The broadcast television networks are flexing their muscle in the ad market once again, despite declining ratings for their shows and worries that the Internet was poaching their audience and their revenue.
On Monday, with the annual springtime sales bazaar in full swing, executives at the major networks, including Fox Broadcasting and Walt Disney Co.'s ABC, were making deals with advertisers at significant rate increases over last year. The two networks were on track to surpass their overall hauls from a year ago.
Even spots on the evening network newscasts, which have witnessed a substantial decline in viewers, were being snapped up by hungry ad buyers. Network executives and advertisers said commercial time in morning news shows, daytime programs and late-night fare was also selling briskly.
“This shows that network television is still king,” said Andrew Donchin, director of national broadcast for the ad-buying firm Carat USA.
“Even though their ratings aren’t what they used to be, the networks have remained dominant. They are still bringing in a lot more viewers than anyone else.”
In June of last year, the five broadcast networks, Fox, CBS, ABC, NBC and the CW, wrote $8.75 billion in business for prime-time spots alone. This month the total for the networks should be closer to $9 billion, although executives Monday were not willing to say definitively because the sales have not all been made.
Last week, after NBC Universal clinched a $1-billion deal for its television properties with Group M, one of the biggest advertising-buying companies, the floodgates opened in television’s annual ritual known as the “upfront” market. Since then, the networks have been busy processing orders for their time. Fox has been selling time for rates that are nearly 9% higher than last year, and ABC’s prices are up by about 10%.
There are several reasons for this year’s unexpectedly huge demand for network time, including a generally stable economy, according to seven top network executives and advertising buyers interviewed Monday.
Another factor is that advertisers who waited to place their orders until after last year’s TV season began in September were punished. In some cases, they had to pay as much as 40% more for spots than the prices negotiated during the June 2006 market. That encouraged many advertisers to place their orders early this year.
A new system for measuring viewers also prompted advertisers to get in early.
The TV networks bowed this year to advertisers’ demands and changed their nearly 50-year-old system for selling commercial time. No longer will the networks calculate their ad rates primarily on the size of the audience for individual programs. Instead, the networks are establishing their rates based on Nielsen Media Research estimates for the number of viewers who actually watch the commercials during the program.
The change in measurement systems was prompted by new technology, in particular the increased use of digital video recorders that allow viewers to fast-forward through the commercials.
“Consumers are watching TV differently than they have in the past,” said Lyle Schwartz, a managing partner of Group M, which pushed for the changes in measurement. “They are no longer captive to the way that networks schedule their shows. They delay their viewing and watch shows when they want to see them -- not when the networks want them to.”
Industry executives said they anticipated that the audience for commercials would be about 5% lower than the ratings for the program the advertisements appear in.
The networks, however, are offsetting any decline in advertising dollars that result from lower ratings, because for the first time they will be paid for viewers who digitally record a program and watch it later.
Last year advertisers refused to pay for those viewers. But that audience could no longer be ignored, as about 17% of homes with televisions in the U.S. are now equipped with digital recorders. Advertisers will now pay for viewers who watched a show within three days after it was recorded.
Allowing that audience to be counted is likely to bring in additional hundreds of millions of dollars to the networks. The most popular programs tend to have the highest rates of recording and playbacks, so networks with the top shows will benefit the most.
The concession made sense, Schwartz said.
“We’re finding that a little more than a third of the people who delayed their viewing ended up watching the commercials,” Schwartz said. “And we need to give value to the people who are watching the commercials.”
Some network executives said the strong demand for network time could signal weakness in the cable television upfront market, which usually follows the broadcast sales. They said some of the extra money going to broadcast networks was likely to come at the expense of cable channels.
Many of the cable networks have not agreed to use the new system of measuring the audience for commercials. They are afraid the change will lead to substantially lower advertising prices. Not only that, but ad buyers are now more eager to put money on shows that deliver the most “impressions.” And those are largely network shows, such as ABC’s “Grey’s Anatomy” and Fox’s “House” and “American Idol.”
There might be other changes too. The move to commercial ratings could force broadcast and cable executives to rethink how they position their commercials. Preliminary research has found that cable channels that string together eight minutes of commercials have a steep drop in audience during those ad breaks.
One top buyer, Initiative’s Tim Spengler, pointed out that network executives previously guaranteed advertisers an “equitable rotation” for their advertising spots. But now, he said, networks might be inclined to do business with certain advertisers that have the flashiest and most compelling ads, or give those spots better placement.
“Now, the networks are going to be making money off the ratings for the commercials -- which the networks don’t make -- so it will be interesting to watch how they schedule the commercials,” Spengler said. “That could become a real issue for advertisers.”