Buying Time

September 26, 2012 World Screen

PREMIUM: A special report on the ways that television advertising is evolving to meet the challenges of new devices and viewing habits.

 

Television is still the largest advertising medium worldwide and it has withstood the challenge of the Internet remarkably well. Ad spend remains firmly focused on linear TV advertising, and high-quality content is more valuable than ever as advertisers seek to squeeze more bang out of hit shows.

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“The days of monolithic television are long gone,” says William Cab­rera, the executive VP of global research and modeling at Havas Media, which is active in more than 120 countries. “What we now have is television that is very much about convergence and content on demand. And it will increasingly involve different devices, with consumers making their own schedules and choosing their own formats. But it is still television. It is audiovisual, it is engaging and it occupies a big chunk of people’s free time and dominates their media consumption.”

According to the advertising giant GroupM, TV accounted for 43 percent of measured global media investment in 2011, a record high. However, GroupM warned that the figure might be a peak before a downward trend, with continued development of Internet advertising—notably online video—nipping at TV’s share.

“We are seeing three speeds of advertising growth,” says Cabrera. “In Europe, North America and Japan, normal broadcast television will plateau in the next two or three years as the Internet becomes stronger. In the emerging markets, such as India, Indonesia, China and Brazil, broadcast media is growing. Even print is growing. The emerging middle class in these markets is consuming the traditional media mix. The third speed is in the less developed markets, accounting for about one-third of the world, where there is not much change taking place in a fairly static media landscape. Perhaps mobile telephony will be a bigger factor in these markets.”

Despite the swing to online in developed markets, things are looking up for TV, according to Irwin Gotlieb, the chairman of GroupM. “With advanced advertising technology beginning to appear on the horizon, television will be able to go toe to toe with anything out there,” he says.

ADDRESSING THE AUDIENCE
GroupM has been running addressable ads—commercials targeted to a specific device or consumer—in the U.S. since last October on 7 million DISH Network set-top boxes. DIRECTV and Verizon FiOS are also addressability-enabled, and other major players such as Cablevision are on the way. GroupM has measurement capability for about 20 million addressable set-top boxes, and that number is going to grow very rapidly over the course of the next three years.

The ads are pre-loaded into individual DVRs, usually the night before they are shown. There is a keytone for the addressable ad and the set-top box actually switches to the DVR to run the commercial and then switches back to the linear stream. How the advertiser or the agency knows which ads the viewer wants to view depends on a huge amount of data that is available at the household level, without any identifiable personal information. 

But don’t throw out the ratings yet. “Having set-top-box data is wonderful, but the set-top box doesn’t tell me if it’s the lady of the house or the man of the house or the child who is watching,” Gotlieb admits. “So we will always have television panel data and we will have to learn how to fuse the two into something that informs our strategies and our tactics.”

According to Deloitte, advanced advertising, including targeted addressable and interactive advertising, will face a number of challenges to becoming mainstream. One is winning the acceptance of consumers and regulators. Another is establishing a clear competitive advantage over traditional TV advertising and existing forms of targeting and segmentation.

THE DISRUPTORS
The advantage over traditional advertising might become easier to demonstrate as the disruptive impact of the DVR, which enables viewers to skip commercials in recorded shows, continues to increase.

Research from Npower in April of this year showed DVR penetration at 44 percent of U.S. households, rising to 50 percent in the 18-to-49 demo and 66 percent among 18-to-49s who own tablets.

In the U.S., live TV viewing fell from 89 percent to 85 percent from 2006 to 2011, according to a study by Nielsen. In the U.K., 90 percent of TV was viewed live in the first six months of 2012, according to the British commercial TV marketing body Thinkbox. The number of ads watched at normal speed actually rose 1.6 percent year on year to a record high of 491 billion spots.

However, in the 51 percent of homes with DVRs in the U.K., time-shifted viewing accounted for 15.9 percent of total viewing in the first half of this year, up from 14.7 percent in the same period of 2011. As DVR penetration grows, live viewing will inevitably decline.

The big new innovation in the market, the most dangerous to date for ad-supported TV, is automatic skipping of ads. In May, DISH Network rolled out Auto Hop, a subscription DVR feature that zips over ads automatically in recorded shows. FOX, NBC and CBS have all filed suits against the move. 

The reality of the DVR is a daunting one in today’s broadcast market. “Our business is selling 30-second and 15-second spots day in and day out,” says Mitch Burg, the president of the Syndicated Network Television Association (SNTA), a nonprofit body whose members are Disney-ABC Domestic Television, CBS Tele­vision Distribution, Warner Bros. Brand Networks, NBCUniversal Television Distribution and Twentieth Television. “The DVR has become a factor over the past five or six years. We have been monitoring the developments very closely. Our strategy is all about being DVR-proof, having a younger audience and ensuring high recall.”

Being DVR-proof largely depends on where advertising is positioned.

“What differentiates us from network television is that we are viewed live,” Burg says. “Even in homes that have DVRs, 75 percent of our commercials are watched. One reason has to do with the duration and placement of our national advertising pods.” 

