Gerster's Advice: Wise Up

Initiative Worldwide CEO says networks—and advertisers—follow an outdated rule book

Initiative Worldwide CEO Alec Gerster has some advice for advertisers ticked off by last year's hefty network upfront price hikes: Don't get mad, buy cable. Or broadcast spot or syndication.

Alternatives that serve your marketing goals are out there, he says, and the smart buyers are finding them.

TV buyers, he adds, are likely to turn to non-broadcast network alternatives in 2004, given what buyers considered piggish behavior in networks' double-digit rate hikes for prime time and other dayparts in last year's upfront.

But there are other reasons to consider alternatives, Gerster says, not the least of which is the network on-air environment, one so cluttered with non-program fare that some commercials are probably "useless."

In fairness, however, the ad industry has to take some of the blame for network TV's over-commercialization. Clearly, some advertisers buy gobs of network time out of sheer habit, when they would be better off, both financially and strategically, if they weighed the alternatives more carefully.

Advertisers can also take steps to make the network airwaves
less cluttered: easy ones like varying commercials enough that viewers aren't bombarded with the same silly spot 15 times an hour.

In fact, he says, as ratings continue to slide, network TV is becoming increasingly scarce and valuable for reaching the mass audience. If you buy it, use it wisely. Maybe not every spot will debut during the Super Bowl, but, if advertisers and agencies
think in those terms more than they do now, they will stretch the value of the network dollars.

On the eve of the annual media conference of the American Association of Advertising Agencies, Gerster sat down with B&C Deputy Editor Steve McClellan to discuss industry trends. He had plenty to say.

Were you as angry as some of your counterparts about the 2003 upfront price hikes?

If I was angry, I'd be angry at our own industry for being angry.

What do you mean by that?

By that I mean, what are you—the agency and advertiser—doing about it? You don't have to be rocket scientists to know we've gone through this before. The angry buyers are applying the old rules to the situation, and they are applying the rules into absurdity.

The people who will do better in this world will find the underlying patterns of value in things other than classic prime time television. Or find the underlying patterns of value in prime time television that are specific to their product and service. And make sure you have those, and maybe you pay a premium for those. But you'll pay a lot less for the other impressions if you seek and find alternatives than you would if you were just going to say use prime time for the sake of prime time.

If the networks demand double-digit increases for prime time this year, will you say no?

The way I would answer that now is to say I would hope to create a situation where my clients are not faced with that.

Given all the hew and cry about the 2003 increases, is '04 going to be the year that buyers draw a line in the sand on price increases?

You can't draw a line in the sand, then go step over it. You move the share of the cable up, or to local broadcast, or to local cable. There are options out there.

What it really points to is, at the end of the day, you need a very smart understanding of what is truly valuable to you. And what is truly valuable to you is different than what is truly valuable to another advertiser. Then the chances are, you can probably do pretty well. When you think that what's important to you is the same as what's important to everybody else, then it's a basic supply-and-demand issue. That will drive price.

Clearly, in your view, there are alternatives.

There are alternatives. They have to be worked out. But they are absolutely there.

You don't have to go out and blindly use prime time television. That's Rule No. 1. You just don't have to do that. You can certainly use prime time if you understand where, for your particular product or service, it really makes a difference. Conversely, there are other things out there.

Cable executives say they think they can take 10%-15% share away from broadcast in this year's upfront. They base that on conversations with buyers. Is that realistic?

I think that number is high, but I think some advertisers are seriously considering all the viable alternatives, including cable, broadcast spot and syndication. It's related to the earlier question about network increases. If there is enough demand to justify a double-digit price increase on network, either people haven't really done the price/value relationship of other alternatives, or advertising budgets are up overall so that you're getting those kinds of increases across the board. I don't think that will be the case. So I think you will get a lot of pressure to keep the broadcast-network increases to single digits.

Who stands to gain the most if the networks demand more?

