In 1981, the TV ad world was dealing with its first wave of fragmentation. Cable television was just taking off, and one-third of U.S. households had now switched out their rabbit ears for a cable box. Tens of millions of viewers were watching new channels and broadcast network ratings in those households were slipping dramatically, with measured per-show losses of 8%-18% for pay cable households.
This was bad for large national advertisers, since virtually none of them were buying cable ads yet. Not only were big portions of their broadcast TV spend now being wasted on lost audiences — but, more critically, they were missing out on the opportunity to reach the now-substantial, still-growing, upscale audiences watching cable. TV planning and buying needed a reset.
The Bates 5% Solution. Ted Bates & Co. was one of the top agencies at the time. Its media director, Walter Reichel, was one of the industry’s smartest practitioners, and he had an answer to the cable/fragmentation quandary.
Analyzing Nielsen data at the household meter level, Reichel and his team determined that the only way to both right-size their broadcast investments and regain fragmented cable viewers was to immediately shift 5% of their clients’ total TV spend to cable.
The math made sense. Needing to recapture the 15% of audience loss on a big portion of cable TV homes, brands found 5% of spend a logical place to start. It was small enough to be implemented without disrupting most of a brand’s TV plan, but big enough to make a noticeable impact, since the cable TV ad market was so underpriced.
The rest is ad industry history. Bates implemented the 5% Solution across its client base. It was evangelized up and down Madison Avenue, and prominently publicized on the pages of broadsheets like The New York Times and virtually all the top industry trade publications. A movement was founded.
The rest of the industry followed suit, shifting ever-increasing amounts of its TV ad spend year over year from broadcast to cable to “recapture the audiences” as cable and multichannel TV penetration grew from its 34% level in 1981 to over 90% today.
The Levy 5% Solution. Turner president David Levy, one of Ted Turner’s front-line troops in the late ‘80s, has been a pioneer in the world of audience-based targeting and an innovator across television (and also a good friend, mentor and advisor of mine). Now, recognizing the challenges posed to TV buying from increasing audience fragmentation on TV and competition from Google and Facebook, Levy has taken a page from Bates and Walter Reichel. As part of this year’s upfront, he has called for TV advertisers to shift 5% of their budgets this year to audience-based ads, as reported by Multichannel News.
Why should advertiser adopt the “Levy 5% Solution”? Because Turner’s experience — as well as those of its TV network competitors — shows that if marketers shift just 5% of their budget to audience-based ads, they will get a 7% better overall return on investment compared to keeping 100% of their spend targeted by sex/age demographics alone.
Will the TV industry respond to Levy as it did to Reichel, and start moving away from its myopic focus on demographic TV ad buying, adding audience base into the mix — just as marketers did 37 years ago, when they started moving away from 100% reliance on broadcast TV?
Time will tell, but I’ve already made my bet. I believe that they will.
-but big enough to make a noticeable impact, since the cable TV ad market was so underpriced.
-will never see "underpriced" and audience-based ads in the same sentence
Great piont Ira. I suspect that we will see some movement in audience-based pricing, particulalry since it deliver the right people in "under-appreciated" spots, like weekend, daytime, etc. For sure, the Bates 5% Solution was very much driven by impression cost efficiency. Here, it will be more about driving better advertiser ROI.
Will these so-called "audience" based buys, which, by the way, are all going to be single seller deals, going to be underpriced? Or will the sellers, who are shooting fish in a barrel as the buyer has no rival "audience" based sellers to supply opposing bids for consideration, be offering their "audience" based packages at very low CPMs like cable in the early 1980s? I doubt it.
Thanks, Dave, for a trip back to "the good old days," when media wasn't quite so complicated.
I worked at Bates for many years and when Walter and his research team devised the 5% Solution our clients absolutely loved it --- they understood it, embraced it, and implemented it.
Actually, it was the "superstations," not the cable networks, that were the big winners at the time. Since they had an over-the-air footprint as well as cable system coverage, they offered the best of both worlds, and got a sizable chunk of our clients' money. Especially WTBS. Ted Turner owes Bates a huge debt of gratitude, although he would never admit it.
Of course, the 5% Solution evolved with the times. In subsequent years it became the 7% Solution, and so on.
Thanks Steve. Great context!