Industry Voices—Hayes: How Much Do Ad Loads Matter?

Originally published on Fierce Cable

By Christine Hayes

Today, consumers have increasing control over their TV and digital viewing environments. Ad-free viewing on Netflix, Amazon Prime, and Hulu, skippable ads on YouTube, fast-forwarding on DVR, or deploying ad-blockers on their browsers are just a few of the many options. Consumers’ ability to manage what they watch, when they watch it, and how they watch has continued to change the ad game.

As control is put back into the consumer’s hands, media companies are being forced to try different strategies to reach audiences as more and more consumers (specifically younger ones) are turning to mobile, OTT, skinny bundles, YouTube and Facebook for their video content.

One approach that media companies are starting to take is a reduction in ad loads. Fewer ads, so the prevalent logic goes, can lead to a better viewing experience for the consumer, less competition for viewer attention, and potentially more revenue for the network (if premium priced). While some networks see the value in doing this, others don’t feel this is the answer.

Disney CEO Bob Iger has said that there is probably too much commercial interruption in television. NFL Commissioner Roger Goodell said that the league is “leaning very heavily” toward reducing the number of commercials next season. However, CBS Chairman Les Moonves’ approach on reducing ad loads is “It’s not an answer to the problem.”

The Hallmark Channel recently announced its plan to cut back on the number of ads during its 2018 primetime shows to create a more “pristine” environment for marketers. Time Warner’s Turner Broadcasting has reduced ads on select shows on TNT and TruTV. Fox Networks Group has also stated its plans to reduce on-demand and digital ad loads by offering single sponsorships (a throwback to the days of single-sponsor program like the “Texaco Star Theater”). NBCUniversal also cut back on ads during “Saturday Night Live” as part of its plan to implement more (profitable) branded content deals.

The ad load factor is not limited to traditional TV companies. Facebook has expressed concerns over its ad load, as well. Last year, Facebook’s CFO warned investors that by mid-2017, the company’s revenue growth may be impacted due to the impending slowdown in ad load increases—something that has yet to happen.

These media companies feel that fewer ads will result in a better consumer experience, improved viewing metrics, and better brand recall—in addition to the ability to impose a premium price on the reduced ad load, something that may not sit well with advertisers. In 2008, Fox tried to reduce ad time, introducing a 40% premium on their shows. This did not sit well with buyers, and the idea was quickly abandoned. Today, we are in a different marketplace, and this strategy may play out differently in the long run.

Thus far, Turner has found that by reducing commercial minutes, it is seeing growth in C3 ratings. TruTV saw its C3 rating increase by 17%, and TNT’s “Good Behavior” had a 9% lift in C3 viewership. Hallmark is hoping to see similarly positive results that will lead them to expand the reduced ad load to their signature high-demand holiday programming.

Using SMI’s data, we observed an overall increase in ad load of 5% across cable and broadcast networks when comparing equivalized 30-second spots across all dayparts for the first quarter 2017 and 2016. Viacom, which has the highest ad load of all media owners, despite having fewer networks than other owners like Comcast Corporation, experienced a 6% dip in ad load in the first quarter of 2017 compared to first-quarter 2016. Comcast and Time Warner also exhibited reduced ad loads (down 5% and 2%, respectively) year over year. That said, Disney (+7%) and 21st Century Fox (+10%) both increased ad loads in the first quarter of 2017. Interestingly, both networks saw declining ratings during that period as well.

The $20 million (literally?) question: are advertisers prepared to pay a premium to be in a fast-reach, reduced-ad-load program? Reviewing SMI’s data from an episode of “Saturday Night Live” in Season 42 (March 2017) versus the same time period in Season 41 (March 2016), we observed 14% fewer spots accompanied by a 13% increase in ad revenue. In this high-demand program, a reduced-ad-load model can be offset with revenue increases.

As media companies explore diverse ways to improve consumer experience while still growing their revenues, ad load options may be part of the answer, particularly in an increasingly cross-platform world. Media companies need to consider the individual program, viewing platforms and context to strike the right balance. As ad technologies and data-based targeting become more commonplace, the ability to target consumers with more relevant ads will hopefully lead to an optimal consumer experience and a better balance between content and ads.

Christine Hayes serves as the director of market intelligence at Standard Media Index. Prior to joining SMI, she spent nearly a decade with the NBCU Ad Sales team, where she led market intelligence activities and focused on keying in on new business opportunities. Earlier in her career, Christine led Go-to-Market strategies at Nokia and managed strategic marketing and planning at GE Commercial Finance.