Economy, Competition Challenge Stations

The volatile stock market could make advertisers reluctant to plunk money down early on spot advertising and avoid the 2012 political logjam up ahead.

So says Kevin Gallagher, EVP and local activation director at Starcom USA, which places nearly $2 billion worth of local media advertising on behalf of about 40 clients. Among them: General Motors, U.S. Cellular, Samsung, Bank of America and Walgreen’s.

Working alongside his fellow members of the 4As and broadcast executives through TVB, Gallagher is also actively engaged in Project Reinvention, the effort to take some of the labor and cost out of making spot TV buys.

In this interview with TVNewsCheck Contributing Editor Janet Stilson, Gallagher also says TV stations face some big challenges, namely competition from cable systems that can meet advertisers’ desire to target parts of TV markets and from national companies like Google and ESPN that have an eye on local digital dollars.

And there are “pain points” between the buyers and sellers during spot transactions that need to be eased, Gallagher says, not the least of which is the tendency of stations to bump one advertiser for another, particularly during election season.

An edited transcript:

Please give some me insights into how Starcom’s media mix has changed in recent years and how you think it’s going to change moving forward.

The larger framework is that, in the overall media mix, client ad dollars continue to shift to digital media. The degree to which that’s happening is a little bit hard for me to speak to since I specialize in local broadcast.

Can you be more specific in terms of what percentage of the local media mix is online and mobile, how much is broadcast TV, etc.?

I don’t know if I can be specific. I think within local, what clients are looking for is greater target-ability. So we’re starting to look at how can we spend dollars more efficiently; how can we do things like [set top box] geo-targeting to maybe only buy a certain segment of a Nielsen DMA rather than buying the entire DMA?

So that only involves buys on cable systems as opposed to stations, right?

Right, because with the station you get the entire market whereas in local cable you can segment some geographies within a DMA.

There are station groups, like Fisher Broadcasting, that have created lots and lots of hyperlocal websites in certain markets. Would you consider geo-targeting in the online space as well?

I think as long as they can aggregate the audience and sell us the audience on some type of efficient transactional basis it can help us. If they can aggregate that audience up to us as Seattle and we can buy Seattlesites.com from Fisher Broadcasting, and it’s an audience level that’s on par with some of the bigger portals, that’s fine.

So what you’re doing with television, going after certain pockets of major markets, is not what you’re doing in the online space? You’re only looking for entire markets online, right?

Usually, yes.

How do you think that TV stations can work more effectively to serve your needs or your clients’? Are there certain areas of local and national spot that can stand some improvement?

I think the challenge for local broadcast stations as we think about the digital screen and online video is that they’re not only competing with other local online sites; they’re also competing with the national sites, even sites like Hulu, which can geo-target to a specific DMA.

So the stations are not just selling against their competition down the street. They’re competing against Hulu and Google and all the big portals. The online audience for that national portal, broken down to an individual market, can be bigger than the local station site’s audience.

Do you see something that the stations can do to better compete in that digital environment?

I think they’re doing a good job competing.  It’s all about content, really. There’s something to be said for localization of content — local news, local weather, local sports — similar to what they do on the broadcast side.

It’s just like a numbers game. When there are brand icons like ESPN, which has an ESPN Chicago, it becomes really hard for a WLS in Chicago to become the destination for sports. I think that a viewer or online user in Chicago is naturally going to gravitate to ESPN and then ESPN Chicago, as opposed to saying “I will get all my sports information from WLS.com.” And that’s the challenge.

Again, I don’t want to say that the stations are doing a bad job. It’s just it’s a different marketplace, and they’re competing against big national iconic market brands

What’s your long-term outlook for national spot and local spot? Have the stock-market gyrations affected your view of spot?

2012 is right around the corner and is going to be a political year. And there’s going to be significant spending that will vary kind of on a state-by-state basis. We know that it will be a good year for a lot of the local stations.

In terms of the short-term, we’re about to embark on our fourth-quarter buying. It’s hard to say, based on what the financial markets have done, if that’s going to change anything yet. I think that’s what we’re in the mode of assessing right now and trying to figure out.

The common thinking would be that in a political year like 2012, “Let’s get out there early, and let’s try and get a base of advertising laid in before all the political money comes in.” But given some of the financial indicators and the wild swings in the market, it’s probably going to be hard to convince clients to do that.

