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Walking Proud

Syndicators like their odds for 2004
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With advertisers resisting paying more for broadcast networks that are delivering less, syndicators see nothing but opportunity. And they're taking aim at cable, too.

Their pitch? Network is too expensive. Cable is too inefficient. And syndication is just right.

That's the message five top sales executives were sending out when they sat down with B&C's Steve McClellan on the eve of the second annual conference of the Syndicated Network Television Association in New York.

The players: David Barrington, senior VP, advertising sales, Twentieth Television; Elizabeth Herbst, executive VP, advertiser sales, Universal Domestic Television; Marc Hirsch, president of Paramount Advertiser Services; Michael Teicher, executive VP, media sales, Warner Bros. Domestic TV Distribution; and Howard Levy, executive VP, advertising sales, Buena Vista Television and chairman of SNTA.

They sound more than ready to do business.

Were the broadcast networks and syndicators too greedy last year in their demands for double-digit rate hikes? The advertisers sure think so.

BARRINGTON:
This is a supply-and-demand medium. So were there a handful of instances where people were very aggressive? Sure. But at the end of the day, it was because the money was there to support it. Obviously, the money is there to support it because we're helping to sell their product.

HIRSCH:
I have to differ with you. Greed is a bad word, for starters, and I agree with Dave that it is indeed a supply-and-demand marketplace. The networks established an increase base, if you will ... [but] in fact, for about the fifth or sixth year in a row, for all intents and purposes, our increases were less than the network's. So I view it not as a matter of greed. It's a matter of trying to get the greater parity that we believe in some cases we need.

That doesn't change the fact that a lot of buyers were unhappy with the way it played out.

HERBST:
The fact that there is no control over how much money is in the marketplace, that's the thing that I think sometimes gets missed in the discussion.

Yes, we can all have a conversation about what we feel is a fair price for our product, and we all probably have different opinions about that at different points in time. But it is the agencies and the clients that present their dollars, and we can only react to what is put in front of us.

BARRINGTON:
To further a point that Howard started on, look at pricing over the last four or five years.

Because of the hit we took three years ago, a large number of programs are still paying lower on a CPM basis than what they were prior to going in and taking a big whack. I know some of the first-run daytime product, absolutely, is a lower cost per thousand.

It'll take years for us to get it back.

TEICHER:
One further point on that is, along with falling network ratings, there is less original network programming, which compares to the consistency of our programming. That's one of our best selling propositions, that, 52 weeks a year, what you buy is what you get. There are no substitutions.

Your clients say they aren't going to pay more than low- or mid-single-digit hikes this year even for the A-tier shows. How do you feel about that?

HIRSCH:
It's February. It will be March when the article appears. We will probably be 21/2 to three months away from actually having those conversations. Every year, there's a reality that sets in. And all of us on the buying and selling side come to grips with that reality. As sellers, we then have to decide, are we willing to sell our goods for what buyers appear to be willing to pay or do we want to take our chances? And buyers face the same choice.

Will the networks go first in the next upfront?

Hirsch:
All I can tell is, if the networks do go first again this year as they have, and if the networks are getting mid single digits, and somebody wants to pay mid single digits with me, I'm going to have a choice to make. I suspect we'll make it at that time.

How big is the business now on a yearly basis? Is the SNTA tracking that yet?

LEVY:
No, we don't track it. What we may do is have everybody submit their numbers to an attorney. We haven't done it. But I can tell you that there's been a lot of growth in the business. I don't have the number right here.

What's the best estimate you have at this point?

TEICHER:
Probably in the $2.5 billion range. That's probably as accurate as any. That might even be a little conservative.

LEVY:
The important point is the business has shown growth. I don't know if it's $3.3 billion or if it's $2.8 or $2.5. But I think that our programming has gotten far more attractive in the last few years.

We've had a terrific run in terms of the programs that are out there. If you look at last year's upfront, we were coming off a year where Dr. Phil
was launched. Millionaire
was launched, That '70s Show
was launched, Will & Grace
was launched. So we had tremendous wind behind our backs in terms of our programming. I know that there was growth in a lot of the sitcoms.

HIRSCH:
I think ET
has shown some growth in its 23rd year. It's just amazing.

HERBST:Maury
had its best ever sweep in November.

TEICHER:Ellen DeGeneres
just came out last year. Sharon Osborne
just came out last year. But it's not just new shows, like Howard said. It's the fact that our existing shows in many cases. Oprah
and Access Hollywood
are growing in ratings.

When's the last time you heard that broadcast [network] ratings are growing?

LEVY:
Our demo growth for Live With Regis
is up in the 25% range on our key demographics from five years ago.

HERBST:
Also, if you look at the shift in eyeballs, in daytime specifically, there's been a migration from network over to syndication where syndication now captures almost two-thirds of the available audience.

So if things are clicking, what's your outlook for 2004?

