January 2008 - Guest Outlook

DRTV: A Look at the Top Trends in 2007

By Stephanie Fiala, Steven Morvay and Shani Reardon

Now that the holidays are behind us, this is a good time for reflection, for examining the important trends that surfaced this past year, and for looking ahead at the conditions and implications these trends will have on the 2008 marketplace.

There have been 10 consecutive quarters of short-form (:60 and :120) DRTV spending increases from 1Q 2005 to 2Q 2007. Now that corporate advertisers and, more recently, political advertisers have discovered DRTV, a trend of increased expenditures and unit rates in short-form DRTV is well underway.

According to DRTV data collected from TNS Media Intelligence:

  • 1Q 2007 showed record-setting spending in short-form media billings ($930MM)
  • 2Q 2007 billings rose above $1.1 billion, a 28.5-percent increase over the year prior (a $246.3MM increase)
    According to our internal review, short-form clearance percentages have been dropping and rates increasing in 2007:
  • Over the past 18 months to two years, rates have held fairly steady on key network placements for our clients.
  • However, more recently, clearance percentages have struggled to rise above 60-65 percent in key time periods.
  • Rate increases have increased clearances to the 80-percent range in the fourth quarter.

Starting in 2007, the historical DRTV seasonality rules have not applied-it is difficult to predict when inventory will tighten. Historically, DRTV inventory is plentiful during first and third quarters and the first month of each quarter (January, April, July and October). Contrary to past years, we recorded low clearance levels in January 2007 when reduced rates have been applied moving from December to January. Also contrary to historical trends, August and September have provided lower-than-normal clearance levels.

On the short-form side, audience levels have dropped across many networks requiring more audience delivery units (ADUs or makegoods) to meet CPM advertiser commitments. Increased ADU delivery limits direct response inventory, resulting in rate increases and/or lower clearance percentage. The following data sheds some light on this shift:

  • Contributing to increased ADUs is the new C3 ratings system developed by Nielsen and adopted in 4Q 2007. The new system utilizes “commercial pod” ratings instead of “program ratings” and incorporates DVR Live + three days viewing data. Advertisers pushed for commercial ratings because they want to know how many people are watching their ads, as opposed to how many people watch a program. According to some networks, this has equated to an overall loss of 10 percent of impression delivery that must be made up to general advertisers in the form of bonus weight.
  • NBC recently refunded $500,000 to one advertiser in lieu of additional ADUs. This action is unprecedented.
    As a further consequence of tightening DRTV inventory, :120s are becoming increasingly difficult to clear on particular networks and dayparts. When inventory tightens, the :120 avails are lost first since a single :120 unit can fulfill four :30 units. In addition, networks are formatting fewer :120 breaks overall. This trend has already largely occurred in local broadcast with some markets and stations not offering the :120 unit at all, even in overnights. It is also taking effect in a growing number of cable networks as well, whether during specific dayparts or on the network as a whole.

What issues will affect the industry in the New Year? Here are a few that we think will have the most impact.
Writers’ strike. Currently, the writers’ strike is only affecting the late night talk and comedy shows, which went into reruns immediately, such as the “Tonight Show” and Comedy Central’s “Daily Show” and “Colbert Report.” Reality and documentary programming, which make up a large percentage of cable schedules, is not affected. Many sitcoms have enough shows “in the can” to take them through February.

However, if the strike is not settled, and the networks enter the “sweeps” period with programming consisting of reality shows and reruns with no original programming, the resulting ratings could be dismal. This will cause a price decrease on national cable and network. With rating and price decreases, however, brand advertisers will be forced to increase the number of spots they purchase to deliver their goal GRPs. In addition, stations will be doling out more makegoods than normal because of poor ratings. There are only so many pods available. This, in conjunction with the already chaotic political environment in 2008, would result in even fewer DR availabilities overall.

Political environment. Twenty states have advanced primaries to February 5, now being called “Super Duper Tuesday,” pushing the Presidential Primary political window to a mid-December start. As a result, advertisers should expect media expenditures to rise substantially across the board-from national cable stations to local networks. Any time new advertisers come into the space and pay bump rates to clear, it can cause a trickle down effect from national media to the local level. Networks and stations must clear political advertisers if they pay a higher rate to bump out other advertisers.

2008 Summer Olympics. The Games in Beijing, China, will entice national advertisers to launch campaigns during July and August, which are typically soft media months, and therefore, strong time periods for DRTV advertisers. The Summer Olympics will air on NBC properties including NBC Universal cable networks such as MSNBC, Sci Fi and USA. We would expect avails to tighten during this period, including the overnights on these key networks.

To combat tight inventory conditions caused by corporate and political advertisers, here are a few recommendations:

  • Budgets should be established at least a month in advance and bookings with the networks should be based on a quarterly buy basis. As always, inventory is cancelable within one week unless otherwise specified, such as syndication. Managing budgets on a quarterly basis enables clients to control volume and clear budgets, while limiting the effects of rate increases needed to clear desired spends. Clients can achieve more actions with the same money if the results can be recorded over a longer period such as a quarter rather than on shorter time periods such as weekly or monthly. Furthermore, allocating un-cleared dollars over the quarter, instead of a month, can result in fewer spikes in media spending week to week.
  • For clients with large budgets to spend on a monthly basis, the choice may become whether to be on-air at specific spending levels (keeping response volume constant) or to hold to aggressive CPL/CPO (efficiency). During tight time periods, clearance may not be available on certain networks regardless of rate; however, modest rate increases are often successful at improving clearance levels in given weeks.
  • Step it up. Our clients develop aggressive testing efforts for shorter length units (:60s and :30s) to continue to scale campaigns that are reliant on :120s.

But perhaps the most effective step a company can take to cope with the changing environment is to assure that they have the strongest marketing program in place.

The “tightness” of 2007 and 2008 is actually not a new phenomenon. Those of us with long-term experience in the channel have seen very similar dynamics many times in the past. As an example, before the advent of literally hundreds of cable network channels, a “fourth network” and additional local independent stations, a far smaller increase in demand for media time, created the same environment we see today.

You should keep in mind that the moment a DR commercial (whether a product sale, lead generator or any other format) isn’t working, it will be pulled by the advertiser in an effort to minimize the amount of money lost on the project. Said differently, advertisers who select DR firms that have a greater chance of producing winning DR commercial marketing programs will have a vitally important opportunity to leverage the strongest position in a tight market and take advantage of time cancelled by others who are failing. 

Stephanie Fiala is director of media at SendTec. Steven Morvay is managing director and Shani Reardon is vice president of media at the company.


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