What’s your estimate of spot percentage growth in 2012 versus 2011?

High single-digit increases.

Would you please break out national and local spot percentages?

I don’t designate national spot versus local spot. It’s all money going to local TV stations, so it’s all the same marketplace. I know sellers segment it, because they kind of look at that money coming from big national agencies versus money coming from in market retailers that place their own advertising. But to me it’s all supply and demand on the same inventory.

Do you think that the big CPM increases that some broadcast and cable networks negotiated in the upfront will have a trickle-down effect for scatter, as well as local and national spot?

That’s always a tough one. There’s probably a school of thought that says the local marketplace doesn’t necessarily follow the national marketplace, because the marketers’ needs are sort of independent and different.

I think the bigger thing related to local is the political dollars. It’s always hard to pin down a wash-over of national dollars into local strictly because of a high increase in network TV. I don’t know that the overflow necessarily works that way. That’s just one way to think about it. 

If network broadcast CPMs are real high in an upfront, does that really mean that the dollars are going to move to spot TV, or does that just mean that they’re going to leave network television and move to things like cable and syndication on a national level?

I don’t know for sure. I mean, I think that’s an individual client call, and I don’t know that I can really track how those dollars flow.

I would like to ask you a couple of questions about Project Reinvention. Is that on sort of a hiatus at this point or what’s the situation?

I am going to turn the table on you a little bit if you don’t mind. Tell me what your understanding of it is and the background that you have on it so I can make sure that we’re talking about the same thing.

Broadly speaking, my understanding is that Project Reinvention is an attempt to come up with a new way of buying and selling spot so that it resolves some of the issues that advertisers have in terms of back-office problems, in terms of what kind of measurement you use — what makes the most sense across so many different forms of media. Am I in the ballpark there?

Yeah. But I tend to think of Reinvention as something that’s more mutual across advertisers and sellers. What you described sounded like a one-way point of view from sellers saying they had concerns, and a new way of buying and selling would help advertisers resolve problems.

To me it’s a two-way thing. There are probably pain points for sellers as well as buyers, and when Reinvention started it was intended to be more of a mutual project that said, “Hey we have got pain points on both sides of the desk — management of inventory, backroom billing discrepancy resolution. How do we work together to mutually resolve those things and let both sides of the desk operate more efficiently?”

What you could think about is, especially on the brink of a political year, is our business has evolved over 40 or 50 years. There’s this phenomenon unlike other media of, when something’s purchased, it isn’t really purchased, because there’s the potential for another advertiser [in many cases a political advertiser] to come in and bump somebody out. But business practices have evolved over time, and they now are what they are. It’s created some pain points on both sides of the desk.

So what if we mutually took a step back and worked together and said, “If we could figure out how to transact our business today with a clean sheet of paper knowing what we know about how our business operates, knowing the technology and the tools that we have, would we be able to eliminate some of these sort of bad business practices?

To some degree they’re kind of backroom functions. There’s tracking of inventory, resolving billing discrepancies because of all these preemptions. And so what if we sort of reinvented the transactional process and how we do business together to make things operate more efficiently? That’s what Reinvention was intended to be.

So where does it stand? Are talks still ongoing?

The talks are definitely ongoing. I think that probably the key reason why we have not gotten a lot of traction to this point is we got involved in a very prolonged conversation about ratings currency. That’s sort of at the forefront, and without being able to resolve currency, it’s hard to resolve the other business practices that go along with the transactional part of the business.

Do you see any resolution to the currency debate coming any time soon? [Stations and agencies are at odds over whether to use ratings on a live basis or live-plus-same-day basis. The C3 ratings, which measure commercial viewing specifically and which are used by the broadcast networks, are not available for local markets.]  

You would probably get different points of view from different people. I think agencies are very firm on where they want to be with currency, and sellers are very firm on where they want to be, and maybe we have agreed to disagree.

We all want the same thing. We want the stations to get credit for delayed viewing of commercials. The problem is that Nielsen’s currency doesn’t give us that number, so we have to pick a different number to do business, and the two sides disagree on what that different number should be.

It may be a quirky example, but it’s what our research director uses, and I think he hits it right on the head: We all want oranges. Unfortunately, at the farmers market today, there are no oranges. So we have to decide whether we want nectarines or tangerines. The agencies are saying we want tangerines; the stations are saying we want nectarines. But we really all want oranges.