The national pod is separated from the advertising that is sold by the local stations. If a half-hour sitcom contains seven minutes of ads, there will be one national pod of a minute and two others of three minutes sold by the stations. In weekday sitcoms, for example, 86 percent of syndicated advertising is in the first minute. 

“Research shows that commercials in the first minute of advertising are watched,” Burg says. “This makes us immune. The second reason for live viewing is the strength of the programming. We have shows that viewers watch more than two times a week on average. The viewers are loyal. We are appointment television.”

HIT SEEKERS
In today’s market the value of successful shows to advertisers is greater than ever. “The big hits of today can be bigger than ever because they have global potential,” says Havas Media’s Cabrera. “It used to take a couple of years for a program to work its way around the world. Now it happens quickly. Audiences are still important. The potential upside for big hits is even greater in an age of fragmentation. They are even more valuable because they can deliver big audiences.”

But today’s market is also more fickle and faster-moving than ever before. “There has been acceleration in the programming cycle,” Cabrera continues. “If a show isn’t working, it’s dropped. The period of trial and error is much faster. If it doesn’t work in a week or two, it’s gone. But for shows that get it right, it’s winner takes all. Shows can be hits around the world with global audiences and make enormous amounts of money. Of course, there might be only one hit in a hundred shows. The successful companies are the ones that have the money and talent to invest in the trial and error and keep up with the market.”

TAKING INVENTORY
One of the strengths that the syndication market tries to build on is the longevity of its shows in offering new types of inventory to advertisers. 

SNTA’s Burg tells the story of a soft-drink company that wanted to know how to integrate its messages within top programs that were already made. The idea was to create something building on the audiences’ familiarity with these shows—the fact that some viewers watch them and know everything that’s going to happen and can even quote the dialogue by heart. “We developed the idea of a vignette, where a brief scene in the show would be pulled out and branded. So, for example, if there’s a scene in a doctor’s office, that could be brought to you by Dr Pepper. It’s about building on the involvement and passion of the viewer.”

The innovation is called the exclusive integrated pod (EIP), a recent example of which is a series of spots for Home Depot in programs syndicated by Twentieth Television.

The other main method of integration in existing shows is digital product placement, which has become more cost-effective than when the technology first emerged, in the ’90s. One of the characteristics of sitcoms is that they have ensemble casts and there are lots of scenes of people sitting around a table, so it’s easy to put a box or a bottle on the table. “If there’s a pizza there, it’s a natural part of the scene,” SNTA’s Burg says.

How I Met Your Mother features both EIPs for Home Depot and product placement for Pizza Hut.

GroupM’s Gotlieb is high on product placement—where it genuinely works. In American Idol, the voting mechanism is branded as AT&T texting. “We did that when American Idol premiered, and we believe that that single integration taught people in the United States how to text,” says Gotlieb. “Texting at the time was a non-U.S. phenomenon. Most people knew they had the capability but there was nothing compelling enough to get them to even try it. That single integration changed the face of texting in the U.S.”

When Who Wants To Be a Millionaire? was in prime time on ABC, the process of calling a friend was integrated for AT&T also and was integral to the game aspects of the show.

Extreme Makeover: Home Edition was created for Sears. For a period of time, it changed the way the retailer was perceived because all the tools used and all the products that went into the home came from Sears.

Gotlieb is less convinced of the value of the sort of product placement that can be achieved via digital insertions. “If the integration involves placing a beverage in someone’s kitchen, nobody will notice it,” he says. “It’s just not noticed because it belongs there. If you put it where it doesn’t belong, it’s noticed, but not in a good way. Branded integrations have severe limitations in terms of integration and execution. It has to fit. It has to have a functional role. And it has to stand out.”

BRAND INTEGRATION
The old principles of the Procter & Gamble soap opera have withstood the test of time in this respect, Gotlieb says. “The mandate was that if a dishwashing detergent needed to be in the kitchen, it should be a P&G product, but no one should go out of their way to make sure that the label showed and there was no unnecessary focus on that label, because they wanted to protect the integrity of the content. And that came first.”

A more sophisticated and ambitious way for advertisers to get better value out of programming is to be involved in its creation. Starting in the ’50s, advertisers invested in content mainly to build the audience—thereby making television a more effective medium for them. “When television came along, clients didn’t go to their ad agencies and say, Make me programs like the commercials,” Gotlieb says. “Agencies created content that was sufficiently compelling to attract an audience, and while the audience was there, they exposed them to commercial breaks.”

Today, the reason for investment has evolved into being more about engagement with the audience as the path to effectiveness.

Several years back, Shine Group set up a division with the goal of marrying the content and engagement of prime-time TV with the money that brands pump into advertising. The London-based Grand Central Entertainment was spun off from Shine in 2005 by partners Andrew Hill and Rabin Mukerjea with the aim of helping brands create content, combining “the strategic rigor of advertising” with “the compelling engagement of watercooler TV.” The company has produced more than 700 hours of brand-funded programming shown worldwide. 