Probably no one place is going to get it. Everybody is talking up the fact that they're mad as hell and not going to take it anymore. The question is, was it egregious enough last year in terms of price increases to get the buy side to deal with the macro price/value issue. And I think they are. By definition, that will mean a reduction in the ad dollars going to classic network television.

Give an example where cable can replace network.

One of the fun things about having all these channels out there is the ability for people to get a lot of different types of programming. One of our largest clients is Home Depot, and we're out there with everything from This Old House
to Trading Spaces. But we're in there for probably over a dozen programs that directly address the home-improvement agenda. Go back 20 years. You wouldn't have that because you didn't have the channel access. Guess what? The home-improvement category likes this stuff.

Why don't more dollars follow the gross rating points away from network TV?

That is the real question. There are many possible reasons. Is it because people have bought into prime time as a materially different beast on a broadcast network than it is in other places? Is it because they've bought into an NBC Thursday-night franchise as materially different than other options out there? If you're a movie company, you'd say yes because you want to open on the weekend. Or somebody thinks it through and says I really want to be in prime time because I've got a retail sale going on that weekend.

Is it worth it?

If you really do the math, you probably figure out that it's not as crucial as you think it is. Some say they want to be in prime time for higher average ratings. They may be putting value against something that, when the analysis is done, isn't worth the premium.

What about the "gut feeling" of simply needing to be in prime time because that's the way it has always been done?

Sure, there's emotion, preconceived ideas and history. Would General Motors or Toyota launch a new car without prime time television? Chances are, right now they won't. Maybe in three or four years, they will.

What about the buy-sell process?

The upfront is an inefficient market. It's a non-liquid market. Its timing is bizarre. It's based on something that goes back 40 years, as far as I can remember, based on new-car launches. It is what it is because nobody else knows where to go next.

You say it's inefficient, but business gets done every year. The system works, doesn't it?

What's your definition of work?

Is there a better way to make it work?

There are absolutely different ways you could go.

How would you improve it?

The first thing to do is change the timing. The [September-to-September] broadcast year doesn't make sense in today's business environment. Look at where the majority of companies today have their fiscal years. They're aligned with the calendar year. But the fourth calendar quarter is the first firm quarter for TV advertising budgets based on commitments made in the spring well before the budget-planning process. Does that make sense? I don't think so.

What else?

How about a liquid market where you can get in and out at any time?

Making firm commitments that far out [as much as four quarters] does not make sense in today's volatile business environment.

Isn't that the tradeoff for ratings guarantees?

I might have to pay a premium to get in. I might get a discounted refund for getting out. Does that mean I don't have guarantees? Maybe.

But let's say you determine that you want to hold money back and are willing to risk premiums in scatter. You still have a problem because you may find that you're sold out. And if it's sold out, you have no way of getting in.

Sure, if you are a player like us, you can create a way to do it, but you're forcing the issue.

Why don't the biggest advertisers create the rules by which this process is conducted?

The short answer: consensus. It would help if everybody said we'd like to see it go this way. The easiest thing to do is figure out a way make the broadcast year the calendar year. But you need consensus to make that happen, and there are few things that the industry totally agrees with. The other situation is, you've got to have the networks being willing to make some of the other changes. They have to be willing to loosen up control of their inventory.

Do the broadcast networks retain a unique role in marketing products and services today?

I think there are times when they do. I don't think the advertising industry has really been as discriminating as they should be to understand when in fact there is true value and when there isn't.

Take the Super Bowl, for example. The fact that you're spending the kind of money you are in a Super Bowl [this year, $2.3 million per 30-second spot] means everybody pays a lot of attention to it. Advertisers make sure that they are introducing commercials or campaigns or new techniques and really think about detail and their creative product.

So the industry needs to pay more attention beyond the big events to maximize their investment in network television.

Yes. And I think you have to realize that your opportunities for large audience aggregation are just going to be less and less. But they'll probably be owned more than not by network television. Also it means, when you do it, you better use it well, because it's going to be expensive.

Talk about the TV environment and increasing commercial clutter. How disturbing is all this to you?

