A new pattern for spot
Olympics and national elections every other year mean local TV sales will become a roller coaster
By Steve McClellan -- Broadcasting & Cable, 9/3/2000 8:00:00 PM
When Chris Rohrs took over the Television Bureau of Advertising early this year, he had a tough story to sell. What once was up suddenly was down. In a nutshell: Local ad sales in 1999 were down for only the third time in the medium's 50-year history.
The key culprit in that drop was the stagnant national-spot-advertising market, the very sector that the TVB is dedicated to cheerleading.
National spot was down 2.4% in 1999-admittedly with a tough comparison to 1998, when stations took in upwards of $500 million in political ad spending. Add that windfall to sales related to the 1998 Winter Olympics.
But the local-spot market wasn't exactly robust last year, climbing just 4% over 1998. National spot and local spot combined (the pieces constituting the total local TV ad market) totaled $15.8 billion, a half-percentage-point drop from the 1998 total of $15.65 billion.
The first six months of 2000 showed marked improvement. Total first-half local advertising was up 15% to almost $8.2 billion, with national spot up 18% and local spot up 8.5%, according to TVB statistics released last week.
The second half of the year should be even better, when the bulk of political spending and summer Olympics is logged. And the fact that advertising-rich Olympics telecasts and major political races will now bump into each other on even years means that, for the first time, TVB is moving toward two-year forecasts. Inevitably, what goes way up during even years will drop, at least somewhat, in the odd ones.
Just wait to see what happens after 2000: Many on Wall Street and elsewhere see low-single-digit growth for local TV for the foreseeable future. Indeed, the stock-market experts have been brutally hard on local-television operators.
A new Veronis Suhler & Associates (VS & A) forecast predicts a relatively meager 3.9% annual growth rate for national spot from now through 2004. Total local TV growth won't be much better, the forecast states, with total local TV growing at just 4.1% a year through the same period.
Analysts say that the TV-station sector as a whole probably isn't going to show major revenue and profit growth over the next 12 to 18 months.
Lee Westerfield, broadcasting analyst at PaineWebber, predicts a flat year at best for local advertising in 2001, with a 2% drop in national spot and a 2% gain for local spot. The problem with national spot, he said, is there are simply too many competitors, including cable and radio.
Paul Sweeney, broadcasting analyst with Credit Suisse First Boston, agrees. Outside of political, "national spot just isn't growing," he recently told Broadcasting & Cable. "And if you're not No. 1 or No. 2 in your market, those dollars are even harder to come by."
And then there are big advertisers like P & G-which is having troubles of its own-that are spending less in spot TV, in favor of other alternatives, like highly targeted print publications. P & G's national spot spending has dropped from 13.1% of its ad budget in 1995 to just 6.7% in 1999.
It's against this backdrop that Rohrs, president of TVB, has to lead the company and help re-energize the national spot business.
Admittedly there are problems, Rohrs said. But he also contended that some projections-including the VS & A forecast-are too pessimistic about the outlook for local television and overly optimistic about the prospects for new media. (For example, VS & A says online advertising will grow at an annual clip of almost 40% over the next five years.)
"I don't think that today it's an effective advertising medium," said Rohrs, "and I remain skeptical that it will be an effective advertising medium during the period of the forecast [to 2004]."
Rohrs also thinks there has been a general "overemphasis on national media" on the part of advertisers and agencies. "I think there will be a correction toward local media that will benefit us."
The improved numbers for the first half of 2000, which TVB released last week, are ad dollars as they might be in any other year. In other words, Rohrs pointed out, the local-station broadcast dollars "aren't driven by political and Olympics advertising'' so, if anything, the second half of the year ought to be better.
But Rohrs said that the structure of the national-spot business has changed dramatically since the Olympics switched to a two-year cycle that coincides with a similar political-spending cycle.
He argues that odd years will now always have a tough comparison with even years, when both the Olympics and political spending kick in.
As a result, TVB's new two-year ad-sales forecasts will show the ebb and flow of the selling seasons. Next year, TVB predicts low- to middle-single-digit growth in station ad sales; in 2002, when another Olympics and political season heats up, the increases are in the "low double digits," as Rohrs sees it.
"There's an every-other-year rhythm now that's built into the system," he said. "And we just feel that, in planning and forecasting, we need to start recognizing that and looking at it in two-year cycles."
And if all politics is local, as the old bromide goes, then that's good for stations, too. "The political people have learned you win elections by buying local TV," Rohrs said, "not network."
But national spot has been sluggish, he admits, at a time when network TV advertising has been going through the roof.
Not long ago, a bull market for network advertising would trickle down to spot. Part of the problem now, he said, is that national spot with its market-by-market buying-and-selling process is cumbersome and less efficient from a cost standpoint.
