There’s a new drinking game for media professionals -- every time you hear the word "erosion" or "cord-cutter," you take a shot of your favorite adult beverage.
The decline in linear TV ratings over the past four years is astounding. Below is a trend we have pulled from Nielsen Ad Intel data based on a common adults 18-49 demo and C3 ratings.
Correlated to this, we have seen an increase in audience liabilities owed to the advertiser upon the completion of the guarantee period, known in industry lingo as ADU Owed.
Unlike digital media, linear national TV is sold on estimated delivery, with any audience deficiency trued up afterwards. Sellers and buyers hopefully acknowledge the downward trend when striking deals each year (it’s not new news), but the rate may accelerate more rapidly than anticipated. Certainly that was the case in 2020 during the COVID-19 pandemic.
The media sellers have in essence borrowed cash from advertisers, and in many cases did not end with enough inventory to fulfill those deals. They sold stuff they did not have to sell, or that they might more responsibly have set aside to make whole audience guarantees on prior deals. You’ve heard it from your agency: "The network will not/cannot give us any more ADU." How long are advertisers and agencies going to play this game?
While cash back to the advertiser for guarantee shortfalls is rare, it is possible. More likely is making use of cancellation options when it becomes clear there are not enough linear impressions available to fulfill the guarantee.
A good flag for this discussion is when you have to begin choosing between fulfilling prior-period liabilities or delivering the current paid schedule. Dollars can then be moved to other partners or channels with more reliable or more abundant inventory.
If the pandemic was not reason enough to negotiate harder on flexibility, audience trends might provide some additional rationale.
We are aware of a number of other “creative” ways that networks are trying to dig themselves out of such holes. Restitution or recovery of audience liabilities is coming in many forms beyond linear TV impressions. A few examples and caveats are provided here.
Digital video, streaming/OTT or in-app impressions
Advertisers should ensure these are independently verified similarly to the Nielsen data tape “post” for linear impressions. This is no time to start allowing the sellers to grade their own homework, and in streaming/digital there are additional risks of fraud, ads not in-view, etc. to consider.
Make sure you or your agency have done the mathematical comparison on the fairness of the specific exchange. For example: “How many impressions in "The Masked Singer" at $X CPM should we get to equate to this many impressions originally bought in "Sunday Night Football" at $Y CPM?”
Increase in cancelable dollars in exchange for a "write off" of prior liabilities
Be sure to quantify and document the term A in exchange for term B that is agreed upon. If you want to make an internal auditor or procurement person cringe, use the term “liability wipe” without documentation and math of the new bargain.
Furthermore, how are you supposed to determine whether the additional flexibility is "worth it" if you can’t see what you are giving up in return?
As advertisers and their agencies look forward to 2021-22 and negotiate final upfront deals, here are some questions to ask to make sure you are minimizing risk in linear TV.
1. Have we trended the audience estimates for the past several years and are the seller’s projections realistic? (Or are they trying again to borrow our money in advance.)
2. How much in-flight ADUs and later restitution recovery have been required in prior years to achieve guarantee delivery? How exposed are we in relying on that to be available in the coming year?
3. Are we pushing so hard on CPMs (inflation mitigation, savings promises, etc.) that we have forced inflated audience estimates that are not realistic?
4. Are we incorporating prior ADU recovery into our communications plans, is this separately documented on our media plan, and how confident are we that we will receive it?
Someday, linear TV might evolve to "pay on delivery" like digital. Until then, advertisers are best protected by a very critical eye to seller audience trends and estimates as well as proposed restitution formats.