Digital Content Guide

What the Web Could Learn From Dawn of TV

The Single-Sponsor Model Takes Risk Out of the Equation, but Also Limits the Upside of What the Sponsor Will Pay

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Creators of web video have decided that the best way to transfer TV advertising dollars to the web is to transfer TV's advertising model -- or at least parts of it -- to the web. But the predominant model for made-for-the-web content is one that TV abandoned decades ago: single sponsorship, in which content is created for an advertiser underwriting the cost.

During the 1950-51 TV season -- the first in which Nielsen reported audience figures -- four of the top six shows had advertiser names: "Texaco Star Theater," "Philco TV Playhouse," "The Colgate Comedy Hour" and "Gillette Cavalcade of Sports."

Texaco Star Theater
Texaco Star Theater

That was the foundation of ad-supported TV, and it was so engrained that when TV historian Tim Brooks began researching his directories, network files were organized not by the program or star but by the sponsoring advertisers.

"If you wanted to look up Milton Berle, you'd look under "T' for Texaco," Mr. Brooks said.

At the time, the model made sense. TVs were far from ubiquitous. Sponsors were more comfortable with radio, print and billboards, and not that many were willing to pony up for a relatively new medium.

Web video is at a similar stage today. Despite attempts to resemble the TV business at the recent two weeks of NewFronts, the big online-video distributors are playing it safe in creating shows without a sponsor onboard. Most of the programs unveiled at the web-video upfronts won't see the light of day if a sponsor isn't found to underwrite the cost. A major exception is YouTube, which had plunked down $100 million (plus $200 million in promotional support) to get original content "channels" off the ground.

One NewFront presenter -- Vice -- is an experiment in the single-agency model. WPP took a stake in it and is funneling $250 million in client business to Vice this year, mostly in the form of single-sponsor programming such as the "Creator's Project" series the company produced with Intel.

The single-sponsor model takes a lot of the risk out of the equation for content producers and makes sense for advertisers that want to "own" a show or a series with the aim of rising above the clutter.

It also intrinsically limits the upside, as TV found decades ago. The revenue from a show is limited to what a single sponsor is willing to pay, usually the cost of production plus a moderate profit.

Then there's the fact that the number of big-money advertisers willing to pay big for a single show is relatively small. That's certainly true in online video.

TV's earliest advertisers also found a downside to the single-sponsor model. As TV became more expensive, sponsors found that the investment sucking up their whole ad budget. And what if the show failed?

"If your show went down, you went down with it," said Mr. Brooks, who retired as head of research for Lifetime in 2007. "There was a lot of pressure to find other ways."

The quiz-show scandals of the 1950s highlighted the perils of giving advertisers too much control over programming. TV executives such as NBC's Pat Weaver -- father of Sigourney Weaver and a former exec at Young & Rubicam -- introduced the idea of multiple ads within a show, as in radio or magazines. Advertisers embraced it as a way to spread their bets in the growing medium. Programmers saw it as a way to boost their economics by bringing more marketers into shows.

"The net effect was to reduce the authority and power of individual sponsors over individual shows," said author and former journalist Randall Rothenberg, now CEO of the Interactive Advertising Bureau, which issued standards on multiple ad breaks for web video.

By 1960, single-sponsor shows had nearly disappeared from TV altogether, replaced by the first huge content genre, the Western. Texaco Star Theater made way for "Gunsmoke," "Wagon Train," "Have Gun Will Travel" and "Rawhide."

That coincided with the first broadcast upfront negotiations, which formalized a process where advertisers bid against each other for placements in shows for the upcoming season. With many sponsors vying for scarce spots, networks' earnings soared.

The web is moving in that direction. Video-ad-serving company FreeWheel says web ad loads on long-form programming have doubled from last year. Videos of at least 20 minutes now have seven ads on average, according to its latest study, which is still half that of a half-hour show on TV.

"How many ads equal one sponsorship?" asked FreeWheel CEO Doug Knopper. "There's no single answer. It depends on how successful the network was in selling the sponsorship."

That ad-load increase is driven largely by TV programming on the web, which is long enough to make ad breaks feasible. Some publishers are experimenting with ways to keep loads low while charging more for them. Hulu, for example, sells a combination of sponsorships and spot ads, so shows "are brought to you with limited interruption" by a sponsor.

Just as pay cable transformed TV, so YouTube, Hulu, Apple, Amazon, Xbox, Boxee (and anyone else with a foothold on the screen of a TV, tablet, phone or other device) are about to transform it again.

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