NBC to Give Back $10 Million to Marketers

Still Searching for Big Hit, Network Opts for Cash Back to Clear Last Season's Make-goods

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NEW YORK (AdAge.com) -- NBC has taken the unusual step of giving cash back to a sampling of its advertisers, owing to ratings shortfalls in the 2006-2007 programming season.
Michael Pilot
Michael Pilot Credit: Chris Haston

When TV networks miss agreed-upon ratings targets, they typically offer marketers additional advertising time, also known as a "make-good." NBC, like other broadcast networks, pushed off delivering make-goods from last season until this fall, thinking it would be able to deliver the extra ratings points for advertisers more easily when its new shows launched. But NBC has battled to launch a big hit for the last few seasons, and giving money back is a sign that the network's fall season is not performing as well as executives at the General Electric-owned outlet might like.

Large and small marketers
NBC returned about $10 million to advertisers, according to a person familiar with the situation. NBC took in more than $6 billion in ad dollars in 2006, according to TNS Media Intelligence, and has received about $3.6 billion through Sept. 30 of this year. Money was returned to a select range of advertisers both large and small. In a sign that the network has not been making wide-scale offers to media-buying firms, some buyers at prominent agencies said the network had not approached them with offers of giving cash back.

"This represents an extremely small portion of NBC's business and accommodates the changing needs of our clients' marketing plans. NBC is working with its clients to come up with creative solutions in a new sales environment created by a new business metric and changing consumer behavior," the network said in a statement.

The development is a sign of some of the troubles many networks are facing as the industry moves to a new model for paying for ads. For many years, advertisers paid based on program ratings; now, it's viewership of commercial breaks that form the basis of what ad time is worth.

Live viewing declines
As one might suspect, viewership slips when a program ends and commercials begin. Speaking during a recent presentation to investors, CBS Chief Research Officer David Poltrack noted that as of last week, the four major broadcast networks had seen live viewing decline 8% for households and viewers, and also noted: "Viewers currently are skipping about 60% of commercials during playback, and live commercial audiences are about 5% below program audience."

That means networks have lower ratings, and that network-TV advertisers are reaching fewer people than they might have 10, five, or even one year ago.

While giving cash back to advertisers is unusual and a sign of NBC's troubles in finding a few hit programs, it may also be a sign of new ways of doing business and trying to be flexible in a rapidly changing environment. NBC Universal's head of ad sales, Mike Pilot, has been in the job for about a year, arriving from General Electric. He has put into place several new initiatives, including working with marketers more closely in advance of the typical upfront market, and buyers have said they expect him to look at TV's decades-old ad-sales procedures with fresher eyes.
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