HERBST:
My boss likes to say that's like forecasting the weather. Really, how we like to look at it is, we adjust to the market as it comes.

BARRINGTON:
If you look at what's going on in the marketplace, as Howard alluded to earlier, with the ratings and ratings erosion of the network, the networks are not going to be able to suck up as much money as they used to, particularly the two weblets. It makes sense that advertisers are going to come here as opposed to skipping over our medium and going to cable.

HIRSCH:
While no one can predict today whether the upcoming market will be up or how much up, we'd all like to think it'll be up because of the strength that we're experiencing and the weakness that both the networks and to some degree cable are experiencing.

Cable is only growing because there are so many cable networks that keep coming on to grow the aggregate number. The individual cable networks are not growing. So we'd like to think our share of the marketplace is going to grow.

Yet there is all this talk that potentially the biggest of piece of business leaving the broadcast networks may go to cable.

HIRSCH:
If you want to take some money from the network and put it somewhere because you think it makes sense, I agree with that. But I think the place to put it, when you see the growth stories that we have in this industry, is with us, not to give it to cable.

If you want to replace a 7 or an 8 rating on the network, why do you want to go to a 0.7 or a 0.8 when you can replace like ratings? We have shows, like Entertainment Tonight, that almost do a 12 rating. The other week, we had shows in the 7's, 8's, 9's. These are network-type ratings.

About 18 months ago, you all made a major commitment to bulking up the SNTA with additional funding and resources. Is it paying off yet?

TEICHER:
Well, I think largely it is. Today, we have what I would consider the ideal candidate in Mitch Burg to run the organization. He's a strong leader, a media practitioner from the classic sense, and he's proven his ability to grow a business.

Is the basic mission of the SNTA about improving the image and the fact that advertisers don't seem to fully appreciate the value of all that syndication has to offer? And why is it such a constant battle?

BARRINGTON:
It's a frustratingly constant battle. But it is a constant battle, and I do think the organization has to be there to address groups like the Cabletelevision Advertising Bureau. The CAB years ago did a great job building their organization and their medium. The first priority is selling the medium as opposed to going in and selling our own product.

TEICHER:
I think you also have to understand that, during the roaring '90s, perhaps an entire generation of agency planners were not as well sold to on the value proposition of syndication. Therefore, we're a little behind where we'd like to be.

However, companies like ours have made a dedicated effort over the last year or two to see a number of planners and a number of clients across the country. It's not that our agency partners or clients don't understand it. They just haven't been exposed to it enough.

So it's more of an educational process. I believe that word is getting out there very strongly right now.

HERBST:
You talked about image, and that's part of it. I think it's a combination of continuing to raise the profile of syndication, along with getting people more educated. It's that dual focus that will raise the tide.

LEVY:
Why should Regis and Kelly
have a syndication identity where The View
has a network identity? These programs are all good TV shows.

HIRSCH:
Right, and the viewer doesn't distinguish. Industry "insiders" know the difference. But the truth of the matter is not even all of us do.

Buyers know who we are. But the clients and the planners have been the focus of what we want the new revitalized SNTA to be, and I think it's going to take some time. Everything is not going to happen tomorrow. There is going to be slow and steady progress. I think we will be viewed in a much more positive way— we're viewed negatively right now— in a much more knowledgeable and therefore positive way over the course of time. That's what the SNTA is charged with doing.

The syndication industry has been full of popular shows for at least 20 years. But to hear you talk, you'd think the perception among your client base is that they still think syndication is like wrestling back in the '50s or something.

HIRSCH:
Talk about going back to the early days of syndication. The truth is, when syndication began, there was a fairly limiting program profile. It appealed primarily to women. It was daytime programs. But a number of things changed then.

Fame
came on and changed that. The profile became younger.

We were fortunate to have two programs 15 years ago, Star Trek
and Arsenio Hall, which appealed to men. Then the big shift came when all network sitcoms began to come into syndication, and a whole other group of advertisers came in.

So you have three or four major shifts, which went from a primarily female-advertising-based medium to a medium that all of a sudden can reach everyone.

How has the client base grown over time?

TEICHER:
Two years ago at Warner Bros., we had about 200 clients. We have 300 now. That's in two years. Additionally, I've been on the road recently seeing clients who have not bought syndication in years or who have never bought it. And I've never had the door more wide open to seeing us and seeing what the opportunities are.

If you're at 300 clients, you're getting pretty close to full penetration in terms of the national TV advertiser base, right?

TEICHER:
There's more than that. Certainly cable has a lot more. A bunch of that is financially driven, where your dollar perhaps goes a little further based on a unit-cost basis.

There are still more advertisers on the networks, certainly, than in syndication. But, without doing a specific count, I'd be willing to bet there's a solid three to four dozen that we would really like to capture in the Fortune 200 and move them more towards syndication.

