DR, the financial foundation of multicasting, is a bit shaky these days. DR spending and response rates are down and no hot new ad category or brand has appeared to energize the sector in some time. This is Part Three of a four-part special report on multicasting running this week. Read the other stories here.
Diginet Driver Direct Response A ‘Mixed Bag’
Tune in to any of the proliferating diginets and you’ll see the breaks filled not with slick car and beer commercials, but with urgent invitations, one after another, to call now for services and products.
For the most part, multicasting is built on such direct response advertising. Unfortunately for the diginets, that foundation is a bit shaky these days. DR spending and response rates are down and no hot new ad category or brand has appeared to energize the sector in some time.
In 2014, DR spending on all media was down 3.2% from 2013, to $5.47 billion, according to Kantar Media. Spending on TV, which accounts for 64% of DR spending, is holding up a bit better. It was down just 1.6% year over year, to $3.47 billion.
“Direct response is a mixed bag,” says Josh Martin, president of media buying agency ZenithOptimedia Direct. “Pharmaceutical, insurance, telecom and home services like alarms and lawn care are doing very well.
“But the more traditional response spots like exercise equipment, where they’re trying to make a direct sale, the Sham Wows of the world, that side of the business is hurting.”
Another worry for diginets is that response rates for DR ads are on a years-long decline.
“The media ratio — the sales you get for every dollar [you spend] — used to be 10 to 1,” says Amir Tukulj, CEO of infomercial marketing company Thane International. “Now, it’s less than 2 to 1. You’re hardly breaking even on TV. You have to make it up somewhere else.”
Increasingly, that happens online. In some cases, consumers see a product online and buy it there. In others, they see it on TV and then go online to buy it there. Those transactions can be difficult to trace back to TV, which may make advertisers less inclined to use it.
Moreover, TV viewers are increasingly watching TV on mobile devices. That’s not a good trend for traditional direct response.
“When TV is passive, we’ll get you,” says Tukulj. “There will be some orders generated. “But when you are watching what you want when you want, and probably avoiding commercials, that becomes a lot harder to do. We have to grab your attention with a very short reminder, in 10 or 15 seconds.”
Still, DR advertising is expected to be the primary source of revenue for most multicast networks for some time to come.
And diginets have a few strengths, starting with lower pricing compared to cable networks and other TV platforms.
“Digital networks have been fantastic for DR advertisers,” Martin says. “It’s giving us another opportunity to run advertising at an efficient cost. And we can validate if it works, whether that’s [on] a cost-per-call or a call-per-search basis.”
Even though there are some three dozen ad-supported diginets with coverage of 20% of U.S. TV households or more, it’s not enough to make much impact on DR ad rates.
“You’d think the diginets would pull down prices,” says Daniel Zifkin, president-CEO of direct response ad agency Zephyr Media. “But the mature [cable] networks are still overpriced.”
In fact, Martin says that DR prices are rising. “If anything, rates are increasing by small single-digit percentages for the top-tier cable networks because the supply of ratings points is going down,” he says. “That’s why layering diginets as a complement to that improves efficiency.”
Many diginets also do a good job reaching older consumers who are more likely than young people to call an 800 number to buy a product they’ve seen on TV, according to the DR buyers.
Networks like MeTV and Tribune’s Antenna TV do that by airing classic TV shows that appeal to these viewers.
Buyers say they are using diginets for more than just the call-to-action spots. They also use them for so-called brand-response ads and, to some degree, sponsorships. And they are also incorporating diginets into multiplatform DR buys.
“We have hybrid buys where we are measuring ratings and awareness, as well as response rates and sales,” Martin says. “But, for a huge portion of my client base, they still just want to see the response.”
Some ads combine a sales pitch and branding. “The networks charge aggressive rates for those,” Zifkin says.
The goal of all diginets is go beyond DR — and some have. Three of the most widely distributed diginets — Weigel’s MeTV, Bounce TV and NBCUniversal’s classic TV Cozi TV — are now getting national Nielsen ratings, which means they can sell conventional spots.
“An increasing amount of MeTV’s business is national spot TV,” says Neal Sabin, vice chairman of Weigel Broadcasting.
“Direct response will always be the backbone of MeTV. But in primetime and late fringe, more and more of our commercials are a ratings-based business. With all the other diginets coming to the marketplace, DR has the potential to become diluted.”
This is Part Three of a four-part special report on multicasting. Read all the sections here.