MATCHING RATINGS TO AD $$, ESPN COMES OUT TOPS: 'COMMON CURRENCY' FOR SETTING TVVALUE HAS SURPRISES

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All things being equal, Madison Avenue's favorite TV network is not Fox, one of the Big 3, or even up-and-coming WB.

Despite the notion that broadcast networks are the ones most valued by advertisers and agencies, it actually is a cable network-ESPN-that derives more pure value per advertising impression delivered than any other programmer on TV.

It is difficult to isolate all the subjective factors that influence the price marketers pay to advertise on TV, but the simplest and, some say fairest, measure is the amount of advertising revenue a network generates for each rating point it delivers.

On that basis, ESPN exceeds all other TV networks, generating the equivalent of more than $1 billion for a rating point during 1998, according to estimates from Myers Consulting Group.

$1.1 BILLION A POINT

While ESPN's total day U.S. household rating averaged only a 0.6 in 1998, the sports network took in about $650 million in ad revenue, or the equivalent of $1.083 billion for a whole rating point.

Using that same common denominator of revenue-per-rating-point, a broadcast network-UPN-was the least valued among the 25 broadcast and cable networks analyzed by Myers.

At $117.7 million per 1998 rating point, UPN generates nearly one-tenth the value of ESPN. In fact, the only other network in the billion-dollar-per-rating-point club with ESPN, is another cable net: MTV.

"It really shows the value of targeted networks," says Andy Donchin, director of national broadcast at Carat North America. "If you need to reach men, ESPN is that place to reach them. If you need to reach teens and young adults, you know they're watching MTV."

Mr. Donchin says it's not that these audiences aren't also watching the major broadcast networks, it's just that targeted networks like ESPN, MTV, or CNN can deliver large concentrations of men, teens or influential decision-makers critical for marketers seeking those audiences. Enhancing the value of such networks is the fact-as well as the perception-that certain types of viewers are in short supply, particularly men, teens and young adults.

NO PERFECT WAY

While other factors come into the value equation, Mr. Donchin says none is so important as the delivery of what are perceived to be hard-to-reach audiences. "If you need them, you're going to pay for them," he explains. "The ideal way to look at this would be to group each network by the primary demo it delivers best and to look at it that way," says Larry Goodman, president of CN sales and marketing. "But since no network is sold 100% on one demo, even that is not the perfect way."

In lieu of an ideal method of comparison, Mr. Goodman says the revenue-per-household-rating-point analysis is a fair "common currency" for comparing the value of networks.

It also makes it feasible to compare networks that program different dayparts, or which air only during part of the day.

Examples include the major broadcast networks, which derive most of their revenue from prime time, a daypart inherently commanding a higher premium during the rest of the day.

HIGHER VALUE

"Prime time gets a higher value than other dayparts, because advertisers who have dual audience [targets] are willing to pay more for prime time," says consultant Erwin Ephron, a partner in Ephron, Papazian, Ephron, New York. He notes that prime time delivers about 1.6 viewers per TV set, while daytime delivers an average of only one viewer.

As a result, prime time increases the odds that a marketer will reach more than one of its targets and consequently has a greater value in the advertising marketplace.

Recently, the major broadcast networks have begun citing a variety of qualitative research suggesting prime time also delivers more attentive and involved viewers than other dayparts and they are expected to make that point a central part of their upfront sales pitches this year.

Among other things, this research suggests that high-rated programs tend to generate higher attention levels than lower-rated shows and that they therefore are more valuable to advertisers.

NOT CONVINCED

Some agencies are not so convinced. David Marans, senior VP-director of media research at J. Walter Thompson USA, New York, says the agency recently conducted its own study, which found CBS' low-rated "Buddy Faro" series generated greater attention levels from viewers than does NBC's top-rated "ER."

The perception that prime time is inherently more valuable than other dayparts doesn't just benefit broadcast networks. Cable networks with top shows in prime time also generate disproportionately higher values than cable networks that deliver across the day.

That explains why Comedy Central, with prime-time franchises like "South Park" ranks among the top networks, generating $725 million per rating point during 1998. By comparison, Weather Channel ranks in the middle of the pack, earning $550 million per rating point and Food Network ranks near the bottom, averaging $230 million per rating point.

However, it doesn't explain why UPN, with a heavy emphasis on prime time, places last. There are other ways to illustrate the relative value the advertising marketplace places on networks, but most end up generating inevitable apples-to-oranges comparisons.

SUPPLY AND DEMAND

Another factor that can be considered isn't simply the amount of revenue generated per rating point, but the number of ad dollars earned per commercial rating point sold. This factors in the number of commercial units sold by each network. It is the supply side of the supply & demand quotient.

Because broadcast networks sell fewer, but more expensive commercial units than the cable industry, this analysis not surprisingly puts the broadcasters back up on top. In fact, Fox, which airs the fewest hours of programming per week and has the least amount of commercial inventory to sell of the four major networks, ends up shooting to the top of the pack, generating $14,762 for each commercial rating point it sells.

UPN, which ranks last in terms of revenue-per-rating-point, actually ranks second on the basis of revenue-per-commercial-rating point, generating $10,885 per commercial point sold in 1998, just ahead of rival weblet WB's $10,663.

DAYTIME BAGGAGE

The weblets and Fox generate more revenue per average commercial rating point, because they program primarily in higher-rated and higher-revenue dayparts-prime time and kids-while the Big 3 still carry the baggage of daytime, news, early morning and late-night, as well as full slates of seven night prime-time lineups.

Since more inventory tends to push down marketplace values, it's not surprising cable networks, most of which program 24 hours a day, generate significantly lower amounts of revenue per spot rating point.

However, looking at cable as a subset shows ESPN once again is the leader and is the only cable network to approach the broadcasters in terms of commercial unit value, despite selling significantly more units. MTV once again ranks second behind ESPN, but the ranking of cable network values shifts dramatically among the rest of the pack, because some networks sell significantly fewer commercial units.

"HGTV's total available commercial GRPs are determined not only by our national rating, but by a policy of keeping commercial clutter low," says Laurie Benson, VP-Eastern director of advertising sales at Home & Garden Television.

HGTV does this to maintain the value of the network to advertisers.

While it reduces the potential revenue the network can generate from additional unit sales, she says it makes HGTV's existing supply of commercial units more valuable to advertisers buying cable TV.

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