To coincide with Comcast’s acquisition of Sky and the dramatically changing face of TV, I wrote “Standing still is not an option, and in this game of musical chairs, advertisers won’t want to be missing a seat when the music stops”.
Three years later, the pandemic has set a new tempo to this game. With a captive audience confined to their homes, spending more time watching TV than ever before, the peerless Thinkbox summary of viewing figures for 2020 lays bare the jaw-dropping scale of what happened last year.
The linear broadcasters are being hit by a double whammy with their audiences eroded by the streamers and online video, while their ad revenues are being hit by YouTube and other online video options. While this has been happening gradually, 2020 was a watershed year.
And yet, although the pandemic has changed TV forever, it hasn’t changed the fundamental mechanics of how most TV advertising is bought and sold.
TV trading is stuck resolutely in the 1990s and this is contributing to the loss in advertising effectiveness identified by the IPA.
The growth of streaming, on-demand and online video has splintered the viewing audience between subscription and ad-free channels and reduced the number of ads people are exposed to, as any viewer of, say, Channel 4 content on Sky’s on-demand channels will verify.
TV is a powerful advertising medium with an effect that nothing can match but this unique asset is under pressure as audiences fragment, reach declines and the cost of maintaining reach goes up, especially via the pricier broadcaster VOD and online video.
TV planning should be transformed around combinations of linear, BVOD and online with light-footed planning and buying tactics to identify and follow audiences with the agility of digital media.
However, this is not happening to the extent that it should because of prehistoric TV trading practices affecting the majority of the market. The constraints are many, interlocking and subtle.
The Big Six media buyers
The Big Six account for about 80% of total TV spend, and they are hugely influential. Innovation in how TV is traded will only occur if they want to make it happen. But, conversely, innovation will be stifled if it conflicts with the Big Six’s business interests.
The individual media agencies would like to be more adventurous but are sometimes prevented from planning more adaptably by the constraints of group deals. No doubt the broadcasters would also prefer to be less reliant on such a restricted market, even if it allows them to secure their "book" efficiently and have a degree of security over future revenues.
Broadcast share deals are still endemic
These share deals, in which media agencies secure trading advantages in exchange for a guaranteed share of spend, often channel money in ways that conflict with audience flows and prevent planners from adapting to audience trends
In the distant past it was typical that broadcast directors simply ignored the way that planners wanted to use the channels and just divided the money up according to the share deals. This is less the case now that the media agencies have become more adept at shuffling the pack to accommodate different clients’ needs, but the overall share constraints still apply.
Such share deals discourage new money into TV and can stifle new opportunities such as Sky’s AdSmart; they could also block experimentation in the new connected and addressable TV options. These require testing and learning programmes that shouldn’t be constrained by antiquated trading practices. It can be argued that the big agency groups have industrialised the share deal system to their benefit, with less advantage for advertisers and broadcasters.
Contract Rights Renewal
Share deals are still governed by the Contract Rights Renewal system from 2003 which is tantamount to using a fax machine in the high-speed broadband age. CRR was put in place to protect advertisers and competing broadcasters from the potential anti-competitiveness of the merger of Carlton and LWT. As such it reads like the relics of an historic treaty.
The perseverance of CRR has led to only minor shifts in the share trading system in 20 years, with shares and discounts broadly the same for several consecutive years. Consequently negotiations are generally about add-ons, including those all important ‘trading benefits’.
Possibly one of the most problematic trends is the growth in "inventory media’ trading" where media agencies effectively become sellers of inventory that is in theory pre-bought. This is packaged up to appear more attractive to advertisers but without transparency over the true nature of what is being bought and for what price.
It is a licence for arbitrage.
The reality is that the share deal system does not commit the media agencies to pre-buy TV inventory and the risk they run is minimal. Volume-led deals are tiered to reduce the damage that can occur in a cataclysmic year such as 2020. Practices such as inventory media create obvious conflicts of interest and deprive advertisers of the ability to track and measure their activity comprehensively, thus reducing measurability.
The lack of media transparency remains a serious problem for advertisers despite the many initiatives undertaken to address it, and it remains a threat to planning integrity as recently described by the Aperto Partnership.
This practice is an infection from the online display market and it allows the media agencies to make hidden margins while sometimes taking advantage of advertisers’ lack of specialist knowledge. Inventory media margins have replaced additional income lost as rebates have increasingly become closed down by better contracts and auditing.