"I think you have to start and say that national spot is suffering because of that trend" toward national media, he says. "Certainly, there is an ease and efficiency on the process side."
Having said that, Rohrs also contends that it's not acceptable for local television or national spot sales to grow any less than the rate at which total domestic advertising grows. "We will never be satisfied when our growth is less than the total advertising," he said. Good luck. According to VS & A, total U.S. ad spending will grow at an 8.8% annual clip through 2004.
The former Post-Newsweek Stations executive has a plan to spur the growth of national spot. With several new initiatives, a key staff hire and a plan to focus more of the organization's efforts on local spot sales, Rohrs is putting his own stamp on the TVB.
Among the initiatives:
A proposal now being presented to advertisers and agencies to create an upfront market for national-spot advertising.
A plan to implement industrywide electronic data invoicing by January 2001.
A broadening of TVB's focus that would include research and marketing support for local-TV spot sales, while continuing efforts to generate new national-spot business.
Rohrs, who succeeded Ave Butensky as president of TVB in January, hired Abby Auerbach earlier this year as senior vice president, marketing. This week, TVB will announce that Auerbach is being promoted to executive vice president, with responsibility for all marketing and research, and is "the clear No. 2" at the organization, Rohrs told Broadcasting & Cable.
One of the things that TVB was lacking, Rohrs believes, was a senior executive from the advertiser/agency side of the business: someone who knew firsthand the needs of advertisers, someone who also knew firsthand the frustrations of buying spot television.
Enter Auerbach, a 17-year veteran of Ogilvy & Mather and the agency's director of local broadcast since 1991.
"A marketing organization like ours has to be very customer-focused and have a good understanding and orientation towards the customer and what they are trying to do," said Rohrs. "We didn't really have that at the TVB in terms of the staff..I thought it was important that we have top leadership that was literally from the customer side, whose roots and background orientation and thinking approach were customer-oriented."
Auerbach, he added, "was a customer who bought and used and planned and understood the medium and other media for a long time."
According to Rohrs, the TVB's two top priorities right now are getting advertisers to carve out a piece of their upfront budgets for national spot and getting stations, reps and agencies to fully implement an electronic data invoicing system (EDI) by next January.
Clearly, the lack of a paperless billing environment is "holding us back," said Rohrs.
Currently, agencies accounting for roughly 80% of national-spot billing have EDI systems, as do all the major reps. But only about 40% of the nation's TV stations have such systems. There are also a number of different systems and numerous compatibility issues.
That's why Auerbach is spending almost half of her time working on EDI. "The TVB is committed to facilitating the search for and implementation of end-to-end EDI solutions," she said. "It's not just about electronic invoicing. It's about the entire transactional process [contracting, revisions, etc.]."
On the upfront battleground, TVB is talking to agencies about dealing national spot into the spring 2001 market.
The idea is to get advertisers to slice a piece off their network upfront ad budgets and spend it on national spot. In theory, that would be in addition to whatever those advertisers are now spending in the traditional national-spot market, which is bought and sold on a quarterly basis, just like local spot.
The pitch to advertisers is that they would get additional options in the upfront-which is always seen as a good thing if it helps play sellers against one another.
And, according to Auerbach, adding national spot would also give advertisers geographic weight to their upfront buys. "The research shows that virtually every product category is geography-driven. But there is no geographic target or emphasis in the upfront."
At the same time, she said, "you could also probably add some continuity to your advertising presence by adding weeks in crucial markets to national exposure."
The upfront market for national spot would also offer advertisers additional dayparts, such as prime time access and morning and evening local newscasts, Rohrs said.
As to how big a national-spot upfront market might be, Rohrs said a "realistic goal" is 5% to 10% of the dollars earmarked for the upfront market, "not in the first year but in the first few years." At the high end of that range, that might add up to $2 billion.
Executives at ad agencies say they're open-minded about the TVB proposal. "Anything that would give us added leverage in the upfront market is worth taking a look at," said Initiative Media's Michael Lotito.
But network executives said they don't think the plan is workable. "They have less supply and have to be more selective about the pricing they can do," said the head of one major network ad-sales force. In other words, the executive suggested, the networks can offer a better deal on a cost-per-thousand-viewers basis.
While EDI implementation and an upfront market for spot might spur some sales, some big companies, like P & G and other package-goods companies, are spending less in the medium.
Will Rohrs and the TVB be able to rekindle their faith in local television? "I don't know that we can right now," he said. "At the very least, we think it raises the question, did that [drop in national spot spending] have anything to with the erosion and sales that they're reporting?"
The TVB has made its case, and Rohrs expects to continue to talk to package-goods companies. "We know they built their brands on television, and I think they'll find their way back."
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