The Association of National Advertisers and the American Association of Advertising Agencies say they will convene a task force by May 1 to address the practice of networks charging integration fees, or charges passed on to advertisers for the procedure of physically placing ads on network airwaves. The three networks that charge the fees -- CBS Corp.'s CBS, General Electric's NBC and Walt Disney's ABC -- have been invited to take part.
Integration fees have been around for decades; in less technologically savvy times, they were more understandable. As digital processes begin to take hold, however, media buyers say networks no longer need employees to physically load tapes into network feeds. So they see little reason for the charges to remain, particularly when one estimate by independent media buyer TargetCast TCM puts the cost of the fees in 2007 at around $125 million.
"It's time for our network partners to justify what they do with our money," said Jason Kanefsky, senior VP-group account director at Havas' MPG.
The fees have been cause for debate in the past, but advertisers have more leverage these days than they have in the past. While network TV remains one of the easiest ways for marketers to reach swaths of consumers in one fell swoop, marketers have an ever-increasing number of alternate options, ranging from podcast ads to commercials attached to pieces of online video. Bolstering their argument is the fact that News Corp.'s Fox and the fledgling CW network -- partly owned by CBS -- do not charge integration fees, nor do cable networks, local stations or syndicators.
Difficult to meet
The strong talk could disappear. In 2004, the two trade groups formed a committee to explore options for reworking the upfront marketplace, where advertisers negotiate to spend more than $9 billion on prime-time broadcast TV. While the group -- known as the Network Upfront Discussion Group, or NUDG -- attracted TV executives, few if any concrete changes resulted. It's also difficult for the various broadcast networks to all meet at one place and discuss ad pricing; the networks could be subject to legal issues and accusations of collusion.
An NBC spokeswoman said the network preferred to discuss the issue "directly with our clients." An ABC spokeswoman said the network declined to comment. CBS was not able to offer immediate comment.
One media buyer, Optimedia's Larry Novenstern, estimates an integration fee can be as much as $500 per commercial aired during prime-time programming on ABC, CBS or NBC. Prices can be lower in other dayparts, said Mr. Novenstern, Optimedia's exec VP-national broadcast.
A good question; no good answer
Why is winning this argument more important now than in the past? And why have media buyers and advertisers let the fees remain in place for years if they were so onerous and obnoxious? "That's a really good question," said Mr. Novenstern, and it's not clear there's a really good answer. Buyers say they have been reluctant to upset relationships and fight an established system of buying and selling.
These days, however, marketers and agencies are under more financial pressure, particularly as consolidation among retailers and telecommunications concerns, among others, winnows down once-thriving ad categories. Fears of a recession have also stoked talk about consumers cutting back on spending.
Concern over integration fees "has been an ongoing issue for advertisers. It's not new by any means. What is new is the increasing focus on accountability and justifying marketing expenditures," said Bill Duggan, exec VP at the ANA.
In previous studies of ANA members, 87% answered "no" when asked if it was fair to be charged network integration fees by ABC, CBS and NBC. Members said the fee was a "throwback," "antiquated" and "a legacy charge." The topic is slated for discussion at two annual industry events: the ANA's Television and Video Forum, slated for Thursday, Feb. 28; and the Four A's 2008 Media Conference, slated for March 5 to 7.
The fees may have been acceptable when the three networks ruled the media landscape, but times have changed. "Integration fees charged by only three networks in a 500-network universe is unfair and so old school. It is time for ABC, CBS and NBC to do the right thing and eliminate these fees from our effort," said Edward C. Gold, advertising director of State Farm Insurance Cos.
Another problem with the fees is that they can cause agencies more work, said Kris Magel, senior VP-director of national broadcast at Interpublic Group's Initiative. "If you have an invoice for March from NBC for Client A, you actually have two invoices -- one with unit costs and one with integration fees," said Mr. Magel. Freed from having to deal with multiple bills, he said, agency executives could have more time to devise sponsorships, product placements and media strategies.