Viacom Looks to Reinvent Commercial Pods

CEO Dauman: Wants to 'Fundamentally Change' How Viewers Watch Ads

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NEW YORK ( -- For decades, 30-second ads seemed as though they grew on trees; anyone could buy one. But remarks made today to investors by Viacom's CEO suggest media companies are rethinking how abundant their commercial inventory ought to be.
Philippe Dauman
Philippe Dauman

"We are reinventing the commercial pods to maximize viewer retention during each commercial break," said Philippe Dauman, CEO of the company that owns MTV, VH1, Nickelodeon and Comedy Central. "We are experimenting with a host of different concepts that fundamentally change the way our viewers experience advertising."

Big shift
Mr. Dauman's comments come as Madison Avenue prepares for a big shift in the way commercials are sold, priced and measured. Many deals in this year's upfront, when major TV networks sell the bulk of their ad inventory, were based on so-called commercial ratings, which measure viewership of ad breaks -- not the programs they support, as has been the case for decades. Cable channels, which often feature longer and more ad breaks than their broadcast counterparts, are expected to show more ratings erosion than rivals. MTV is one of the channels media buyers are scrutinizing closely.

Mr. Dauman said Viacom will look at a number of techniques. "One is to reduce the length of commercial pods and increase the number of them to increase viewer retention," he said. Another is "to introduce programming elements inside the commercial pods. That also increases viewer retention," Mr. Dauman said. "We are also going to focus very much on the ordering of -- what order our commercials appear within the pods."

These are all ideas media buyers and senior marketing executives have started to demand. With commercial ratings being used as currency in negotiations for ad time, networks and advertisers are considering a whole range of methods -- from new ad formats to making breaks between ads and programs more seamless -- that will keep viewers rooted to their seats instead of fast-forwarding past ads or ignoring them altogether.

Lower commercial ratings?
The nature of Viacom's networks may be pushing it to embrace some of these new methods more readily. Commercial ratings for many channels that are part of the company's MTV Networks are expected to be significantly lower than their program ratings, owing in part to the channels' younger viewers, who multitask and are easily distracted by other media. Buyers have said they believe moving to commercial ratings could hurt pricing on MTV Networks outlets.

During the call, Mr. Dauman said the company was "creative in the construction of a variety of deals that were a combination of program and commercial ratings. For the most part, commercial ratings will not come into play for us until the first quarter of 2008." Mr. Dauman also said Viacom was considering making advertising inventory "in some cases scarcer and more high-value."

Discussing upfront negotiations, Mr. Dauman said Viacom had "just about concluded" talks with advertisers. For adult programming, he said, Viacom was able to "secure low double-digit price increases, and the overall dollar volume is slightly higher than last year." The kids' upfront is "not yet complete," he said, but Viacom is projecting "a double-digit increase in overall dollar volume."

First major deal
Nickelodeon was first to announce a major kids' upfront deal -- a $100 million agreement with Starcom that encompasses all of its properties. The deal also included a joint research effort to track kids' viewing patterns.

Mr. Dauman's remarks about the kids' upfront are in direct contrast to what Time Warner said yesterday in its conference call. At that time, Time Warner President-Chief Operating Officer Jeff Bewkes said, "The kids' upfront is pacing lower than the prior year, and, as a result, Cartoon Network will be the only Turner network that won't show improvement over the prior year."

There is some question about how truly different ads will look on Viacom in the future. MTV has long been an early adopter of new ad formats. Some commercials during its Video Music Awards, for example, took place against the backdrop of the event itself, without breaking to a filmed spot.

Mr. Dauman's comments were made after Viacom reported second-quarter net income that dropped 1% from the same period a year earlier, to $434 million from $437.3 million. Revenue increased 13% to $3.19 billion in the second quarter. The results include a $94 million gain from the sale of an MTV investment in Russia, partially offset by a $22 million charge to write off its investment in wireless-service provider Amp'd Mobile.
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