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TV advertising: Do fragmenting audiences mean inevitable decline?

13th Sep 2009
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With TV audiences becoming increasingly fragmented and new research indicating that advertising offers poor ROI, Mark Stuart examines the options for the traditional TV advertising model.

Anyone old enough to remember with excitement the launch of Channel 4, which increased TV output in the UK by 25% overnight, will know that TV ain’t what it used to be. Today, television audiences seem to be rather like the little coloured bricks that used to make up the animated Channel 4 logo: different shapes and sizes scattering around the screen, some of them disappearing off the edge altogether.
More people are watching TV on-demand on their computers – which means they’re not watching the adverts. Or they’re watching on set-top recorders that edit out the adverts. More people find that YouTube meets their needs for comedy, and more people watch the news online, reducing the need to be sat in front of your TV screen at 6 or 10pm. And worst of all, for broadcasters who receive no revenue from the licence fee, there is now a huge proliferation of channels, programmed by theme or segment; reinforcing the idea that you can watch what you want, when you want.
ITV recently posted a half-yearly pre-tax loss of £105m. Most of its problems are due to falling advertising revenue: down a whopping 15% in the same period. Michael Grade, the outgoing CEO of ITV, has claimed that measures now being instigated will offset this trend, with the drop in revenues forecast to be just 7% by September.
Yet the model for TV advertising has irreversibly changed. That is only going to worsen, as the younger generation that is used to having what they want at their fingertips, gradually become the dominant consumers. To persuade people to switch on a channel and watch it for several hours (the way things used to be, and the way old-fashioned TV execs still think), you’ve got to do something pretty spectacular to keep people watching – or, you’ve got to find other ways to create revenue.
And what are these ‘measures’ that Grade talks about anyway? The first appears to be to cut programme budgets. That will mean less quality programming (such as expensive drama and comedy), and more game shows and reality shows (because they’re cheaper to produce). This is inevitable because the same number of hours have to be broadcast. If the budgets are cut, how else are producers going to fill those hours?
New models the way forward
The first rule of marketing is to get the product right. You can put as much glitzy spin on a product as you like, but as any advertising agency will tell you, if the core product is no good, there’s not much you can do with it. So if ITV wants to keep its advertising revenues up, the last thing it should do is reduce quality. If the quality content is there, ratings will follow; and if the ratings follow, the advertisers will follow. If you only put out rubbish, people will go elsewhere – probably to the BBC, which despite its own problems has a far stronger brand (thanks to quality programming).
If ITV wants to get its advertising revenue back, it needs to reinvest in the ITV brand, putting out a stronger portfolio of programmes. That still includes successes like The X Factor, which secure good ratings and thus good advertising revenue; but it means budgeting for more drama, comedy and current affairs. Secondly, they should look more energetically at other ways to create revenue.
In an attempt to bring in some short-term cash flow, the company has just sold Friends Reunited for £25m – a fraction of what it paid for it. Frankly, if £25m was all it was going to get, why not try to reinvent the model of what it’s for, instead of letting it go at a loss? For instance, how about recreating it as a kind of Facebook for an older generation, with a higher nostalgia quotient and more ‘stickiness’. It doesn’t take much looking at Facebook to start to work out what those stickiness factors might be. That way, you might be able to increase the flagging membership and start to make some money from it.
ITV could also start to generate revenue from exploiting its intellectual content for overseas sales, merchandising and format sales. Currently, many of ITV’s current success stories (such as Who wants to be a Millionaire and the aforementioned The X Factor) only draw money for ITV via advertising, because they are made by independent production companies. When commissioning new programmes, ITV needs to start changing its contracts and negotiating with the production companies to allow it a proportion of the intellectual content. Programme makers will, after complaining, agree to this; because if ITV collapsed or further reduced its programme output, where are these independent producers going to go?
The theory that different revenue models are the way forward, rather than advertising, is reinforced by new research from The Chartered Institute of Marketing that indicates that advertising offers the worst ROI compared to other marketing techniques. In the latest Marketing Trends Survey, conducted for The Institute by Ipsos MORI, surveyed marketers believed that Customer Relationship Management (CRM) delivers the best ROI, followed by public relations; with sponsorship and advertising languishing at the bottom of the poll.
Something the government has decided to do is lift the ban on product placement. The prohibition of product placement, designed to prevent American-style branding of objects in full view of the camera, was an outdated piece of legislation that today’s media-savvy audience no longer needs to be protected from. ITV has pointed out that it would like to be able to replace the fictional ‘Newton & Ridley’ beers on the pumps at the Rovers Return with Stella and John Smith’s. Regulated properly, product placement could be creatively acceptable and a small relief from the financial pressures ITV are currently under.
A free summary of the Marketing Trends Survey’s key findings is available from [email protected] and the full report can be purchased from The Institute for £250.
Mark Stuart is head of research at The Chartered Institute of Marketing.

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