Broadcast TV is gradually winning its fight to get paid for commercials seen as long as a week after they air, up from three days. But the victory may be of the Pyrrhic variety as long as the networks continue to lose ground in a separate, harder battle -- the one being waged against the DVR.
Advocates of extended commercial ratings, the most vocal of which is CBS, believe that counting four more days of time-shifted viewing will go a long way toward reversing a steady ratings depletion, not to mention compensate networks more fairly for the audiences they deliver. CBS Corp. CEO Les Moonves has even argued that replacing the current three-day standard, called C3, with a weeklong C7 isn't enough. Why not C30 or more?
"We will get paid from people who watch our shows 22 days from now," Mr. Moonves predicted in December. In August, he ventured that 75% of CBS's transactions in next summer's upfront marketplace will use the newer currency.
But not all TV executives are so enthralled. "It's not the magic bullet they want you to think it is," said a senior ad-sales rep at a major cable conglomerate. Another executive compared four more days of commercial ratings to "slapping a Band-Aid over a bullet wound and then having someone come up and shoot you again in that very same spot."
C3: 7.48; C7: 7.49
C3: 4.45; C7: 4.65
C3: 3.70; C7: 3.76
C3: 3.36; C7: 3.44
C3: 3.21; C7: 3.31
C3: 3.14; C7: 3.34
C3: 3.05; C7: 3.16
C3: 3.04; C7: 3.19
C3: 2.95; C7: 3.12
C3: 2.74; C7: 2.86
The hard reality is that C7 ratings aren't exactly shaking seismographs. Simply put, viewers are not watching the ads in playback. The lift any given prime-time broadcast series enjoys upon conversion to the more expansive metric from C3 is minimal, Nielsen data shows. Of last season's top 50 broadcast shows among 18-to-49-year-olds, only seven boosted their audience in the demographic by so much as two-tenths of a ratings point when using the C7 metric vs. C3. (A full ratings point is equivalent to 1% of TV households.)
In a case of the rich getting richer, six of these were top-20 shows like "The Big Bang Theory," "Modern Family" and "The Blacklist."
Meanwhile, the full-season averages for 31 of the top 50 broadcast series improved by just one-tenth of a ratings point upon conversion, while the remaining 12 programs experienced no change whatsoever. All told, the needle crept forward almost imperceptibly, as the average increase from a 2.4 rating in C3 to a 2.5 in C7 represented an upward adjustment of about 4%.
A few extra ratings points here and there, of course, can lead to a not-inconsiderable windfall. "It's a low single-digit impact, but you're talking about a multi-billion dollar marketplace … so it does add up to a lot of money," said CBS Corp. Chief Research Officer David Poltrack. "It's not insignificant. And it will only grow as video-on-demand impressions grow."
There, perhaps, is the bigger rub. A disabled fast-forward button makes VOD the most advertiser-friendly TV environment. The commercial index -- comparing commercial ratings to surrounding programs' ratings -- is a staggering 98 for VOD, compared to 96 for live viewing. For DVR playback, the figure is 50.
Broadcasters have been slow to make the most of VOD. "The networks just don't seem to make their content as readily available on demand," said Marianne Gambelli, exec VP-chief investment officer, Horizon Media. "They're still stuck in this mindset where they have to monetize their content in the hour it originally airs."
When the mold is broken, it's often done with an eye toward the syndication market. But Netflix, one of the big new buyers of second-run TV, pays less for shows that get more exposure beforehand. Putting a whole season on VOD may be good for advertisers, but it saps later paydays. And in the case of shows made not by the network but an outside production company with its own interests and agenda, VOD is even more complicated.
'Seems old school'
It all combines to render broadcast VOD libraries' organizing principles hopelessly obscure to consumers. While NBC presently has five episodes of Universal TV's "Grimm" available for retrieval via Time Warner Cable, no fewer than eight episodes of its canceled sitcom "Growing Up Fisher" lie in wait on the adjacent menu. ABC and Fox are similarly ajumble. CBS offers a narrow window for its self-produced "Extant" and "Under the Dome," for which Amazon has the streaming rights. Fall too far behind and you're out of luck -- unless you've been recording the show yourself.
That said, there are signs that DVR penetration has leveled off. While DVRs are deployed in 54.5 million households, the hockey-stick-graph adoption rates of the mid-aughts are a thing of the past. At the beginning of this year, you'd find a DVR in 47% of all TV homes -- up a smidge from 45% a year earlier and 44% in 2011, according to the Leichtman Research Group. Compare that to the leap between 2007 and 2010, when the ad-zappers' penetration soared to 40% from 23%.
And VOD is now available in 60% of cable homes, a marked improvement from 43% in 2010. Given a proper marketing push, Mr. Poltrack believes programmers can help break the DVR habit, thereby limiting exposure to an environment in which the networks "have no control over exposure to advertising."
Many of the buyers and sellers who stayed out of the C7 fray characterized it as a kind of diversionary tactic, a way for the beleaguered broadcasters to put on a brave face for their investors. The emphasis on a one-size-fits-all approach to media measurement, as opposed to persuing goals like aligning viewer data with purchasing patterns, aggravated some observers.
"Why the C7 hype?" Spark Chief Investment Officer John Muszynski asked on Twitter in June, when news broke that the ad-buying giant GroupM was making broadcast C7 deals. "Where is the movement to more precise measurement? Exact commercial ratings? Single-source measurement? Seems old school!"
Given the relatively limited volume of dollars pinned to C7, the signal-to-noise ratio may be just a little out of whack. It's clear that the TV market isn't undergoing a paradigm shift on the order of 2007, when Nielsen started offering C3 ratings. Cable's time-honored model of running multiple repeats until the sprockets come off and selling the accumulated audience has largely defanged the time-shifting menace in those circles. Only 26% of ad-supported cable programming is viewed in playback mode, according to Nielsen, whereas 49% of broadcast prime time is time-shifted. As such, C7 didn't play any part in this summer's cable upfront negotiations. "It was not really a topic of conversation," said one sales boss.
However the currency shakes out, broadcasters this fall will continue to work to wean viewers off the environment in which ads don't really stand a chance. A lot rides on the execution, but the stakes are clear. "The DVR disrupted the beautifully constructed investment model of how TV is planned," Mr. Poltrack said. "VOD returns a sense of order and control."
