Viewers have a dizzying array of new ways to watch TV, but the companies that broadcast the shows still get paid the old-fashioned way: based on ratings . So it's little wonder that as more viewers watch their favorite TV shows with the help of DVRs, video-on-demand and streaming video, the TV networks are trying to rebuild their traditional business.
In recent months, that has included a growing push from Walt Disney, News Corp., NBC Universal and CBS Corp. for a new system that would expand the currency of the business. Instead of counting the audience for commercials over the first three days from a program's original showing, the standard known as C3, networks are increasingly agitating to include audiences for commercials over seven days, a standard called C7.
The increasing spread and use of DVRs "clearly have shifted the rating in the direction in the direction of C3 and, ultimately, hopefully C7," said Bob Iger, chief executive of Walt Disney Co. in a recent conference call with analysts. "I think it speaks for an expanded look from a Nielsen and an advertising perspective at seven days vs. three."
Ad buyers aren't nearly as sanguine. "There will never be one standard for all clients on that issue," said one ad-buying executive. "When you get to C7, you're going to take a lot of money off the table or you're going to have a lot of people who just don't feel very good about it, given the date specificity of what they are advertising."
Few buyers will speak on the record about the issue. We found one who would.
Rino Scanzoni has been an instrumental player in the $9 billion TV market. As chief investment officer for WPP's GroupM, he oversees the allocation of a massive sum of ad spending, and in the past has been able to spark movement in the TV-advertising market when divisive issues arose. Mr. Scanzoni was a big part of the industry's movement to commercial ratings after decades of relying on program ratings to determine ad prices, assembling a large deal with NBC Universal in 2007 that ultimately made commercial ratings a reality across the business.
While C3 is widely accepted, according to Mr. Scanzoni, C7 will likely be suitable for a narrower band of sponsors -- and even then, only if the TV outlets dangle an economic incentive. In a frank discussion with Advertising Age, he outlined advertiser concerns, did some math and took a look at how TV is likely to evolve in the future. Our conversation has been lightly edited.
Advertising Age: We've heard everyone from Disney's Bob Iger to CBS's Les Moonves to NBCU's Ted Harbert suggest TV networks should be paid for people who view ads as much as a week later, rather than just three, which is the current standard. How do your clients feel about this?
Rino Scanzoni: The issue here is whether it's practical to go to C7 for every client. Clearly, you know, I think there are going to be clients like the film studios, the fast-food chains and retailers that have time-sensitive messaging. I know when we had the discussions for C3, we had a lot of those clients pushing back. We have managed that by program selection, so if you're advertising content that is time-sensitive or is going to expire within a day or two, you might not use programs that have a lot of recording, where a lot of the viewing is going to take people past the offer. There are other shows that don't have any recording at all. That would be much more difficult to manage on C7. I don't see the ability to fully adopt that .
I do not see a situation where there's going to be a broad move from C3 to C7. I could see a situation where there could be some deals done on C7, but in order for that to happen, you have to have an economic incentive, because there isn't one big client out there that is going to sit there and say, "I'm going to pay you, basically, for what I'm getting for free now."
Ad Age : What are you advising your clients to do for the coming upfront and for the foreseeable future?
Mr. Scanzoni: If a client does not have this time-sensitive nature of advertising that would preclude it, we would look at it, but there would have to be an economic incentive for it. Why would you go to C7? You're already getting that audience, right? Why would you do it without getting some sort of an incentive for doing it? I'm open to it, I think clients should be open to looking at it, but it's not just, "Ok, we based our deals on C3 and next year we're basing it on C7."
There are some practical and logistic issues and I'm sure it could be ironed out, but I think when the media companies realize that the immediate financial benefits aren't there, then I think the desire to make this is going to be less. I don't know if they've sorted through that .
Ad Age : Some categories, like movies and retail, really depend on day-and-date advertising to drive film openings and holiday sales. Are week-later ads valuable to them?
Mr. Scanzoni: Obviously, after you open a movie, the value diminishes. A movie stays in the theater more than one weekend, but the value of the advertising being placed is to get people to go to opening weekend. There is a value change. If you're a fast-food chain and you have a price promotion, then you run into problems when you're advertising and you no longer have the price promotion. If you look at a retailer ... a former client of ours, Macy's , now over at Carat, they are notorious for one-day sales. This is one of their strategies and I think that would be very difficult in a C7 environment.
If you do have a client who does have very time-sensitive messaging, broadcast prime-time becomes very important to them because prime-time is a way to get much more immediate reach. You could duplicate reach on cable, but it takes a long time and if you're going on shows that have broadcast-type audiences, you have the same pattern of people recording the shows. It's a challenge. Using less prime-time defeats the benefit that prime-time gives a client that really has a very, very short time to get a message out, because broadcast puts much more impact in the mix. Going into C7 creates challenges there. I think in the world we are going to now, where this media is becoming more fragmented and audiences are becoming more complicated to measure, I don't necessarily believe there's going to be one metric. There could be different metrics for different clients based upon their specific needs and objectives.
Ad Age : Some Wall Street reports suggest C7 viewing will not add all that much back into the viewing total. Why bother?
Mr. Scanzoni: Every percentage counts. We took an earlier quarter, we're talking fourth quarter of 2011. ABC, in moving from C3 to C7, would have added 2.8% more impressions. CBS added 3%. NBC added 2.9%. Fox added 2.4% and CW is 3.8%.
Given the numbers we just talked about, that average is about 2.8%. When we looked at the first couple of weeks of this season, we saw numbers as much as 5% between C3 and C7, but we think that has come down. When you launch a season, people want to take in a lot of programs and sample them, so there is a tendency of more people viewing programs on a greater delay. Once that phenomenon is over and you've got a regular schedule running, it probably drops. I would bet you that at 2.8% last year, going to C7 this year would mean as much as 3.5% to 4% more. That is significant.
If you assume in round numbers this is a $9 billion business, and if you gross that down to exclude various fees and charges, this is still a $7.6 billion business, 4% of that is , you know, that 's a lot of money. I can understand that issue, and why they are raising that , because prime-time programming is very expensive. If I was Bob Iger or Les Moonves, I would be saying the same thing. But the point I'm making is that there are some economic issues to be resolved here. You're not going to get the industry to automatically make that change because there are particular issues, like time-sensitive advertising.
Some of these categories are huge: Retail, QSR and the film business are big, big categories, together representing I would say 35% of the market in total, so that a huge amount will have issues with it. And the remainder, I think for a CPG client or even an auto client, is moving from C3 to C7 as valuable as moving from same-day to C3? I would say yes, but I don't think it's going to make much of a difference to them.
Ad Age : Will new technology make C7 more relevant, especially as more viewers start to use video on demand and over-the-top streaming video?
Mr. Scanzoni: When we were looking at C3 and looking at the impact of DVRs, our feeling was we would get to a point in time, and while it would take many years, where DVR penetration could get to VCR penetration levels. I'm not so sure anymore. I have to tell you that video-on-demand offerings on some of the cable players -- I have Comcast and it's very, very robust -- I think there are a lot of people who might sit there and say, 'Why am I paying $9 to $10 to have a DVR when I can go to VOD?"
And I think the ability to "dynamically insert," where they can update the ads, can over time mitigate a lot of this. I think the big issue for the industry is cross-platform measurement. It's critical and if we don't get there and have that factored into the equation in the foreseeable future, I think really is where the TV business is going to be bleeding money.