Uva: 'Something's Got To Give'OMD chief concerned about broadcast ad rates, touts cable alternative 9/21/2003 08:00:00 PM Eastern
When Joe Uva talks, ad people listen. Why? He's got credibility for one thing, having been a principle architect in the turnaround of OMD Worldwide, Omnicom's media planning and buying arm, where he assumed the top post in January 2002.
In his first year on the job at OMD (not OMB, as a typographical gremlin retitled the firm on our pre-printed front page this week), the agency picked up over $2 billion in new business and now has billings upwards of $8 billion, making it the fourth largest buyer of ad time in the industry, behind Publicis' Starcom MediaVest Worldwide, WPP's MindShare and Interpublic Group's Initiative. And it's closing in fast.
Uva's frequent flyer miles are probably the envy of the industry. Part of the turnaround story involves the expansion of OMD's international operations and he spent 23 weeks last year out of the country tending to those operations.
A few weeks ago, before sojourning off to South America, Uva sat down with BROADCASTING CABLE Deputy Editor Steve McClellan to talk about TV advertising in the U.S.
Uva is optimistic that the economy appears to be heading in the right direction. Among other indicators, the record TV upfront market—and the fact that most of the money is sticking—is a strong signal that advertisers see real opportunities to move goods off the shelves over the next 12 months.
But Uva has issues and probably first among them is the huge spike in ad rates that the broadcast networks continue to demand, year after year. As he says in the following Q&A, "Something's got to give."
There may be no single solution, Uva says. Instead, buyers, the big ones at least, can hedge their bets by considering mega deals with the big sellers that cover multiple media platforms for multiple clients. Uva did just that kind of deal with Disney (to the tune of $1 billion) that covered the 2002-03 broadcast season. And even though the Disney deal was not renewed, Uva says OMD still believes in the concept and is having talks with the big five sellers (Viacom, AOL Time Warner, GE/NBC, News Corp. and Disney) about similar kinds of arrangements.
What about just saying no to big ad rate hikes in the future? Easier said than done, but Uva's working on it.
One way to avoid those huge hikes—buy less broadcast and more cable. Having spent most of his career at Turner Broadcasting, Uva ought to know the value of the cable media. Fact is, he says, there are now cable networks that can easily substitute for broadcast networks in just about any advertiser's media plan.
The following is an edited transcript:
What's Job One for you over the next year?
Figuring a way to make sure that my clients don't pay double-digit increases on next year's upfront.
That sounds like a goal they'll appreciate immensely. Some buyers have proposed moving the upfront market closer to the start of the new TV season when clients have a better handle on their own budgets for the following year. What's your view?
That sounds very nice, but it's probably not practical. We think that each client has their own individual needs with respect to buying strategies. The one thing we do acknowledge is that all clients are looking for the same thing, which is a better return on their investment irrespective of what that strategy calls for.
Is the buy-sell process for TV ad time broken?
You can't say it's broken because we all participate in the process. I think that there is an opportunity to fine-tune that process. Whether it requires a wholesale overhaul, I'm not sure. But basically the universe today has consolidated to the point where it's four companies [OMD parent Omnicom, Publicis, WPP and Interpublic Group] on the buy side talking to five big companies [Viacom, AOL Time Warner, Disney, News Corp./Fox and GE/NBC] on the sell side.
What does that mean going forward?
I believe it makes discussions about long term agreements across multiple media platforms a preferred way to approach the market. It just makes more sense and I think would be to an advertiser's benefit.
You did the $1 billion Disney cross-platform deal a year ago. Is that the kind of deal you're talking about?
For big media companies is that the primary way to do business in the future?
I don't know if it'll be the wholesale future, but I think that we as an agency are prepared to have those kinds of discussions with media owners and with our clients if they choose to move in that direction.
But the Disney deal isn't being renewed for a second year. Does that mean that that kind of a deal does not work as well in a white-hot seller's market?
