NIELSENWAR 2014-15: C7 Will Save the Networks! (Or Maybe Not)

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According to Advertising Age, advertisers have begun to buy time on the broadcast networks for the 2014-15 TV season, which is the whole reason the hoopla of the “Upfronts” exists in the first place.  There are two basic components to each of these sales (although they can become quite intricate):  the rate that buyers agree to pay, called the CPM, and the size of the actual audience to which this rate is applied.  In addition, the networks have to decide how much of their inventory to sell up front before the new season begins, and how much to reserve for the “scatter” market, which means sales made on a deal-to-deal basis in the course of the season.  (Scatter deals allow a network to take advantage of unexpected ratings gains, but also run the risk of plunging on shows that have taken a downward turn–for example, scatter sales on last year’s American Idol would have been a bargain compared to their Upfront prices.)

Let’s take a quick look at where things reportedly are with CPMs and audience measurements.

According to Variety, 3rd place FOX is accepting deals with rate hikes that are at best at the low end of the 5-7% increases it was able to obtain last year, and may be even lower.  FOX’s ratings were down this season even though it aired the Super Bowl, which it won’t have next year–with that factored out of its numbers, the network was down at least 15%.  Barring a miracle, or a large increase in inventory sold, its Upfront sales totals for 2014-15 will be below last season’s $1.8B, which was itself down 10% from the season before.  (In case you were wondering why Kevin Reilly doesn’t still have a job.)

NBC ended the season in 1st place, and although part of that was fueled by the Winter Olympics, it was still on top without the games.  (Without the Olympics, its ratings would have been close to flat compared to last season, with gains from The Blacklist balanced against declines in The Voice.)  It’s reportedly seeking CPM increases higher than last year’s 7-8%.  However, that’s slightly misleading, because its ratings were so low for so many seasons that its CPMs were pushed below the other major networks, so to an extent it’s just playing catch-up.  Nevertheless, it’s in a good position to better its $2.1B haul from last year’s upfronts, if the Olympics are removed from the calculation.  (NBC’s position is complicated by the fact that it pushes to sell advertisers on package deals that include its affiliated cable networks as well.)

NBC aside, the networks seem unlikely to secure CPM hikes that will make up for their eroding ratings.  However, the story broke earlier this week that none of this would matter, because the greatest thing ever in TV ad sales history had happened:  the metric of audience on which most sales are based was going to change, and to the network’s advantage.

Some jargon is necessary here.  Most network sales are based on C3 ratings, which means that advertisers pay for viewers who watch a show including the commercials within 3 days of original airing.  That part about the commercials can’t be stressed enough, because it’s what makes the difference between “C3” and “L3” ratings.  The latter include all viewers within 3 days, whether they watch the commercials or not.  That results in substantially higher numbers.  Consequently, the L3 ratings are the numbers you see trumpeted by every network in press releases, claiming 50%, 80%, even 100% increases in ratings from those measured overnight.  The number of time-shifted viewers who don’t fast-forward through commercials is much lower–in fact, it’s not much different from the same day numbers–because basically, the number of viewers who watch their shows a few hours late and fast-forward through commercials is the same as the number who watch in the next 3 days without fast-forwarding.

This week’s news was that GroupM, one of the major buyers of commercial time on behalf of dozens of advertisers (including American Express and Paramount Pictures), was willing to shift its deals to C7, which is exactly what it sounds like–viewers who watch a show including the commercials within 7 days of original airing.  The networks started celebrating loudly, positioning this as a giant windfall that will make up for many of the eyeballs they’ve been losing to time-shifting and increased competition.

As to which… not so fast.  For one thing, Ad Age reports that the other buyers are not joining GroupM in making  C7 deals, at least for now.  But more importantly, it appears that the financial gains from C3 to C7 ratings are likely to be marginal for most shows.  That’s partly because the networks may be agreeing to CPMs that decline as the week goes on and the ads become less fresh, but mostly because the number of people who actually watch in those additional days without hitting the fast-forward button may only be incremental.  As an anecdotal example–and this is L7 compared to L3, not C7/C3, because the networks guard the latter numbers with their lives, but the principle should be the same–CBS announced last fall that the premiere of Hostages rose from a 1.8 rating to 2.7 when 3 days of DVR viewing were added to Same Day numbers.  But in the Live + 7 Days count, that same Hostages was only up from 2.7 to 3.0.  Similarly, the season premiere of 2 Broke Girls, while rising from 2.8 to 3.7 in L3 numbers, increased a mere 0.2 to 3.9 when the ratings were extended to L7.  So C7 deals will help, giving the networks bumps of perhaps 5% when all is said and done–and the networks certainly need all the help they can get–but they’re a one-time fix (the ad buyers aren’t going to extend to C14 next year), and they’re very unlikely to be a game-changer, other than symbolically.