Station Average Price
The basis for trading generally has remained the Station Average Price, which, broadly, is the amount of demand divided by the audience supply. The problem always was that SAP allowed the price of airtime to rise as audiences fell, which is the reverse of most media trading practices. As linear audiences decline, the cost of airtime on the big channels automatically goes up.
In some ways 2020 was a bonanza time for advertisers as crashing demand met massive spikes in supply of audiences, leading to the lowest TV ad prices since the 90s. In April 2020 the average cost of buying 16-34 Adult TVRs (television rating units) fell by 50% year-on-year.
Some would argue that SAP provided a safety net for advertisers as prices floated downwards in extreme market conditions. The reality is that many advertisers simply couldn’t take advantage for very obvious business reasons.
However, the short-term gains mask deeper longer-term issues; SAP is another antiquated model that is now almost entirely redundant. The broadcasters and media agencies have liberally manipulated money between linear TV and BVOD and thereby artificially increased SAP, given that the audience impressions from BVOD are not included in the SAP calculation. The effect of this is that SAP is that linear airtime costs are inflated unless discounts are correspondingly raised, which tends not to be the case.
SAP generally works in favour of the media agencies and it is therefore not in their interests to find better alternatives. Factors such as CRR and SAP were originally required by regulators to protect audiences and maintain an open market at a time when virtual monopolies existed. That is now very far from being the case and they have now become potentially anticompetitive.
Advanced Booking deadlines
AB deadlines are still extant, even if they have been softened in 2020 to allow for more flexibility. We should be happy that firm deadlines have reduced from eight weeks to four, but this still makes TV inflexible compared to other channels where more agile decisions can be made based on new data; and buyers report that airtime quality can suffer badly even with money approved on four weeks.
TV auditing is in the dark ages
One issue has always been that the classic audit looks at how airtime was bought rather than how it was planned. Too much auditing is just there to prove that the media agency delivered the increasingly irrelevant and artificial price reduction guarantees offered a long time ago and often in a land far, far away. It’s maybe relevant to procurement but has little to do with advertising.
With so many levers to pull in the market it is now easier than ever to reach a TV cost target without having to improve discounts. Money is manipulated as never before as the media agencies play cat and mouse with the auditors. The big issue in TV is not, say, how many centre breaks were bought but how the media agency navigated its way through the new TV viewing landscape to effectively reach the advertiser’s audience, and not just the least inconvenient BARB audience, or even the one that surreptitiously delivers the best conversions to the most pertinent demographic.
There is a real opportunity in the market for an audit company to expose the tendency to "plan the buy" rather than "buy the plan" and show how the activity could have been better planned to deliver cost-effective incremental reach for the advertiser’s audience across linear, BVOD and online video channels. The lack of common audience currencies across linear, on-demand and online video is another handicap.
While no-one should be blamed for this, it could be argued that the traditional broadcasters have been dilatory in driving change in measurement through fear of revenue seepage towards other people’s on-demand and online platforms.
BARB is trying hard to accommodate market changes and the needs of its stakeholders but change is slow in the joint industry committee world when the very shape of the market is in flux and not everyone wants to play by the rules.
Initiatives such as ISBA’s Project Origin are designed to plug this gap but will struggle if the traditional broadcasters and media agencies place protectionist obstacles in its way, especially at a time when Google and Facebook are finally showing apparent enthusiasm to join the discussion.
Now, it would be unfair to disregard the very laudable actions that the broadcasters have taken and the innovations they have introduced. It would also be negligent to understate the pressures they are under to prop up revenues and provide certainty for programming budgets that allow them to compete against the new competitors.
After all, Netflix is spending nearly £1m per episode on The Crown. Share prices need to be maintained, bonuses need to be earned and long-term incentive plans cultivated. But reward schemes based on the old model of share-of-market versus share of commercial impacts preserve the old world in aspic to the detriment of the medium.
However, it’s hard not to think that the current system actually suits the traditional broadcast buyers and sellers. The media agency groups get to lock in TV pricing (albeit floating) for the year so that they can let their spreadsheet jockeys loose to divvy up the discounts among advertisers based on performance-related fees.