Let's get back to the point we were making earlier about the buyers threatening to shift money to cable. That's the talk, and I guess the challenge for you is to shift or rechannel whatever money does leave broadcast to you guys. What's the plan?

TEICHER:
First of all, I believe clients and our agency people are really smart and are going to build and buy media plans based on what's right for building the client's business, devoid of emotion and devoid of ego. It's business.

Having said that, it would be disingenuous to say that cable doesn't have a role in the media mix. However, cable can generally be bought very differently than network or syndication. If a landslide were to be contemplated to go to cable, that means lots of clients would be buying [cable] networks 40, 50, and 60 deep. Once you get past the first 10 or 20 networks, you have to buy an awful lot of spots to ever hope to achieve the rating points you could buy in syndication.

Are you saying money won't shift to cable?

TEICHER:
No. Will some money shift? Sure. Based largely on more networks, based partially on some niche networks, based partially on some thriving networks.

HERBST:
Yes, but I think some will go to syndication as well. ... You look at daytime specifically. The average rating of a network show is around a 3.0 for daytime. The average rating in syndication for daytime, give or take how you define daytime, is about a 2.7.

The average rating of the top 10 cable networks—not the 50 deep that Michael is discussing—in daytime is a 0.6. They are not even close. So it's not really replacing inventory. Can you buy it.? Yes. But it doesn't do the reach that you need.

LEVY:
And it becomes a numbers game. As Michael said before, you have, to a large degree, a lot of people already buying cable. The cable client base is bigger than the one in syndication and probably comparable to the one in a network.

So they are buying cable, and they are probably buying pretty much the top cable networks. You look and you say, okay, I'm going to take a 7 rating away from network. You are already buying the highest-rated cable shows, the 2 ratings or whatever the high point in prime time is. So now you're buying the 0.1's and 0.5's in order to make up those 7's.

And the clients will go crazy if you put four or five spots in the half-hour or hour, which is what you'd have to do to get all the gross rating points you need. So just physically, how many units can you place into cable?

HIRSCH:
If they are going to pull some money away [from broadcast], why go from a 7 rating to a 0.2 on cable when there's a 5 in syndication certainly in between? There are 7's and 8's to replace the 7's and 8's. The clients are smart.

To some degree, I think we have to be realistic. It's a great sound bite to say a billion dollars is going to move. But no one person is controlling that billion dollars. So if someone makes the comment on the assumption that they're going to take some money from network, it makes great press. I think we have to look at that statement to some degree as sending a message.

HERBST:
And in part that message says we're going to be looking for alternatives. That's an opportunity for us.

So if they are looking, that means they are looking again at us and our value proposition, and I think we only serve to benefit from that.

Of course, the flip side is the message comes every year around this time. Most years, advertisers will just spend the money on network. But as network numbers have continued to fall, why haven't more dollars followed gross ratings points (GRPs) to other media?

TEICHER:
Some habits are hard to break. I think some, not all, advertisers are a little bit conservative and a little bit resistant to change.

But I think the culmination of all the market forces taking place at the same time—big price increase, declining ratings, and canceled programs that force some of your GRPs into shows you didn't buy—have really fueled a more genuine look for alternatives, some of which are outside of television trying to reach this ever-moving consumer.

Is the upfront model broken?

HIRSCH:
I'm not going to say it's a perfect model, but it's been going on this way for 20 or 30 years. If somebody wanted to sit down and have an industry panel and explore a new way of doing it, I'd be willing to be on that panel. I'm sure most of the people here would. But is it broken and has to be changed? I don't know what's so broken about it.

We couldn't not ask about TiVo. It doesn't need a personal video recorder to avoid commercials. All it takes is a remote. How many people do you think are actually watching the spots now? Is that something you're almost afraid to ask?

HIRSCH:
This is a problem that everyone is looking at and no one knows the answer to. I can go back to when VCRs became popular and everybody was worried that people would blot out the commercials. It didn't happen. Most people are still incapable of getting the "blinking 12" off the VCRs, and the technology didn't make it friendly enough to do that.

TiVo does indeed present a new technical challenge because it is a more advanced system.

HERBST:
On the positive side, it's an alternative platform that allows for time-shifting your viewership, which allows for a further extension of the brand.

Look at The Sopranos. It's on four or five times a week. You miss it on Sunday, it's okay. Everybody would worry that, when Law and Order: SVU
on NBC was on USA, it would hurt the ratings. But the aggregate eyeballs of the people who followed the show helped build the brand, and that's a good thing.

How does time-shifting impact advertising?

HIRSCH:
There's a difference, I think, between The Sopranos
and ad-supported programs.

If an advertiser running a date-sensitive campaign—say, a McDonald's with a promotion that ends this weekend—runs a commercial with any of us, we're running that commercial this week.

