Wachovia: C3 ratings a “short-term fix”


In a recent Wachovia-sponsored client conference call with Jason Maltby, Co-Executive Director of National Broadcast at MindShare NA, provided his perspective on the relevancy of C3 ratings data.


* C3 ratings are not perfect: In the latest upfront, C3 ratings were the currency of choice as 1) they tend to focus on a more direct trading currency (i.e. measure the number of commercial viewers rather than merely the size of a program audience) and 2) they help to sustain the broadcast business model (i.e. offset broadcast viewer declines with longer playback period). However, the drawbacks associated with C3 ratings, such as 1) the lag time between when a show airs and when its ratings are available and 2) the lack of historical data for baseline comparisons, leads Maltby to believe that an alternative form of measurement will be needed in a couple of years.  At present, he assumes the new ratings system will include aspects of both Census-Based Audience Metrics (set top boxes) and Nielsen ratings, in order to better represent the population in demographic detail.

* C3 ratings are yet to affect the ad mix: Maltby is not surprised by the C3 data trends and does not believe that a change in marketing mix has occurred due to the new ratings system.  However, he does believe that other secular issues may cause advertisers to reevaluate where they allocate dollars in the future.  The most pervasive issue is the likely growth in DVR penetration which is expected to reach 45-50% in the next few years, up from 20+% that is estimated today.  This increase in DVR usage is expected to lead to additional commercial ratings declines (unless advertisers improve the creativity of their ads), which would force advertisers to reallocate budgets in order to regain viewers.

* Scatter market remains robust despite C3 ratings: Maltby stated that scatter pricing continues to be up double digits over the Upfront due to a supply squeeze.  Historically, broadcast networks have set aside enough inventory to cover 5-7% of Audience Deficiency Units (ADUs); however, due to continued under deliverance of ratings ADUs are now 7-10%. As a result, more inventory is being allocated to makegoods, which has reduced the available inventory and in effect pushed up scatter pricing.  This could become an even greater concern if the WGA strike is not resolved in a timely fashion and ratings continue to decline, thus forcing networks to a point where ADUs won’t suffice and cash may be returned.

* Cable nets are likely to benefit from C3: While the impact of C3 varies by network, Wachovia think viewership at cable nets like Discovery/Scripps will benefit over time, with the robust scatter market likely to continue.