Networks: Learn from Nasdaq

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From Chrysler's viewpoint, and we're certainly not alone, the upfront process by which national TV is bought and sold could benefit from an extreme makeover, to restore the free-market fundamentals it is sorely lacking.

The supply-and-demand balance in the TV market is distorted by the selling of 80% of the future year's programming three to five months in advance. Prices are distorted for scatter-market buyers by "make goods" for improper forecasts and promised audiences. Prices are distorted for the networks, or sellers, when a program turns into a smash hit and over-delivers. In other words, neither buyer nor seller knows exactly what is being bought or sold. Nor do they know if they paid a fair price, because there is no transparency in the marketplace. But they do know they're locked in to a relatively inflexible system months in advance-despite the fact their media needs might change.

But this isn't another piece bemoaning the flawed system; it's a proposed solution. A solution based on a system we all hear about every day and that stares us in the face: the stock market. With its anonymity, liquidity, transparency and arbitrage, it is a perfect system for trading TV.

Our proposal would be for a system that mirrors Nasdaq rather than the New York Stock Exchange. And we are not proposing this because we see the potential benefit of operating an exchange, but rather because we believe it would be a fairer, more efficient system for marketers and the networks.

So how would we go about trading TV? Well, it's pretty simple. Each spot already has a value-the value placed on it by the TV networks-just like a share has a value that is initially placed upon it by the company that holds it. So why not have an electronic system where each trader is anonymous and has the ability to buy and sell spots every day, spots that would, at any given time, have a value established by the marketplace? (Naturally, each trader would have to meet certain criteria-including signing a contract promising to deliver creative to the network that met its standards and deadlines-to get a code to access the exchange.)

The process would start with what would amount to an enormous IPO: the sale of all these spots to the market. After all shares have been parceled out, they would be traded between advertisers and networks.

The networks retain an important function. They can trade spots, even buying back their own stock if they think it is undervalued, or if they want to use it for their own promotional purposes. They will also be responsible for executing the exchange and trafficking the new creative and would get a commission for their work. Whether the price of each spot goes up or down is a reflection of the market's evaluation of that date, time, network and show. The discipline and efficiency of a truer market value will be determined.

There are still no guaranteed audiences under this system, although there are enough data available for stock analysts, critics and media experts to forecast audiences by date, time, network and program. Also, while some will still want to buy large numbers of spots well in advance, there will be enough flexibility in this system to buy top spots or sell unwanted inventory. There are no good or bad deals, just deals: They are all marked to the market.

cutting waste

For networks, this would eliminate inefficiencies associated with having to resell canceled (put-optioned) spots on a person-to-person basis. Automation would mean lower cost, greater speed and truer market values.

Part of the current process also includes the concept of "bundling." That is, the networks sell space by combining spots across a large range of programming. So, within every package is likely some premium programming "packaged" with some less-desired inventory. Our proposed solution increases the buyer's ability to purchase and trade programming that meets his or her specific needs. The importance of this capability continues to grow in this world of targeted-marketing solutions. Sellers fear they will be unable to sell certain inventory. However, just as with the stock market, every spot-or share-will have a price.

Much has been discussed and written about the upfront process recently. But the majority of this revolves around the short-term processes that surround it. Should it run all year instead of seasonally? Should we have a closing bell to eliminate the testing hours and human error resulting from the 4 a.m. deal? This solution, however, goes to the roots of the system.

Is this a radical change? Yes. Does it acknowledge that we have computers in the 21st century? Yes. Does it fly in the face of those who say, "It has worked for decades, why change now?" Yes. But if it is working so well, why is it that the buyers are the ones complaining?

ABOUT THE AUTHORS

Julie Roehm (l.) is director-marketing commun-ications for the Chrysler group brands- Chrysler, Jeep and Dodge-at DaimlerChrysler. Jeff Bell (r.) is VP of the Chrysler and Jeep brands.

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