The :30 is on its last legs; now's the time to rewire TV ad industry

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A few months ago, Bob Jeffrey, the CEO of J. Walter Thompson, issued this warning: "It's a foregone conclusion that network TV will decline if it continues to operate on the same model."

He predicted that companies that today spend 70% to 80% of their advertising dollars on network TV will allocate just half that much five years from now. A few months later at the Forrester Consumer Forum, Peter Chernin, president of News Corp., voiced similar concerns, and added a call to action: "Media companies and advertisers must redefine their relationship."

Is the sky really about to fall on TV commercials? Well, if you believe the recent comments of some of the country's largest advertisers, start looking for shelter.

While not always original, marketers' gripes about the medium-and the standard 30-second advertising format in particular-are legitimate. Audience fragmentation, consumer ad avoidance and poor measurement are undermining the cornerstone of conventional TV ad wisdom: 30-second linear spots aimed at national audiences.

With advertisers threatening to reconsider the $60 billion they spend on TV annually, it's logical to expect that the industry-programmers, distributors, and agencies-would bend over backward to address their concerns. But that's easier said than done. Time-shifting technologies destroy the central role of the TV schedule. When consumers view programs on their own clock, and skip ads at will, advertisers, programmers and distributors must completely re-evaluate their relationships.

Technology is the source of much of the pain in the TV industry, but it also offers salvation. A nascent but rapidly evolving field of alternatives to the standard linear commercial is emerging. Forrester recently conducted an extensive evaluation of the 15 most promising alternative ad formats. Each has drawbacks, but these are often more than offset by the benefits, which include targeting, interactivity, skip-resistance and measurability.


But there is a problem: These formats are arriving late. They will account for less than 5% of 2004 TV ad spending this year (far less if product placements and sponsorships are excluded). And time is one luxury the TV ad business doesn't have. By the end of 2006, 97% of the country's 34 million-plus digital cable subscribers will have VOD, and 17 million will own DVRs. This will finally prompt TV advertisers to act. By the spring 2007 upfront, we expect the market impact of time-shifting and ad-skipping to provoke a critical mass of firms into reducing their TV advertising outlay.

Ad spending will fall, but there is no evidence that consumers' desire to lean back and watch video programming will change. This love affair with TV ensures that the decline in ad spending will be temporary. Growth will resume once again, as advertisers will seek out new ways to subsidize TV.

Since the average U.S. household racks up more than seven viewing hours a day there is every reason to believe that firms will pay to deliver their marketing messages through TV. But as empowered consumers render the workhorse linear 30-second spot increasingly impotent, advertisers will face a bewildering question: if not the good ol' :30, then what?

Ideally, life would be simple, and one or two new alternative ad formats will emerge from the crowd to become an industry standard. This is wishful thinking. Advertisers that are holding out for a lifeline from the TV industry are waiting in vain.

No single programmer, agency or distribution platform has enough market power to define a new standard ad unit. Worse, the sheer number of stakeholders-each with their own competing interests and egos-guarantees that the industry will never serve up a coordinated, consensus solution. For example, although more than 23 million households now have access to VOD, the current standoff between operators and network programmers has left most with few shows to choose from.

Further complicating matters, most new formats rely on cable operators-and often cable ad inventory. While operators are trying to work together, their different subscriber bases, technology footprints and cultures ensure that marketers will be left to deal with a patchwork quilt of alternatives. In short, marketers will have to abandon their sole reliance on the linear :30, and embrace multiple formats.

The historically stable TV-ad-buying environment has bred media planning organizations that excel at nitty-gritty tactics. But to succeed in the new-formats jungle, firms will need a long-term TV media strategy. Mastering last year's playbook doesn't count for much when the rule book is being rewritten.

CMOs should hire a director of media strategy, charging him or her with tracking the TV landscape, and developing a multi-format, long-term media strategy used to inform planning and buying activities. When making budgeting decisions, firms should take this forward-looking strategy into account, rather than relying solely on historical data.

quality, not quantity

Another problem is the widespread practice of establishing gross-rating-points targets, then looking for eyeballs to stitch together at the lowest possible CPM. This is like planning a meal by picking out the foods with the lowest cost per calorie. In a world where audiences and ad formats are fragmented, the watchword is quality, not quantity. For media buyers, this means working closely with market research, CRM and database-marketing teams to profile target audience segments and develop meaningful measurement techniques.

Today advertisers reach audiences by aligning themselves with specific programs or channels. But fragmentation and time-shifted viewing marginalizes the value of channels. In contrast, searchable, ad-insertable libraries of VOD content-some of it never broadcast before-are set to gain ground. This will lead marketers to reshuffle their priorities in favor of distribution. Cable operators will get their wish, and gain at the expense of programming networks.

For their part programmers should make hay while the sun shines, taking advantage of the cable-satellite subscriber wars to negotiate for equal access to new advertising technologies, in both VOD and linear environments. For example, Scripps and Turner ought to barter content to Comcast in exchange for the right to sell nationally targeted ads via Spotlight's AdTag and AdCopy.

So how do these alternative ad formats stack up? Well, the 55 national advertisers we surveyed recently registered more interest in ad targeting than interactivity. We think they're on the right track: ad targeting-and VOD avails-address the core problem of fragmentation, don't require consumers to modify their passive-viewing habits and complement each other nicely. We think they're the most likely to win widespread adoption first.

Of course with more than a dozen viable alternative formats in play, there are lots of possibilities. Two outcomes are certain, however: TV media planning is about to become a lot more complicated, and successful advertisers will use a variety of ad formats and avails.

Eric Schmitt ... examines technology's impact on marketing in his role as a senior analyst at Forrester Research.

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