Time-shifting those spots creates a degree of confusion that you don't have right now.

HERBST:
But I still think it gives an opportunity to build the brand. In a world with clutter and fragmentation, that's an important thing as well.

TEICHER:
I have a slightly different take. First and most obviously, if our industry puts our head in the sand and is naive to believe that this technology isn't a threat, shame on us.

However, I do believe we have very strong recourse against it. The largest cable companies in the United States and the satellite services are already developing high-end digital cable boxes with PVR capabilities.

In order to protect our own business models, I suspect we will have virtually every function that TiVo has and Replay has with one exception: commercial-skipping capabilities.

We're doing it at Maestro at Time-Warner. I'm going to guess that, if Rupert Murdoch creates his own PVR functionality, DirecTV will not have commercial-skipping capabilities. I don't think Comcast will, and I don't think Cox will or the rest of the cable industry.

LEVY:
Also, a lot of syndication programs are shows that are viewed as they're actually on-air.

Why watch Entertainment Tonight
four days from now? Or Regis and Kelly? Or certain news programs or Good Morning America
or Ellen. A lot of these things are topical in nature. They are filmed either that day or the day before.

Certainly a program like 24
is ripe to be time-shifted. Otherwise, if you miss that episode, you've got to catch up. There are other programs that you turn on the TV and you either view them or you don't view them. They are less likely to be time-shifted.

HIRSCH:
It's created in advertisers' minds this need for what you call the program placement, organic product placement, or call it what you want. I think all of us are either experiencing it or certainly examining it in looking for ways to make certain products more indigenous to the program.

Is product placement a passing fad or part of the new business model?

BARRINGTON:
It's the wave of the future. There are lots of opportunities, and we have different advertisers in both Good Day Live
and On-Air With Ryan Seacrest. And we have an opportunity coming up this fall with Ambush Makeover
as well.

It's fun, it's different, it's exciting. It's a challenge.

Someone give an example of a recent product-placement deal.

LEVY: I'll bring one out. With Who Wants To Be a Millionaire, Capital One saw an opportunity and is now sponsoring the check. So winners are awarded a Capital One check. It works intrinsically in the program.

HIRSCH: We've done very little to date, but we have a new program coming out, The Insider. We've found a couple of very significant opportunities within the program that make sense from an interactive, engage-the-audience point of view, and the advertisers who are involved in those prospects are very excited.

HERBST: We have two examples that I think are very organic and worked for Blind Date. One was the use of Heineken, putting the Heineken bottle on the bar. Talk about seamless. It's perfectly natural for somebody to be drinking a Heineken. Another example was the use of Banana Boat sun block [during a beach scene]. Did we rewrite the creative so we could work this stuff in? No, and it worked very well within the content of the show.

How do you value product placement?

HERBST: It's a work-in-progress, yes.

HIRSCH: Everyone will value it differently.

HERBST: It depends on what you are doing.

LEVY: I know, for our company, we are looking at it as a value, not as a value-added.

TEICHER: This stuff is not free.

LEVY: Yes. It's not, Okay, you buy X amount of time, and you're going to get stuff. This stuff has a value.

The reason that people are pushing for it is because they believe it has a value. I think, as an industry, you need to go forward and make sure that, when you pay for it, you get paid for it like that.

Advertisers worry about the lack of megahits like Friends
and Seinfeld
in the syndication pipeline. Should they be?

HIRSCH:
They shouldn't. We have the pipeline.

They should worry about the lack of strong quality sitcoms on the networks because Seinfeld
is not on the network. Friends
will not be on the network next year. Frasier
will not be on the network next year. Those three will be in syndication along with others that are on the network, such as Raymond
and Will & Grace.

Our pipeline comes from the network, but it begins on the network, and the strongest sitcoms that were on the network are still in syndication, still working very well, still delivering incredible audiences.

TEICHER:
To Marc's point, I don't see Friends, Raymond, and Seinfeld
fading anytime soon. But I also believe that there are some instances where a show that's doing pretty well on the network, that catches on, picks up some buzz, like a George Lopez,
which is being used as an anchor program on the network, will ultimately build in audience and find a strong home in syndication.

This is somewhat selfish, but I certainly don't mind my HBO pipeline. Sex in the City
and The Sopranos, I think, are going to be great additions to syndication. So I don't see the emergency.

LEVY:
And there's going to be good sitcoms coming down the road. We have My Wife and Kids
coming out. We have According to Jim
coming out. The shows that are on the air are going to continue to do well. And syndication exposure helps. Everybody Loves Raymond
became a bigger hit once it moved into syndication because of the added exposure.

HERBST:
I would agree. It's another platform for the franchise to be raised.

HIRSCH:
Exactly. It's cyclical. Eighteen years ago, everybody was worried about sitcoms. Then The Cosby Show
came on, and all of a sudden it created a whole new way to look at the network models.

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