February 22nd, 2004 by Alan Moore (SMLXL) & John Nolan
A television broadcaster is a casino, and it plays by house rules. Rule number one ? the house wins.
Here's how it works. A brand wants to advertise, it needs to hit a key demographic, but it also needs those eyeballs by the bucket load. A broadcaster needs that brand's money. The broadcaster gambles on developing content which will attract enough of the right eyeballs so that it can unlock the brand's money. The gamble is that the cost of the programming across the entire schedule will be more than matched by spend of the brands through advertising and sponsorship. Historically in the commercial sector the house has always won. There has always been enough cash left after it has paid for the content for the broadcaster to pay shareholders, dividends and bonuses.
From a broadcaster's cost point of view, they have always kept content producers and owners at the end of a long chain. The true value or income generation capacity of key content has never really been passed on to the owners or producers. The broadcaster, the distributor of that content has been the true beneficiary of the value.
Another way of looking at it is that the brands have overpaid. The key benefits of advertising and sponsorship are not up for debate, not here anyway. The ability to deliver and then report on the ability to deliver has been the bedrock of the media planning and purchasing industry. However as the distribution market has become more complex with the addition of new distribution channels, everybody's margins are being squeezed. Brands are questioning the value for money of purchased media. Especially when the data, which they have been used to being consistently positive and transparent for the past 40 years, suddenly starts heading in a murky and negative direction.
So-called proliferation of choice has had a direct effect on the earning ability of broadcasters from advertising and sponsorship revenues. It has also hit the media planning and distribution agencies, which as a cost plus industry have found that they are chasing ever-tightening margins. For the Brand Centric Creative agencies any real or threatened downward spiral in the effectiveness of their creative pitch also puts under threat their ability to charge their clients.
Meanwhile some distribution channels have freed themselves from reliance upon advertising and sponsorship income. To subscription services, such as digital television and to a lesser extent 2.5 and 3rd generation mobile phone services, ad income is jam.
Bottom line ?
There's a fall in audience figures and resulting drop in income across the board for broadcasters from advertising and sponsorship. This fall is a direct result of the decline in effectiveness of purchased media to deliver audiences.
What does this mean for Broadcasters?
They have to free themselves from expenditure based on the income from advertising and sponsorship revenue.
What does this mean for Creative Agencies?
They have to rethink their brand communications to get away from brand associations and reliance upon purchased distribution and into content.
What does this mean for Media planners and purchasers?
They have to create the means of distribution within content to support purchased media plans.
What does this mean for Content producers and owners?
They have to look at forms of income other than broadcasters producing at risk.
Now there is no need to push any panic button, what I've just described is just a trend, it is not the end of a system which has meant that everybody has got paid, all along the line from the Creative Agency Planner down to the Broadcaster's sales force. But it is a significant trend.
The harbingers of doom who have predicted that the two-headed monster of proliferation of choice and technological advances in the guise of Personal Scheduling Devices such as Tivo and SKY+, would bring down the established media order have as yet been proved wrong, and long may they continue to err.
Broadcasters are not about to let open the flood gates and give airtime to agencies and producers who work directly with brands and create content to the detriment of a well established media purchase strategy.
Meanwhile brands are not about to clasp the bosoms of producers and distributors and risk the relationship with their loyal agencies, especially when the new guys carry no proof or rather even promise of future proof, whereas the old guys have been backing up their deeds with facts figures and research since the first meet.
But Advertiser Funded Programming does not belong in the same obsolete file as interactive television, 3G video, or Internet bannering for that matter. Although it has been much heralded and not really arrived it doesn't for once mean that it isn't coming.
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