• by David Goetzl , October 11, 2006

The decision to guarantee 2006-07 upfront advertising deals solely on "live" TV audience ratings may have cost the TV networks hundreds of millions of dollars in potential ad revenues. That's the conclusion of a MediaDailyNews analysis based on conversations with top media buyers, TV sales executives and Nielsen ratings trend data through the first three weeks of the new TV season.

To date, delayed viewing from digital video recorders is contributing another tenth of a Nielsen rating point to each of the Big 3 network's prime-time ratings, which buyers estimate could be worth as much as $86 million per network over the course of the new TV season. When the impact of other broadcast network dayparts, cable and syndication are added into the equation, the total impact of the live-only decision could be worth upwards of half a billion dollars in sacrificed advertising revenues.

The estimates are theoretical, of course, because the TV ad marketplace adjusts based on supply and demand. Sometimes, a reduced supply of network ad inventory fuels price increases when demand is high. However, that does not appear to be the case for the 2006-07 TV season. While "scatter"--or near-term--ad prices have been climbing over the rates advertisers paid during the upfront marketplace last summer, the networks faced lackluster demand during the upfront, which led them to cave-in on the decision to guarantee upfront ad deals on the basis of live ratings.

In the past, all advertising deals were based on a single set of ratings reported by Nielsen, but late last year, Nielsen began reporting delayed viewing from households using digital video recorders, and decided to release the data in three streams: "live," "live" plus same day of playback, and "live" plus seven-days of playback. The networks had pushed to include all the delayed viewing, but advertisers and agencies feared viewers zap commercials when playing back recorded programming and held the line for live-only ratings guarantees during the upfront.

That decision appears to have been a costly one for the networks, which are still trying to find a way to include delayed viewing back into the equation and are hopeful that discussions to move to ratings based on commercial exposure, as opposed to programming, may enable them to regain that foothold.

Nielsen figures show that "live" plus same day ratings for ABC, NBC and CBS are only a tenth of a rating point higher than each network's "live" number. In the 18-to-49 demo, ABC has a 4.0 "live" average and 4.1 in "live" plus same day," while both NBC and CBS have 3.7 averages in "live" that jump slightly to 3.8 in "live plus same day." (Fox is up from a 2.7 "live" to a 2.8, while in its target 18-to-34, the CW is up from a 1.5 to a 1.6.)

But over the course of a 52-week season (networks often emphasize only the 36-week "broadcast" season), the slender .1 can have enormous revenue impact.

According to figures from the Broadcast Cable Financial Management Association (BCFM) for the 2004-05 season - the latest figures available - a tenth of an 18-to-49 rating point was worth $76 million per network over the 52 weeks.

An estimate from Lyle Schwartz, the director of research and marketplace analysis for Mediaedge:cia, pegs the figure at $95 million per network. Also, using figures from the 2004-'05 season, Schwartz estimates that one-tenth of a rating point was worth, on average, $3,800 per 30-second spot. He derives the $95 million figure based on networks' airing a combined 75,000 spots for the year.

The midpoint between the two estimates - BCFM and Schwartz - is $86 million.

One influential Wall Street analyst, however, offered more encouraging news for the networks. In June, in the wake of the upfront, Sanford Bernstein's Michael Nathanson estimated that all the networks (including Fox and the CW) will lose $100 million combined by not collecting dollars for the additional ratings, derived from time-shifted viewing.

In the upfront, networks acceded to buyers' demands that ratings incorporating DVR viewing ("live plus same day" and "live plus seven day") should not be used as currency. Working under the impression that DVR viewers are rabid commercial-skippers, buyers insisted that negotiations should be based only on "live" figures. ABC ad sales chief Mike Shaw put up a fight; he first insisted on a "live plus seven" deal. Then he pushed for "live plus same day." But a lack of consensus among all network sales staff seems to have led to the capitulation.

As this season continues, networks may rue that decision. Only 9 percent of Nielsen's sample has DVRs--below some estimates that peg the national penetration much higher. But the measurement company is increasing its DVR user base, which could further affect the "live plus" ratings.

Networks would have loved negotiations in the upfront to have been based on "live plus seven day" ratings, which take into account viewing via DVRs in the week following broadcast. If they had succeeded, there could have been a considerable revenue boon--given ratings for the season to date.

For the heavily promoted premiere week--the only week so far this season for which "live plus seven day" ratings are available--each of the Big 3 have posted 18-to-49 ratings up two-tenths for "live plus seven day" versus "live." ABC's "live" 4.3 jumped to a 4.5; NBC's 3.9 increased to a 4.1; and CBS's 3.8 went up to a 4.0.

Following the same pattern, Fox went from a 3.0 "live" to a 3.2 in "live plus seven" in 18-to-49, while in its target 18-to-34, the CW went from a 1.3 to a 1.4.