The broadcasters can efficiently lock in their deals with the Big Six agency groups, especially as CRR effectively rules out much movement. Audience gains and losses that normally determine shares of budget do not seem to move the needle much, even for those channels who have lost more younger viewers. The established broadcasters can tie up the majority of their annual revenue, leaving them free to continuously optimise their inventory across the year, a task made more important but harder with fewer brands on-air.
There is some responsibility, too, among client procurement teams who insist on TV price reductions as a key metric for awarding business, sometimes excessively egged on by independent consultants. However, we cannot expect international procurement to pay too much attention to the UK’s archaic TV trading structures.
The old TV trading model was designed for a market where the big branded goods players provided the lion’s share of the broadcasters’ revenues. Those days are over and the broadcasters need to innovate to maximise their revenue from the new direct-to-consumer brands. After all, these players like to use TV to amplify their conversion model but they also have more choice in how they achieve that objective. Last year saw a plethora of new brands advertising on TV but playing the game differently by using tactics more associated with digital media.
In short, old-style TV trading practices are preventing advertisers and their media agencies from planning effectively according to audience trends and the reduction in advertising exposure. They are stifling innovative uses of the medium by broadcasters and media agencies. Something has to give.
Now for the positives
There are glimmers of light ahead. The independent media agencies have for some time adopted a different approach to negotiations, dealing on a client-by-client basis and developing new tools to compensate for the absence of common currencies.
"Total TV" or "AV planning and buying" now requires a whole new level of technical expertise that fuses linear, BVOD and online video into planning and buying that is adapted to individual client needs. The Specialist Works and Goodstuff stand out as independent media agencies who are progressively adapting their ways of working to address market changes and using a broader set of tools to plug the measurement and currency gaps, especially for performance-led brands.
Some network media agencies have also developed systems, although it is always hard to work out how much they are used; WPP has developed Finecast to make inroads into the addressable market without some of the traditional shackles, but the risk for advertisers is that new models that avoid the pitfalls of share deals are replaced by opaque inventory-led trading.
The established broadcasters have launched promising new initiatives such as ITV’s Planet V and Sky’s "One Campaign" but these innovations may struggle to succeed due to the old-style trading conditions described above. It is not unfair to say that the reliance on the old ways of working have reduced the appetite for change in the legacy players; Thinkbox have done a great job in promoting the medium but cannot evolve the trading systems.
Meanwhile, some enlightened advertisers have grabbed the steering wheel and set up their own programmes to measure cross-media effects such as the cost of incremental reach across linear, BVOD and online video with the help of their media agencies and with independent experts such as Audience Project and Samba for Smart TVs. Direct Line Group are, as ever, in the vanguard of this movement.
As total reach on linear TV declines, adding additional channels to reach younger and lighter viewers becomes essential but the mechanics of doing so are complex.
There is interesting work being done in the area of ‘attention metrics’ by TVision, Lumen and Amplified Intelligence as the value of a TV impression across different screen sizes becomes a key issue and ‘viewability’ starts to play a role in ‘total TV’ execution.
The differences between TV viewing on a big connected TV screen and the fleeting experiences on a smartphone should play a significant role in planning thinking. The smartest advertisers are conscious of this and tasking their partners to plan accordingly.
More advertisers should follow suit and challenge their media agencies to plan differently and solve the share deal problem themselves.
While traditional media auditing remains largely unchanged there is early evidence of progress as new statistical techniques are applied, such as the methodology behind Ebiquity’s ‘Mind the Gap’ analysis, where complex modelling has been applied to incremental TV reach and frequency delivery, including attention metrics applied to dwell-times.
The broadcasters could usefully emulate some of the more advanced analytics being pioneered by others and be more vocal about the benefits of big-screen exposure. While some advertisers recognise the need to take control, more progress can and should be made through the collective heft of ISBA, where the latest thinking and techniques can be, and are, shared. Real change will only occur if more advertisers invoke the movie Network (pictured, above) and say “we’re mad as hell and we’re not going to take it any more!”
Television is in the greatest of health and trending upwards, but if it doesn’t mend its archaic trading behaviours it risks losing further ground to the digital platforms. It is now time for the buyers and sellers of TV airtime to invite themselves to the party.
Nick Manning is a media consultant, co-founder of Manning Gottlieb Media (now MG OMD), and was previously chief strategy officer at Ebiquity
Picture is of the movie character Howard Beale, played by Peter Finch, in Network (1976). Credit: Bettmann / Getty Images