Upfront Epilogue: TV Fans Should Thank Advertisers, Agencies and Networks

If you love television you owe a debt of gratitude to America's advertisers, their media agencies and most of all to the broadcast and cable networks themselves. Against all the odds, these groups agreed during the past weeks to sustain the multi-billion dollar investment that is required to keep the television engine running.

Forecasters, including me, believed the fundamental underlying economics of network television would be challenged this year. In advance of the annual Upfront season, when networks present their Fall schedules and advertisers negotiate costs for an estimated 80 percent of the commercial inventory of the broadcast networks and as much as 60 percent of cable inventory, it appeared to be a perfect storm. The four leading broadcast networks had lost 10 percent of their 18 to 49 audiences compared to the previous season; new Nielsen commercial ratings data provided evidence that actual audiences exposed to commercials were an average four to five percent less for the broadcasters and eight to ten percent less on average for cable networks. DVR penetration is growing rapidly and time shifted viewing accompanied by commercial skipping is having an increased impact. Advertisers were wary. Although less supply often translates into increased demand and, therefore, higher costs, marketers this year appeared to have alternatives.

Several emerging cable networks have dramatically increased their distribution in the past two to three years due to digital set-top expansion, giving advertisers more options. Cable networks like TNT, TBS, USA, FX, A&E, Hallmark, Sci Fi and others have introduced more competitive entertainment programming, achieving ratings that look more and more like broadcast-level ratings in key demographics.

Most importantly, advertisers are investing billions on online advertising and several forecasters (I wasn't among this group) believed these investments would be at the expense of network television. But somehow, these bullets all seem to have been successfully dodged through a collaboration of advertisers, media agencies and network sales organizations. Networks agreed to use commercial ratings, but marketers and agencies agreed to use live plus three day viewing data, so DVR activity would be incorporated into ratings data. Most importantly, marketers agreed that the value of network television is unequaled, and paying increased costs to sustain the economic model is an acceptable cost of doing business. According to network estimates (challenged by some agencies) overall broadcast costs increased in the seven to nine percent range and cable cost increases averaged three to five percent.

This represents a stunning turn-about for the industry. For the past several years, media agency executives have preached the mantra of cost reduction. Their raison d'être has been cost containment and reduction, but this year they appear to have reversed field and embraced the value equation of network television, convincing their clients to join them. For TV fans, this is cause for celebration and thanks.

For several others, however, it sends a confusing and conflicting message. For the past several years, the market perception has been that new forms of effectiveness research would become increasingly important. Commercial ratings and even new recall studies are, at their core, quantitative measures of performance rather than measures of sales effectiveness. Others have preached the gospel of multi-media platform extensions that provide exposure on network's websites, mobile platforms and video-on-demand channels. Still others touted the growing importance of integrated marketing campaigns that incorporate advertising with promotion, events, cause related marketing and other communications techniques.

While these incremental options had a place in this year's Upfront, they were far less instrumental in the network Upfront decision-making process than most observers expected. The networks and their agency colleagues can, it appears, take a collective deep breath and give thanks that America's marketers still believe network television - in its pure and basic form - is still a powerful marketing weapon.

Until next year.

In the next 12-months DVR penetration in multi-channel homes (cable and satellite) will surpass 30 percent. News Corp and NBC will launch their new online video service. CBS is actively syndicating their content on multiple platforms. Joost, Veoh, Revver and several other video content players will be delivering network content online. New products from TiVo, Slingbox, cable operators, satellite providers and others will provide easier access to time shifted viewing. Telescoping technology will move toward reality and video-on-demand will become far more compelling as content supply increases. Commercial ratings data will progress toward second-by-second rather than minute-by-minute average commercial ratings. New research suppliers will offer additional data that marketers will be compelled to analyze.

But we have learned a lesson. No matter how compelling the alternatives may be, network television remains the medium of choice for the largest national marketers.

The danger to the industry, however, is complacency. Networks, agencies and even marketers cannot scale back their commitment to developing advanced solutions for marketers. They cannot scale back their commitments to integrated marketing, accountability research or multi-platform extensions. They cannot fall into a trap of believing the future has been delayed. New economic models are still important.

Advertisers paid tribute this year to the value and importance of network television. They will probably continue to pay tribute, in the form of upward pricing adjustments, for a few more years. This gift to the networks should be returned through an acceleration of networks' and agencies' commitment to the development of improved marketing resources, tools, multi-platform extensions and research that marketers can turn to when the winds of change blow so strong that the perfect storm can no longer be ignored.

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