ABC to Change Formula Used in Pricing Ads : Television: With ratings declining, the network is apparently trying to save advertising revenue.

ABC Television Network said Thursday it plans to change the formula it uses to guarantee advertisers a certain number of viewers--an effort that could save the network tens of millions of dollars next year.

The change appears to be designed to protect ABC against ad revenue lost because of a sharp drop in the number of people watching TV.

ABC presented the plan to sponsors for the first time Thursday, and the network said it was too soon to gauge reaction.

Viewing levels for all types of TV have dropped significantly the past three months despite continued growth in the number of homes with televisions and wider choices from cable-delivered channels. A. C. Nielsen Co., the national ratings company whose daily reports determine how billions of TV advertising dollars are spent each year, has been unable to explain the reason for the precipitous decline.

Nielsen ratings show television viewing off 8.1% in the daytime and 2.2% in prime time. Viewing of network evening newscasts has dropped as much as 14%. “These recent developments have raised serious questions regarding the reliability” of Nielsen data, ABC said in a statement to advertisers. The network said it will therefore “institute a new basis for its audience assurances.”

ABC’s decision to change the way it guarantees audience levels comes as the three networks are making plans to sell their advertising time for the upcoming year. During the late spring, the networks collectively sell more than $4 billion in prime-time advertising at discounted rates. That represents about two-thirds of their commercial time.

The remaining one-third of commercial time is sold at premium rates throughout the rest of the year. In recent years, the networks have pulled in more than $9 billion in total prime-time advertising.

Until now, ABC has guaranteed a specific number of viewers for the audience that the advertiser wants to reach. If the rating was not achieved, ABC would give the advertiser a “make-good”--bonus spots representing the shortfall.

Advertisers typically do not buy individual programs but a “package” of shows targeted at a specific audience. For example, an advertiser might want to reach 40% of women between 18 and 49 who watch television. The network will present a plan for achieving that goal by packaging several prime-time programs and movies.

Under the new system proposed by ABC, the network would no longer give away bonus commercial time equivalent to the shortfall. Instead, it has devised a formula that will compare the audience to an average over the past three years, then base “make-goods” on that difference.

For example, under the current system, if ABC guaranteed a 20 rating and actually delivered 15, the advertiser would be owed 5 rating points. Under the new system, ABC would compare the 15 rating with past season ratings of 18 and 16, which would translate to an average of about 16.5. Under the change, ABC would owe the advertiser 3.5 rating points rather than 5.

The new formula should reduce the size of under-delivery, saving the network tens of millions of dollars in advertising that it would have had to give away in bonuses.

CBS and NBC are also looking at new formulas to guarantee audience levels but have not yet announced plans. Such moves by the three networks, plus the new fourth network, Fox Broadcasting Co., could eventually involve hundreds of millions of dollars in advertising expenditures the coming season.