Report: TV’s currency will change, but not to C7

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People watching TVBrian Wieser, Pivotal Research Group analyst, says in a new report that broadcast networks have become increasingly vocal in recent weeks about their intention to monetize viewing beyond the current C3 currency window. However, he thinks it’s unlikely to occur as advertisers and agencies are unlikely to view it favorably. Pivotal says the networks would be better off in focusing on cross-platform ratings:


Establishing a currency based on collective confidence in the currency itself is no mean feat. One of the first on earth to do so was the French crown in the early 18th century, under the guidance of a Scotsman named John Law. While a monarch with absolute power has the ability to establish a currency by fiat (despite what were evidently violent protests by the French population), and even then must exercise significant political will, a broadcast TV network (let alone a collection of them) does not. This is ultimately a good thing, as we shall see.

Broadcast networks have become increasingly vocal in stating their interest (if not their expectations) that the trading currency of television should become C7, the measured viewing of commercials at the time of an airing of a commercial and for seven subsequent days via DVR playback. This would compare with the current standard, which includes only three days of DVR playback. Networks and agencies established this C3 metric in 2007 as DVRs were proliferating and as there was enough consensus (grudging as it was) that buyers would be willing to part with marginally more money to broadcast networks instead of the cable networks.

In the change from “L” or Live-only program ratings to C3, advertisers agreed that inventory which was previously “free” when it was provided over a DVR during playback in the first three days post-live airing would no longer be “free”. But the networks gave up something too, as they agreed to be assessed on the viewing levels of the commercials which they did not themselves make. As a horse trade, it worked, and arguably it has held up for the past five years because both sides received something of value.

It’s also important to consider the context in which that horse trade occurred: broadcast networks had a strong interest in pushing the currency given that their programming was being disproportionately impacted by the rise of DVRs. Meanwhile, advertisers were being subjected to a strong upfront marketplace in 2007-08. Specifically, the 2007-08 upfront was one of the strongest for networks in the past decade, implying that media owners had even more leverage than they normally would have in making this change a reality.

But the networks could not impose change just because they wanted it: C3 was grudgingly accepted as a compromise in part because C3 was at least still appropriate in helping marketers meet their goals. Retailers and movie studios in particular – which account for perhaps 15% of network TV advertising – rely heavily on the commercials they run during the two to three days ahead of a weekend when they would generate the bulk of their revenues, and so C3 wasn’t terrible all things considered. But at least they and other advertisers could console themselves with what they viewed as a conceptually fairer deal, only paying for viewers that watched commercials. Combined with what were undoubtedly lower price increases than might otherwise have occurred (as implicit incentives to agree to changing the currency), the change offered mutual benefits. Further, the change in currency was at least better than several alternatives that could have emerged. At the time C3 seemed much better than metrics such as L7 (program viewing plus seven days of playback) or even the now-prominent C7.

So why would advertisers submit themselves to a C7 metric now? Seven days of playback which offers a media owner the flexibility to run a commercial after an underlying business need lapsed (even if the media owner promised not to do so) ranges somewhere between undesirable and intolerable.

And networks are unlikely to have an upper-hand in negotiations this year. While it’s far too early to call the 2013-14 upfront with any precision (check back with us in March) it would seem a down market (by volume, at minimum) is more likely than an up market at this time. As well, business needs have not changed by much, such that movie studios and retailers are no less dependent upon timely campaigns as they were five years ago. Other segments of marketers (especially packaged goods manufacturers) might have some interest in using a more accurate measure of viewing and so wouldn’t mind something like C7, but would balk if it causes them to spend more money for fewer units once again.

In short, we don’t see C7 taking root. While such a change would certainly be in the interests of incumbent media owners, there’s nothing in a change to C7 that is in the interests of marketers to agree to such a change.

We argued several weeks ago that we see cross-platform metrics related to video viewing across devices – including VOD, the web and tablets, such as what would be included in Nielsen’s On Demand C3 and Extended Screen metrics – could become a currency (and not just used for make-goods), at least if networks aim to make it so. We continue to believe advertisers would ultimately exhibit indifference to having their guaranteed deliveries satisfied via the web, VOD or television. While many advertisers may believe there is something superior about a big screen TV commercial and would prefer that their TV campaigns be satisfied with traditional TV inventory, we think that when presented with an alternative choice of “following the consumer” with a single standardized metric they would accept the latter.

The adoption of a cross-platform viewing metric as a currency would better enable networks to expand the inventory they have for sale and at the pricing they currently receive for conventional TV inventory. If we assume that the transition from C3 to C7 adds perhaps 5% in incremental impressions (most DVR playback occurs during the first three days), then much more inventory could be generated from new platforms. Incremental consumption of popular programs on new platforms likely exceeds this 5% threshold to a substantial degree, and the opportunity for increasing ad loads is also substantial.

More importantly (given the weak hand the networks will play in the months leading up to this year’s upfronts), marketers would probably accept a cross-platform metric of some form willingly. However, the networks would still have to push it, because the industry will otherwise maintain a status quo, and this will hurt the networks. And so they should. It would seem inevitable – whether next year or in following periods – that networks will eventually push for measurement changes. But those changes which incorporate at least some mutual interest will ultimately generate more traction that lasts.

It’s worth noting that the French government’s efforts to change a currency by fiat ended in disaster for the currency and the country after several years, and John Law ended his life penniless and in exile as a consequence. Establishing and revising currencies can be a tricky matter given the wide range of interests affected, and so perhaps Law’s fate wasn’t so surprising to observers of the day. The same fate won’t likely affect the TV industry, however, at least as long as their power to impose such a change is limited in the near-term.

RBR-TVBR observation: We think that C7 will take root eventually, but not the way you may think. First off, C7 ratings should be bought against a significant discount, and C7 really only applies to non-time sensitive advertisers. Bottom line, given the opportunity to watch a program on your time rather than a broadcast schedule is the wave of the future with viewers, even though most currently watch within the C3 window. Eventually, more ads will be served in real time so that delayed viewing will not get stale ads but new and current ones. Then, they can charge rates closer to those embedded in real-time viewing.