I think it's horrendous. We are way beyond the point of diminishing returns in trying to push the 30-second model in this world. Sometimes we're our own enemy. Commercials are part of the channel experience. It's interesting how little it seems the networks and stations care about their channel experience. They seem to divorce commercials from their program content.


Certainly the cable networks do. They don't think about the fact that somebody is sitting at home. They are looking at the content and the commercials, and they're also part of the same channel experience.

How are you your own worst enemy?

The advertising industry does not manage our part of the channel experience very well. We'll take copy, and we'll run it to the ground. And nobody cares. You'll get a cable network who'll have some traffic algorithm that just picks things up. Next thing, you see the same commercial run 15 times in the same half-hour. You want to go through the set and strangle somebody.

What are you doing about that?

We have to manage our creative spots more intelligently. Are we thinking about our pool-outs [different variations of commercials in the same campaign] in ways that can enhance the channel experience? Nobody thinks about it that way. Do certain spots resonate better in the morning than the afternoon or early in the week rather than later in the week?

Given all you've just said, is there a real threat that the 30-second spot will just become useless?

In some situations, I'm wondering whether it's not already useless. If somebody hasn't refreshed their copy, if they run the hell out of it, for all I know, it's doing a disservice as opposed to adding sales.

Would you be willing to pay more per spot for a less cluttered environment?

The industry hasn't been. When people have the choice between lower cost per thousand and less clutter, they tend to take the safe choice, which is lower cost per thousand. That may change, and there are exceptions, such as Ford with 24. We did it with Nextel and the CBS 9/11 special two years ago. Clearly, that was a case where an obvious commercialization would have been inappropriate.

What's your personal view? Is it worth reducing clutter by paying a premium to the networks?

It could be. There is nothing wrong with a premium if the evaluative work has been done. At this, I don't think you'll get consensus on it.

Okay, we get it that commercials are a business imperative. But, if the viewers get so fed up they leave, goodbye, business. Is enough attention being paid to the viewer?

No, I don't think so. Otherwise, we wouldn't be doing what we're doing. This is where we are walking backward into the future. We keep taking what has worked for 30 years, and we keep pushing it and pushing it and pushing it, thinking somebody is going to sit still for a three-minute pod. Maybe if you grew up in the '50s, you'd still sit back and watch it and deal with it, but there's no way younger audiences will do that.

Are you reaching the younger people at all?

In fact, it's interesting because we find that, when you look at 15-second versus 30-second communications, these kids get it. The patience level of the younger audience is lower. Are they are going to sit through three minutes of spots? I don't think so.

But it's not just kids. Have clicker, will click.

We all do it. That's why the advertisers are all bent out of shape because they do it. If I'm doing it, my customer is doing it, oh my god! Why wouldn't you do it?

Talk about client expectations from their agencies. What has changed?

It's no longer just about flowcharts and weekly GRPs. There is a lack of confidence that they can take the conventional media plan to the bank.

And it makes them seek out more-creative ways of using media and demand a more creative perspective on how to do it. It forces us to go beyond the numbers and talk about how we really feel that we can extend what they are trying to do with media in ways that are more activating than just putting their product in a 30-second commercial.

There's this real thirst to hear intuitive and creative ways as to how the media is interacting with the audiences and how we can turn that to our advantage.

What else do they want?

They are paying more attention to the analytical side, what we call the econometric modeling side, as we are able to capture competitive, transactional and other data more completely. All of a sudden, we were able to analyze the many marketing variables out there in a more efficient way than we have in the past. So the advertiser can begin to see whether their radio buy is really driving a return but daytime television isn't, see how the Olympics did against high-creditworthy customers. So you've got to be intuitive and creative in setting the media programs up, and you have to be more proficient in the analytics to be able to come back and say it's working.

Let's talk programming content. The WB cast a porn star, Ron Jeremy, in one of its midseason shows, Surreal Life. This is a network that targets 12- to 24-year-olds. How much of an issue is that for you or your clients?

It's disappointing especially for The WB. How could you do that on the same channel that you have Everwood
on? Especially doing as well as they are with Everwood. So that's a letdown.

