Hard (To Swallow) Research

Research. My perception of it over the years has been one of declining respect for all things syndicated. On the other hand, I’ve become very excited about the use of cookie data, which tracks un-biased actual behavior.

I’ve come across two issues recently regarding research, where in one case there was entirely too much transparency, while in the other - a deceptive shell game. Though the fatalist in me voices that “chaos theory” rules supreme, the cynic wonders whether it’s more “Keystone cops” than anything else. Which is more irresponsible?

Last week, CSPAN televised a summary of a 3-day Gartner Research Conference, produced in conjunction with the U.S. Naval War College, that explored how terrorists could attack critical U.S. business and personal infrastructure through cyber means.

Aptly named "Digital Pearl Harbor,” the event’s purpose was to determine the feasibility of cyber attacks that could cripple U.S. economic and national security infrastructure. Sounds fascinating, right? This war game explored the possibility that terrorists could use cyber-terrorism to hurt the U.S. in four critical infrastructure areas: telecommunications, electrical power, the Internet, and financial services. It was truly frightening.



Perhaps the telecast, well within a month of the Anniversary of 9/11, made me more sensitive about it. However, as I watched in amazement and later confirmed on the Gartner site, I felt it ironic that a well-intentioned brainstorm, designed to help us better understand our national cyber-security issues, was in the process of sharing incredibly specific details in a dry-business-plan-type fashion, making it infinitely easier for any sicko and/or sicko group to accomplish the unthinkable, due to Gartner’s minutia-filled full-disclosure nature.

Of the four areas covered, the Internet was by far the easiest to shut down, followed by financial services. Electrical power distribution and telecommunications were harder to effect, but at the same time, harder to detect by controlling security parties, if/once there was a breach. You want details? Just go to the site.

The net of it was that this group of war-gamers determined that the terrain of cyberspace makes it difficult - if not impossible - for Corporate America to defend itself against cyber-terrorism. Here’s the beauty part: the only means of real defense we actually have is to rely on the U.S. government as the central source to coordinate a national defense. Whewww!! On this last point, boy was I relieved… not!

Following 9/11, while some of the smarter minds said that the real issue wasn’t so much a lack of security but rather a lack of imagination, after watching the Gartner conference and the resultant PR campaign, I think it’s a lack of common sense.

Now, let’s turn to “Media Pearl Harbor” - the upfront. People’s voices on Sixth Avenue these days are elevating the volume on the whisper campaign that the 4Q TV scatter marketplace is going to remain extremely tight. Ordinarily, that should mean that the networks are going to once again clean up. After the recent robust TV upfront that boosted media CPM increases between 5 and 9% on average, this must mean that the economy is getting hot again and good times will be here before we know it, right? Well, no.

It turns out that the networks have little confidence that the Q4 actual program ratings sold to advertisers during the upfront will cover network guarantees. Network TV estimates were wildly inflated. There is such concern now that (continuous) audience erosion will be so bad in Q4 that the networks may not be able to sell any more TV time this year. They have essentially run out of :30’s to sell.

For those who have never participated in the TV advertising sales market, the networks normally negotiate upfront deals with marketers for about 70% of their next year’s inventory (TV calendar Sept-August) and hold back the remaining 30%, to be sold closer to its air time. On an overly simplified basis, the upfront is like buying in bulk and getting wholesale prices, and scatter is buying one at a time and paying retail.

However, it now looks that Q4 TV ratings guarantees were disproportionately higher as compared to actual projected estimates. The dirty little secret is coming out that the networks may have sold 100% of their inventory, not 70% as they’d like you to believe. The basis for this type of accounting is similar to off-balance sheet financial gizmo mirrors that collapsed Enron, WorldCom and others.

With the “asleep at the cockpit” management at both Nielsen and the ARF, this time-tested gimmick is now finally catching up to the networks. We may soon hear from these two organizations about how “surprised they are” that the networks could be abusing audience ratings data. The truth is the networks have been using a bait and switch sales strategy with America’s largest advertisers for years, but they always found a way to fix the buys, partially due to the co-opting of America’s largest media buyers.

After 50 years of programming, TV networks know exactly how to estimate TV ratings by program. They’ve simply inflated their total ratings pool to get as much cash as marketers were willing to put within reach. With “firm and non-cancellable” contracts now in place for Q4, with the knowledge that the networks can’t deliver the goods, the rampant practice of overestimating ratings is finally about to catch up to them. The fact that they know they can’t sell any more activity now is proof enough that they knew this going into the upfront.

The “don’t blame me, I didn’t know” attitude at all the America’s largest media buying firms should give pause, considering how each major media agency claims to have better market knowledge about the TV market than their competitor.

While you certainly can’t fault the Nielsen, the ARF, the TV Networks and the media agency community for having a lack of imagination, the fact that this charade continues unabated is also a complete lack of common sense.

So which is more egregious, Gartner’s full-disclosure or the Nielsen/ARF/Networks ratings sham?

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