That's one way of looking at it. Another way of looking at it is that perhaps there were clients whose needs had changed, whose buying strategies were modified and the opportunity may not have been there to create that kind of a deal with that kind of scope. I don't think it's a one-way street because a deal like that, in my estimation, should be able to work in any market. But I can see how, from a media owner's perspective, that they might want to ride the white-hot market for all it's worth, which makes it very difficult to add value. However, what they have to remember is that there are ebb and flows. There are times of high demand, times of low demand and a one-year deal doesn't necessarily take you to a long-term relationship.
As for the upfront, I keep hearing from executives on the buy side how ticked off they were at the network price hikes. But what can you really do about it?
Just say no.
Just say no? But you guys aren't saying no. You're plunking down your money full speed ahead and the result was 15% to 20% price increases this year.
Well, I think there are certain categories, certain advertisers who have a far greater reliance on broadcast network prime time than others. I think that at the end of the day, it's not a decision that an agency makes alone, to say no.
I think that has to be done in conjunction with the client. As long as there is that finite supply that continues to shrink and diminish year-over-year in terms of available inventory—those seven nights a week across those six broadcast networks—and you have demand that's going to exceed that supply, it's going to be very hard to control the pricing in that medium.
To what extent can advertisers use cable to offset ratings erosion and price hikes on the broadcast side?
I believe that there are opportunities that we need to really explore on behalf of advertisers that may result in a shift of more money out of broadcast prime time into cable.
Given what has gone on in the media markets over the past few years, the fragmentation and the fact that broadcast has not been able to stem the erosion in prime time. The fact that each year, cable networks continue to get stronger—both in terms of their audience delivery and the composition of those audiences—and the fact that there's more original and first-run programming in cable.
How much more money do you think will shift?
That will vary by client.
Will most of your clients buy more cable from here on out?
We have a lot of clients who already spend a healthy portion of their budgets in cable. We have a client that spends upwards of 70% of its national budget in cable. I won't tell you who it is, but they realized the value years ago and it kept getting bigger. I think it's an inevitability.
Will the CPM gap between cable and broadcast ever close?
No, the CPM gap is always going to exist. In cable, you've got one medium that has an ever-increasing supply of inventory. As long as that pool continues to expand, demand will never catch up with the supply. So there's always going to be an opportunity for advertisers to increase their overall buying efficiencies by incorporating more and more of that medium into their television mix.
Is the gap consistent across the board?
Actually it isn't. One area where it's a lot closer is sports. Whether you're watching an NBA game on ABC or ESPN or TNT, you're watching an NBA game. It's still the Lakers and it's still the Nets.
Where else is the gap narrow? Or non-existent?
It's been narrower for certain award shows like the Screen Actors Guild on TNT. When they had it, the CPM was lower than the Academy Awards, but the gap wasn't as big. And in news, CNN and CNBC have been premium priced versus the broadcast news for years. They get a higher CPM than broadcast news.
So there are exceptions, but don't look for overall parity anytime soon.
So cable is always going to be, in effect, an efficiency medium?
I think it's a reach medium. I think it's an efficiency medium. There's been enough research out there that says that broad-based, fully distributed cable networks are perfectly suitable to replace broadcast network prime time from a reach standpoint, some from a quantitative standpoint and from a qualitative standpoint. You've got many of the cable networks who've invested a lot of money in original first-run programming and film acquisitions. Cable has the added benefit of a dual revenue stream. So they don't have to pass along all of that cost to the advertiser. The consumer's going to bear some of that cost as well and the cable operators.
Isn't there something perverse about the network position that despite a worsening performance, ad rates continue to skyrocket?
I don't know if I would use the word perverse, but it is an interesting paradox. For years now there has been a huge reliance on a single component of the national television marketplace, meaning broadcast prime time. I don't think it's going to change over the next couple of years, either. You aren't going to change that behavior and mindset and extract great sums of money overnight and redistribute them. However, I do think it's something that will evolve over time.