It's not like all their shows are squeaky clean, don't get me wrong. But I always thought that they did a good job and did it responsibly and interestingly. They have a wonderful franchise. I was disappointed to see somebody like that do that. I don't think they have to.

What's the harm?

The networks are brands unto themselves. If you go too far out of what your brand represents to your audience, the audience will slap you down. If The WB goes too far away from its brand at some point, they'll pay the price.

But it's not just The WB, is it?

No. I mean, does CSI
have to show as much gore as they do when they do? They didn't start out with that. I think they underestimate the quality of their writing, their talent, and the concept when they do that.

How much input should advertisers and agencies generally have in content in programs they buy time in?

I don't know there's an easy answer to that question. Obviously, advertisers have had a lot to do with what's on the air over the years. I don't think anybody has ever been uncomfortable with that because, in the end, it's the consumer who votes. If the consumer feels that you were ridiculously commercial in how you handled something or you were over the top or you really insulted their intelligence, they'll figure it out.

Two of your clients, Coors and American Express, were involved in The Restaurant
last summer. Some critics thought the whole effort was way over-commercialized.

But the viewers didn't. We did our own research on The Restaurant
when it was running this summer, and we found that the people who were viewing that knew exactly what was going on, understood it, understood why it was there.

You've done a lot of research trying to understand differences between viewers, comparing those who are really focused on what they are watching--the "fully engaged" viewers, as you put it--and those who aren't. Do you have a good handle on that issue now?

We've got a good handle on it, but there's a lot more work to be done. We've been working with the MIT School of Comparative Media Studies, which has spent years looking at how consumers do interactive media and when they are engaged.

What's the point?

A lot of it helps us activate. If you're going to go out and pay a large price for a media property, how do you activate that situation? How do you extend the experience beyond just the 30-second commercial.

What's the single biggest technology issue facing advertisers?

I think the PVR-type capability. As this stuff gets out there, you end up having a bipolar reaction to it. On one hand, the consumer can increasingly avoid unwanted communication or communication they don't feel is relevant. The other side of the coin is, they see something that they want, that they're interested in, they can get so much more of it.

So it's both a challenge and an opportunity?

Yeah, if you play it right. You have to, on the one hand, try and make your stuff as interesting, compelling and relevant as possible, so people will stay with it. And if you do that, at the same time, you allow them easy ways to get more of it. You're ahead of the game.

A lot of media executives are very afraid of the PVR. Are you?

It is scary, and it is a challenge. We videotape the opening of various shows and split the screen and put a PVR household on one side and a regular household on the other. You watch it. All of a sudden, you see the TiVo part as they fast-forward through everything and go onto content. You watch the other side. You watch three minutes eight seconds of one message after the other after the other and a promo and a message.

What is the lesson?

You realize what we're expecting the consumer to put up with, and it's an awful lot. So what we have to do is begin to recognize what is it we're actually asking these consumers to put up with? Say to yourself, would you put up with them? That's what scares everybody the most.

So with all this change swirling around, what happens to the industry rulebook going forward?

I think it gets rewritten. One of my favorite examples is what's known in the analog world as traffic. It's something that we don't spend a lot of time thinking about. It's a very clerical position. The only time you really care about it is if you mistracked a commercial.

Along comes digital, and you can warehouse your creative in a central place and then serve it out to the different media as they call for it. By doing that, all of a sudden, you get a totally different perspective on the activity that's going on.

It took what was the least value-added thing that most people do in an analog world, traffic, and turned it into a highly strategic product in the Internet world because you could see exactly what paths were going where, which was working where, shift them and change them on the fly.

How does that apply to digital TV?

All of a sudden, you might find that the most powerful part of your organization going forward is your traffic department, where you're now paying somebody $1.25 an hour to send out cassettes to various television stations. It's just one example of how things get turned on their heads. If you keep thinking about how old rules apply to the new environment, you're going to miss the opportunity and continue to apply value where value doesn't necessarily exist anymore.