• by David Goetzl  @dgoetzl, February 11, 2009

A group of top buyers and sellers plans to release recommendations next month that aim to bring radical change to the spot-buying market, including altering the decades-old negotiating currency.

The reinvention task force, under the aegis of the American Association of Advertising Agencies, is expected to propose a spot industry switch from using cost-per-point (CPP) as its currency to a cost-per-thousand (CPM) metric. The move will bring the industry in line with the bulk of other media--from network TV to the Internet--that all use CPMs.

A primary goal is to facilitate multi-platform buys. Stations are aggressively trying to cut package deals, which include on-air components along with a presence on their Web sites and mobile outlets. Deal-making is now complicated by the need for two currencies: CPP for on-air and CPM for new media. (Local broadcasters have used CPP as a currency from time immemorial. CPP is based on the cost to reach 1% of the audience in a particular market. CPMs are for a cost to reach 1,000 viewers.)

In addition to the would-be revolutionary switch in currency, the task force--which includes executives from leading buyer GroupM as well as NBC-owned stations--will recommend ways for agencies to receive makegoods faster than a 90-day wait period.

Also on deck is a proposal that would change the amount of time that agencies have to cancel buys. More controversial, but still possible, is a recommendation that stations abandon the practice of dropping a buyer's spot if a higher-paying customer emerges.

If buyers and sellers agree to the successful implementation of recommendations, the transformation would come at a critical time for the local TV business, as stations are in the midst of epic struggles.

Underlying all the task force proposals is the goal to reduce the data processing that has many agencies' back rooms overloaded. (The burdensome process of executing a buy from A to Z is known as stewardship.) There is also an understanding that as industry advances are agreed upon, the electronic systems that buyers and sellers use will need to be updated to enact changes.

The task force is part of the 4As "Project Reinvention" initiative that is so far focusing on spot TV and the Internet. The spot group has been meeting for about a year, and members say the proposals it will make in March are the result of a determined and collaborative process. "The broadcasters and buyers both agree that we really need to reform the way we do business together," said Abby Auerbach, a task force member and executive vice president at the Television Bureau of Advertising.

The recommendations will be unveiled during a panel discussion at the 4As annual media conference March 4 in New Orleans. On the panel will be GroupM CEO Irwin Gotlieb--who, in essence, sparked the task force's formation by calling on the spot business to modernize its business practices in late 2006. He went so far as to say the industry's "survival" was at stake.

Gotlieb praised the 4A's efforts to persuade buyers and sellers to adopt electronic transaction systems that rid them of faxes and phone calls as the primary way to conduct negotiations. But he said e-business will enjoy only a modest impact without changing how business is transacted. "If the buying and selling practices aren't up to 21st-century speed--and they're not by far," said Mike Donahue, 4As executive vice president, "then no matter how good all your transaction processing and stewardship is ... it's garbage in, garbage out."

Task force members on the buy-side include Kevin Gallagher, an executive vice president at Starcom, and Kathy Crawford, a longtime spot buyer who is acting as a consultant to GroupM.

Across the table are TVB's Auerbach, Kathleen Keefe, vice president of sales for the Hearst-Argyle station group; Mark Lund, a top executive at the NBC owned-and-operated stations; and Ken Little, executive vice president of technology for National Cable Communications, a cable rep firm.

While translating recommendations into action will be a challenge, the task force members hold enough influence to galvanize the process. GroupM and Starcom together represent a sizable portion of all spot buying, while Hearst-Argyle and NBC are both top-10 station groups. "When we get buy-in from leading agencies and broadcasters who demonstrate the benefit of adopting these new practices," Auerbach said, "then the next group of trading partners will be more eager to participate."

In a sign of how out of step the spot business may be, the task force had little trouble agreeing on the momentous CPP to CPM switch. For buyers, it would simplify the process of evaluating a spot buy versus newspapers and other media. For stations, using CPMs as a single currency could allow them to sell more Web and mobile inventory along with on-air (including digital sub-channels).

More thorny is the issue of how to shorten the time it takes agencies and stations to "settle up" on a buy. The task force wants a buyer to know within a week whether their spots garnered the rating points they purchased. That would be an improvement on the current practice, which is labyrinthine. A buy is placed, then an agency can wait weeks to find out via a post-buy analysis whether ratings guarantees were met. If there are discrepancies, makegoods may not be doled out until perhaps 90 days later.

That's a negative for both agencies and stations. By the time discrepancies are ironed out, a campaign with a time element--such as a retailer promoting a sale--may be over. At the same time, a station may suddenly discover that it owes a mound of bonus spots and must alter its schedule to fit them in.

The task force plans to recommend that buyers and sellers agree on a system where they work to monitor a buy's performance on a week-by-week basis, allowing for makegoods to be delivered "mid-flight." Specifics on how that would be done, however, may not be put forward. The holdup likely comes from agreeing on what kind of system would be used to stay on top of the buys in near real-time. (One possibility is Nielsen's Keeping Trac, a service that GroupM is now using for near-immediate ad tracking.)

Separately, the task force is expected to make a recommendation on how far in advance a buyer needs to notify a station in order to have a buy canceled. It's a tricky issue because it intersects with one of the long-held business practices that benefits both sides. Traditionally, buyers have had opportunities to cancel placements at the last minute--a benefit in flexibility. At the same time, stations have been able to "preempt" spots--to simply cancel them and perhaps without informing a buyer--if they can re-sell them at a higher price.

A certain chaos can ensue. A station can be left with blank space at the 11th hour, while buyers may find out later that a strategically placed spot--perhaps on a Thursday before a movie opens--did not run. "We've all woken up and agreed we have to change our buying and selling behaviors to clean up the process," Starcom's Gallagher said.

The task force proposal would prevent a buyer from canceling a purchase within a 30-day period before the spots are scheduled to air. Stations would presumably benefit from more effective inventory management. While not explicitly a quid pro quo, buyers would like stations to commit to a no-preemption policy. That is one matter that the task force is still debating, and it's unclear whether a recommendation will be made in New Orleans on March 4.

For the 4A's Donahue, a longtime advocate for upending many of the decades-old practices across the ad industry, change cannot come soon enough. Donahue is so eager to use the forum to produce a "reinvention" of spot TV that he changed the name of the session to the resolute: "Now is the Time for Action."

Recommendations, he said, "will be delivered ... as something we are going to act upon, not reflect upon."