"On TV And Video" is a column exploring opportunities and challenges in advanced TV and video.
Today’s column by Steven Golus, founder at Steven Golus Consulting, is the first in a series that will present the fundamentals of how TV advertising works and how it is changing.
I spend a lot of time educating linear TV buyers and sellers on all the basics of digital advertising that most digital natives take for granted – cookies, tags, programmatic, data, fraud, etc.
Increasingly I hear about a knowledge gap in the digital ad community regarding how TV advertising operates. In a recent survey I sent to 50 digital natives, only one could calculate a GRP.
Why is this important? As the buying and selling of TV and digital converge, those who can speak both languages – digital and linear TV – will be at a competitive advantage. In the spirit of making everyone smarter, this is the first in a series of columns about the basics of TV advertising, beginning with pre-upfront planning and followed by the upfronts, scatter market, local and direct response advertising and measurement.
But before we begin, we need to define and understand the importance of the GRP.
A gross rating point is the percentage of an audience – as measured by Nielsen – that watches a particular ad spot, multiplied by the frequency of exposure.
So if 2% of the TV-viewing universe watched “The Bachelor” and Sephora runs two spots during the program, that is a total of 4 GRPs (2*2=4). GRPs typically measure delivery to “P2+” – people aged two and older.
Why is the GRP important? Brands have years and years of research that show a direct correlation between GRPs and business outcomes. So having and hitting a GRP or impression goal is essential to the TV buying community.
OK, let's get started.
Pre-upfront planning for brands
Most of a brand's budgeting activity starts at the corporate level with a decision on how much to invest in marketing for a financial period. Brands will subsequently use tools such as media-mix modeling (MMM), an analysis that allows markers to decide how to spend their media dollars optimally. Media-mix modeling attempts to understand the impact of incremental media dollars on GRPs while keeping in mind constraints such as seasonality, pricing and competitive pressure. The output of MMM may be a GRP’s goal by media channel for the year. Media-mix models are not perfect; they are refreshed once a year and can't react to real-time activities or changes in the macroeconomic environment. As an alternative, brands use attribution tools to gauge media's impact in a more timely manner.
After establishing a TV budget, brands will interface with the agency to share corporate and business goals, budgeting and marketing priorities and to discuss trends and movements in the marketplace that may impact the overall strategy.
At the same time, the agency or a large buying group – GroupM or Magna, for example – may develop analyses to determine the right amount of spending based on prior years' spend, as well as trends in the market that may impact the overall media strategy. A decision science or analytic group at the agency will work alongside the investment and brand teams on these initiatives. Ultimately, the brand and agency agree on an overall TV budget.
Assuming the brand is planning on a broadcast calendar – where its budgeting would mirror the broadcast calendar year, which starts in Q4 – these budget decisions are made early in the year. One of the other significant decisions is how much of the budget they should commit in the upfront vs. what should be held back for the scatter market, which are budgets not committed upfront but typically purchased much closer to airtime. There are a couple reasons why a brand may want to spend more in the upfront: to guarantee lower rates or to lock into inventory. They may take a gamble and save more for scatter in hopes of a soft market, which may allow them to be more agile with buying decisions.
Once budgets are agreed upon, numbers bubble up to the holding company level which pools dollars to get the best rates from the networks. Typically this negotiation is handled by a portal, a team that negotiates on behalf of the holding company on the buy side with a dedicated team at the network that has negotiating responsibilities.
Pre-upfront planning for networks
The goals of the pre-upfront process are to:
- Develop an overall upfront messaging and go-to-market strategy.
- Understand and analyze budget goals, such as how much revenue will advertising sales generate in the next broadcast year and what will be the drivers of the budget – price and/or volume.
- Agree on a rate-of-change goal. Rate of change is the season-over-season increase in CPM, typically negotiated during the upfront between the holding company and network portals.
There are typically two work streams at the network: One focuses on understanding supply (how much inventory can be sold and at what price) and the other focuses on generating demand in the marketplace. Below we'll review the roles and process.
Program research: The programming research team works to understand who will be watching programming and the potential size of that audience. For a new reality show, for example, the teams may examine other reality programming to develop reach estimates for particular audiences. This analysis is essential because, again, agencies are typically buying GRPs, a function of which is the size of the audience. The better the research, the more accurate the projections and the less liability on their books.
Pricing and inventory (P&I), which may be known as revenue management or strategic planning in some organizations: This team will leverage the inputs from programming research to determine the amount of inventory available for each program. P&I also works with sales to understand which accounts they should be targeting and which accounts, based on the projected audience, should take less of a priority. It's important to realize that not all business is good business in TV. Given rating decline, and the lack of inventory, yielding the highest CPM is crucial as it establishes a base, which is the CPM paid by an advertiser.
Marketing / ad sales marketing / integrated marketing: Ad sales marketing typically works with sales leadership to bring to life the go-to-market strategy for each upfront. This group helps deliver a consistent message across all upfront materials and presentations. Simultaneously, this team works with programming and other business units to assess integrated marketing opportunities, such as product placement or on-the-ground events, both of which are becoming a vital part of a network’s revenue mix.
Ad sales research: This team works with all functions to help put together the story for the upfront based on numbers. For example, how does the audience of a particular program stack up against similar programming? How does the network perform against a particular demo?
Ad sales: The ad sales organization plays multiple roles in the upfront.
- Senior management: Senior managers help define the overall go-to-market strategy while working cross-functionally to ensure alignment across leadership (with P&I, for example). Senior management is also on the portal teams that negotiate with the agency.
- Directors and account executives: Most large network sales teams are organized by holding company, so while senior management works with the senior teams at the agency, directors typically work with the agency to understand client needs. Does the client have any particular product launch? Do they spend more during certain times? Is digital a priority?
By the time of upfront presentations, agencies and networks are internally aligned and ready to negotiate a whole host of items post-presentation.
Follow AdExchanger (@adexchanger) on Twitter.