“The obviousness of the logic of getting advertisers to fund programs directly comes up against the reality of the way television works,” says Mukerjea. “The difficult thing is the commission process. Advertisers think that because they invest a lot of money in something, broadcasters will automatically want it. But the reality is that broadcasters want the best programming that they can afford to get. There is also the tendency of advertisers to want to load programs with advertising messages. We think the format should be a reflection of the brand, not a trigger to buy products.”

In this sense, the approach is not quite the same as the one Sears took in showing off its own products in a home-improvement show.

“There is no reason why Ikea should not produce a show like Changing Rooms, which BBC used to carry, about people fixing up their houses on a modest budget,” Hill says. “The content would in fact be one big commercial for Ikea’s brand values. We are not talking about the products but the values. The same would be true of one of the makeover shows about improving people’s appearance. It would be natural for a cosmetics brand to make this type of show. Television is the shop window for the brand, to engage the audience.”

ON THE FAST TRACK
Grand Central is currently producing GT Academy, a reality show commissioned and funded jointly by Nissan and PlayStation. The premise is to turn a PlayStation video-game player into a real-life race-car driver.

More than a million PlayStation players applied to be part of the show, which takes contestants to Silverstone to compete in Nissan cars. The winner will take part in the Dubai 24H race. Versions of the series are also being made for Germany, Italy, Poland, Russia, Spain, and the U.S., among other markets. Grand Central will distribute the show. As sponsors want the widest exposure and the potential revenue tends not to be enough to undercut that goal, shows are usually given away.

Grand Central’s show Beat: Life on the Street was made for the U.K.’s Home Office as a vehicle to raise awareness of community police officers and drive recruitment. They had tried advertising without good results. The show aired for three seasons on ITV1.

The partners in Grand Central view the broadcaster-ruled status quo of the production process as a positive factor rather than a hindrance. 

“We believe there is a huge value in having a commissioner at the broadcasters in control of content,” Hill says. “Once brands start to produce their own programs, we move into the realm of 30-second commercials and content loses value. We believe that the brands’ content must be just as good as any other program. We are producing with television techniques and production values and that makes content more engaging.”

GroupM’s Gotlieb reports that there has been a decrease in investment by advertisers in television programming because clients are of the view that unless this is their primary business they shouldn’t be doing it. In several cases in recent years, GroupM has actually aggregated several clients into a single investment.

SECOND SCREENING
The growth of second screening—using another device, such as a PC or a tablet, while watching TV—is a phenomenon that advertisers are still digesting, for good or ill. It may open up new opportunities, but the actual interaction between TV and the second screen appears muted so far.

A new study by Deloitte reports that 24 percent of the people surveyed in the U.K. use second screens, and nearly half of all 16- to 24-year-olds use messaging, e-mail, Facebook or Twitter to discuss what they are viewing on TV while they watch. But only one in ten people browse the Internet for information about the program they are watching, while 40 percent like being able to send their comments in to a live program. 

“Second screening’s impact is far greater in driving conversations about a program as opposed to interaction with it,” says Paul Lee, the director of technology, media and telecommunications research at Deloitte. “It might be a brand-new technology-enabled distraction or it might simply represent the swapping of an analog distraction, such as reading newspapers or magazines, for a digital one.”

A great potential benefit of the second screen, and digital platforms generally, is in providing feedback. “Advertisers will be changing the way they see content,” Havas Media’s Cabrera says. “They can see beyond the audience numbers and they are seeing content touch the market in different ways. They can see the real-time reaction to advertising in the context of programming. Advertisers will need to understand where their brands fit better.

“Social media is strengthening the television experience. Social media enables you to see how people react to your content, even to the characters in a show. You can see what they think chapter by chapter. You can see not only the audience but the content sentiment in real time. And nowadays you have to use this information. The whole decision-making process has collapsed. It’s a new world.”

A central reality of the new world is that people are watching more video online and advertisers are going after them. Online video advertising spending reached an average of 7.6 percent of the total online display market value across 15 European markets in 2011, according to AdEx Benchmark. The share ranges from a high of 9.8 percent in Sweden to 0.6 percent in Hungary. In Germany and the U.K., online video advertising revenues crossed the €100 million ($125 million) threshold in 2011.

Some Internet video investment will simply return to different pockets of the broadcast groups. In the U.K., ITV and Sky.com ranked among the top ten online advertising sites last year in terms of impressions, according to Nielsen. ITV was number seven with 3 percent of the market, while Sky.com was tenth with 2.7 percent. YouTube was number one, taking 14.4 percent. 

The advertising market is increasingly becoming a space where the ITVs of the world compete with YouTube. 

The good news is that people still want professionally produced content. “Content is still king and the differentiating factor is going to be talent, not technology,” Cabrera says.

Television advertising is on the way to becoming more like Internet advertising, according to Cabrera, with contextual ads and real-time feedback—in short, it will be more data-driven. “The feedback loop exists in real time. Now you can decide exactly where and when to place your ad. Advertisers will want to place ads where they want and they will want flexibility.”

Gotlieb is convinced that television can deliver for them. “I think the 30-second spot is doing quite well, thank you,” he says. “But I think in some ways the capabilities of television are likely to be able to leapfrog some of the most advanced capabilities that exist in the digital world today.”