIKE WOOD, the media director of J. Wal, campaignlive.co.uk, Friday, 28 March 1997 12:00AM

It may be an ’odd way to buy and sell advertising’, Paul Polman, the managing director of Procter and Gamble, remarked (Campaign, 14 March), but station average price trading has dominated the buying and selling of airtime for almost 20 years.

It may be an ’odd way to buy and sell advertising’, Paul Polman,

the managing director of Procter and Gamble, remarked (Campaign, 14

March), but station average price trading has dominated the buying and

selling of airtime for almost 20 years.



Will it survive? Not if some advertisers have their way.



At the recent Monte Carlo TV conference, Tim Pile, of the Alliance and

Leicester building society, called SAP a ’con’, while P&G’s media

manager accused it of fuelling inflation.



P&G may be leading the charge, but it isn’t alone. A decisive 72 per

cent of the conference voted to end SAP altogether.



So why does SAP matter and why has it crawled out of the media

swamp?



The curiosity of SAP lies in the fact that that there are no fixed

rates.



Prices are contracted at a fixed percentage above or below the average

cost of ITV airtime and the actual price will rise or fall with market

fluctuations.



The implications take some thinking about. SAP allows advertisers to

sidestep the risk of negotiating a fixed price in an uncertain

market.



For ITV companies, it means never having to say sorry. If ratings fall,

the price adjusts to balance the books.



Of course, prices also go down. But in recent years, the trend has been

one of rising costs, hence the concern. And the self-adjusting price

means the books are always open for business. This allows advertisers

the flexibility to buy short term.



So why, if SAP is so wonderful, are some TV companies keen to drop

it?



TV companies are split on the issue. Generally, the smaller stations are

in favour of SAP because it provides a trading currency which has a

built-in inflation factor. ITV companies are less keen, arguing that

station average price treats all programmes as equal and does not

reflect the fact that peak programming is of greater value to

advertisers.



There is some truth in this, although a rise in the cost of peak

programming is likely to be offset by lower daytime costs.



Some advertisers are keen to stamp out SAP because they believe it takes

pressure away from ITV companies to increase audience levels. They do

have a point, but only in the short term.



In the longer term, money follows audience and burgeoning competition

between channels will be a powerful incentive to increase viewing

figures.



Clients benefit from the monthly information on ITV revenues, a

significant negotiating advantage which diminishes ITV’s ability to

price its product according to what each customer will bear.



A widely held view is that the smaller clients will benefit most from

the equalising effect of freely available price information. That’s

true.



However, what’s less certain is whether ending SAP would benefit large

advertisers.



But advertiser size is only one factor. Gains will be made by those who

negotiate well and exercise options to switch investment if the price

gets too high.



Advertisers who want to fight inflation should not wait for the death of

station average price. They can grab hold of the future by negotiating

fixed rates.



But nothing comes free. If ITV companies are to guarantee audiences,

then they may demand quid pro quo in guaranteed budgets. That would mean

a serious loss of flexibility for advertisers, the majority of whom

contract to a share of ITV advertising spend rather than an expenditure

commitment.



Inflation is a burning issue - and rightly so - but growing competition

and the possible increase in minutage will help ease cost pressures.



Flawed as it is, advertisers have more to lose than to gain from the

destruction of our TV trading system.



This article was first published on campaignlive.co.uk

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