Enterprise: ABC Introduces Inventory Ad System To Benefit Network/Affiliates

ModernFamily

As ABC and its affiliates ramp up a system allowing stations to buy additional time from the network, plans call for putting the reverse in play. The initiative would be expanded into a two-way exchange, giving ABC the chance to buy some inventory from its affiliate base.

Under a dual-lane system, ABC could be dealing with lagging sales, but stations may have a robust market. ABC could put spots up for sale that the affiliates might jump at the chance to buy -- then re-sell them at a higher rate.

In the reverse situation, ABC could be in a booming market and eager to buy inventory from stations -- including its 10 owned ones -- and willing to pay an amount that would profit affiliates. "That's the goal -- to have it be a two-way street," said Jim Hedges, CFO of the ABC network.

Hedges did not offer a timeline for turning the fledgling "inventory exchange system" (IES) into a back-and-forth platform, but said "we're pretty close." The mechanisms are in place; the system "we built will enable us to go one way or the other, either buying or selling," Hedges said.

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"It's a very smart approach to looking at what is the best use of the inventory," said Darrell K. Brown, head of McGraw-Hill Broadcasting. "Is it to sell it in the [network)] market or sell it in the local market ... how can we best leverage the inventory we [both] have?"

Before that so-called "elastic" model launches, the IES is moving into a second go-round this week. On Monday, ABC offered affiliates a package of eight spots that would run in November, including one each in "Modern Family" and "Grey's Anatomy" -- and four on "World News with Diane Sawyer."

The 200-plus affiliates had until Wednesday to give a yes or no on their particular offer, which differ from market to market. ABC now has until Friday to review the total amount it would collect from the stations -- and inform them whether the deal is a go.

ABC is using the process not only to benefit the network, but its 10 O&O stations. Before it gives affiliates an offer price, it makes sure the deal is favorable for its O&Os.

Based on what it expects to collect from the O&Os, it sets an amount it wants from the affiliates. If that exceeds ABC's goal, an affiliate can wind up paying less than it expected to. For example, if ABC wants a total of $1 million from affiliates, but gets commitments for $1.2 million, an affiliate that has agreed to pay $50,000 might only have to spend $45,000. "As long as we get our price our goal was not to stick it to our partners," said ABC's Hedges.

That position -- and effective profit cap -- comes at a time when some affiliates have harbored dissatisfaction with ABC. The network has streamed shows on the Web and moved to collect reverse compensation. "Thank goodness the network and the stations are finally working together on a way to collectively generate more money for both parties in an innovative way," said Dave Boylan, general manager of Miami affiliate WPLG.

The spots ABC is offering affiliates in the IES come out of time the net has put aside for the scatter market. They replace national ads; the network is not cutting down on on-air promos, or extending breaks.

Affiliates often get prime-time inventory between shows, for example, during a break between "Grey's Anatomy" and "Private Practice." The IES allows them to get a spot running within the content, which could bring a higher rating.

As it places the locally sold spots, however, ABC is re-formatting pods in a way to "protect" high-paying national clients. Thus, a spot for Harry's Hardware is unlikely to run between splashy ads for an iPad and new film. There are also some exclusivity issues, so Harry's wouldn't run close to Home Depot.

In round one of the IES, enough stations accepted ABC's proposed deals that the network sold six spots for later this month. The McGraw-Hill group owns three ABC affiliates that took the offer -- in Denver, Indianapolis and San Diego (its Bakersfield, Calif. station passed).

Also taking the deal were Cox Media Group's three ABC stations -- including WSB in Atlanta -- which have not had trouble selling them. "We've done just like we wanted to do with the extra spots," said WSB general manager Bill Hoffman. "It's been productive for us."

At WOLO in Columbia, S.C., General Manager Chris Bailey said the station took a pass after running the numbers, factoring in when the spots would run and when political buys were coming. "The risk-reward didn't seem to be there," he said, though he wants to use the system.

WSB's Hoffman also serves as head of the ABC affiliates board, which worked with the network to launch the IES (a concept proposed by ABC). Under Hoffman's guidance, the board designated Boylan in Miami and Bill Fine at the Boston affiliate to serve as the point people to work with Hedges and ABC.

Late last month, Boylan and Fine outlined the IES to a group of more than 150 affiliates via Webcast. Many were skeptical, thinking with network-affiliate relations tense, ABC may be looking to gain an advantage. But the presentation brought the bulk of them around.

"I thought it was a very forward-looking idea that seemed to have an immediate benefit," said Bill Lord, GM of Washington's WJLA.

The affiliate board works with ABC to determine the inventory package the network is willing to sell. So far, the spots have been in highly rated prime-time programs. The opportunity for stations to buy four spots in "World News" next month is newsworthy, since they don't get space in the program.

Here's a rough outline of how the IES works:

*ABC determines a package of spots is worth, say, $2 million, and wants to collect that amount using the system.

*ABC works with its O&Os to determine how much they could get for the package in their markets. That total comes back at $1.5 million.

*ABC then needs to collect the remaining $500,000 from the affiliates.

*ABC uses a system to determine how much to charge each affiliate so it can collect the $500,000. The system has projected how many stations need to accept offers, but ABC does not need 100% participation.

*Silicon Valley firm 741 Studios helped create the system that uses a mass of algorithms to determine the offer price per affiliate. Tampa's WFTS may be offered $50,000, while Cedar Rapids' KCRG could have a $10,000 price.

*ABC sends the offers to its affiliates.

*Affiliates have two days to make a decision.

*They must say yes or no. There is no negotiation.

*ABC receives their responses.

*It adds up the total amount it would collect, hoping for the $500,000.

*If it can get it, ABC says yes, and there is a deal. If not, it's off.

*In a case where enough stations accept offers, and ABC gets more than its intended $500,000 -- ABC does not keep the extra income.

*The extra monies are divided up proportionally and not billed to the affiliates. They then end up paying less than anticipated and profits rise.

1 comment about "Enterprise: ABC Introduces Inventory Ad System To Benefit Network/Affiliates".
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  1. Jeff Einstein from The Brothers Einstein, October 7, 2010 at 10:26 a.m.

    Great! Two more ways for ABC and their affiliates to sell each other what no one else wants.

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