A lot of advertisers have operated in a near-deflationary economy. Not only are they unable to raise prices, they aren't even able to maintain price of goods, whether at the factory and wholesale level or end-user to the consumer, when you think about it. Yet the broadcast networks in prime time just keep ratcheting it up, ratcheting it up. Something has to give.
So if the "give" is budgets shifting to cable, how do you facilitate that?
Part of it is our role as media strategists and counselors to our clients. We have to provide strategically sound recommendations and evidence on how to not only make those dollars work harder and redistribute them but provide advertisers with the confidence and the comfort that by doing so will not have a detrimental effect on their branding, promotional spending or their ability to deliver the end-user.
And part of the effort there is your pursuit of integrated marketing strategies?
Yes. I think while integrated marketing is an interesting component of what we do, the process fundamentally starts with planning and the ability to really figure out the best way to reach those core consumers. Where are those consumer contact opportunities? How can they be exploited? How can they be leveraged together to create more value and more power for a brand or an advertiser to connect with that core consumer?
What does integrated marketing allow you to do?
I think it allows you to look across your target consumers and analyze and understand how they interact with specific media, specific media brands, specific media platforms. How they integrate the use of media into their daily lives. And it goes beyond electronic media. It includes sponsorship, point-of-sale, public relations, guerrilla marketing, word-of-mouth—anything that really allows an advertiser to build that stronger bond with that consumer.
So it's really an accumulation of impressions throughout the consumer's life.
But it's more than an accumulation of impressions. It's really about creating experiences for the consumers and creating an experience between the consumer and that brand or that service or that product that is going to build this bond so that it's not just a one-time purchase, but that there is a true integration of that brand into that target's life and lifestyle.
Is OMD trying to do Disney-like deals in some form or another with all the other big companies?
I think we're constantly talking to media owners about ways to better take advantage of what they have to offer and put it to work for our clients. I think that we want to be in a position where we fully understand the potential and value in each one of those media owner's portfolios, what the proper mix of those assets are for our clients and then how do we extract the most value from that relationship.
Has TV become less effective as the audiences fragment?
No, I don't think it has lost effectiveness at all. In fact, I think it's become more effective. Yeah, because I think now you have the opportunity to talk—you know, in the old days it was great because you reached a lot of people all at once. But people had limited choice. The more choice they have, the more opportunity people are going to take to watch what they want to watch, they're going to seek it out. If you can connect with them on a more personal level it becomes a more effective medium.
Do you lose sleep at night worrying about the commercial zapping potential of the personal video recorder?
I lose sleep over the fact that we seem to be spending more time anticipating the death of the 30-second commercial with the advent of PVR technology. There is opportunity embedded in the threat and we're not spending enough time trying to figure out what those opportunities are that will allow us to exploit it much the same way that the Internet has been exploited.
How much do product placement opportunities excite you?
Product placement has been around for a long time. You couldn't make television shows or feature films unless you had props, whether they're branded or not. We've come a long way from All in the Family when Archie would drink a generic beer. But there's value to it, it's more than just using it as a prop. When it's organic, it's an opportunity. We live in a branded world and as long as it's not over the top with somebody showing the Pepsi can and drinking the Pepsi or eating the Big Mac, I think it's important that you find opportunities for it.
What do you mean by organic?
An example that I like to use is when something in a television show or film becomes almost like an additional character whose presence is integral to the script and to the storytelling. Take the sitcom Saved by the Bell, an organic product placement would have been a situation where the kids went to McDonald's to congregate. McDonald's would be an organic fit. It's plausible, it's a gathering place and if it facilitated them coming together, it becomes integral to the whole experience.
So McDonald's or similar chains might have opportunities in shows that focus on teens?
Sure. For that matter McDonald's could have been Arnold's in Happy Days. People would expect that because that's what kids do. The same thing when you think about placement for other product categories. It's looking for those opportunities where there's a recurring chance for your brand to be so naturally integrated into the content that it doesn't whack the consumer in the face.