Frenemies: The Epic Disruption of the Ad Business (and Everything Else) (22 page)

In a modest-size office surrounded by piles of research reports, Poltrack made another counterintuitive argument: Since 80 percent of those between eighteen and thirty-four are simultaneously on the Internet with another device when they watch their TV screen, “that has
resulted in the fact that they are more tolerant of advertising because they have something to do during the commercial breaks. They need those breaks to keep up the IM-ing with their friends and the tweeting.”

What? But they are not watching the ads?

They are, he insists. “There is research that shows those active on their devices are more likely to recall the advertising than those who weren't.”

Why?

Because without a device, “when you're sitting there and doing nothing you'll look for something to do,” and you are more likely to leave the room. “But if you're still in front of the TV” and you're accustomed to multitasking and the only sound in the room is the TV, this “means their hearing is totally centered on the sound from their television set.”

Poltrack made a more startling claim during the annual summer 2015 press tour in Los Angeles: when you count current CBS programs on cable, and those streamed over the Internet by CBS, and those that are recorded by DVRs or on video on demand from cable or satellite companies and watched over a full month, if measurement services could track all these programs and the multiple devices they are watched on, he claimed, “Our programs are being viewed by more people today than a decade ago.” And millennials, he guessed, were not watching less TV. He suspected the devices they viewed them on were not measured by the ratings services. He did acknowledge that the American population had swelled by twenty-five million in the ten years he was counting, and this partly explains his thesis. Poltrack, like Moonves, chants this thesis like a mantra. In May 2017, CBS published a full-page ad in newspapers proclaiming that “more people watch CBS today than 16 years ago.”

Does this claim have the virtue of being true? In 2016, Nielsen
added a measurement tool that allows them to estimate the number of viewers up to thirty-five days after the program originally airs. They measure those who watch CBS prime-time shows live, and those who watch them later on their DVRs or on VOD from their cable or satellite company. Even though the number of viewers does not account for those who watch CBS programs streamed digitally on multiple devices, Nielsen still confirms that CBS's claim regarding its shows is accurate. The ratings for a hit show may be a third of what they were sixteen years ago, but the cumulative audience is slightly larger. But, and here's the rub: with ad skipping the advertiser reaches a smaller audience, even though the overall audience is slightly larger. Plus: advertisers don't pay for CBS shows that appear the next season on ad-free digital platforms like Netflix and Amazon.

Netflix, in the meantime, thrives.
By 2016, Netflix had nearly as many subscribers as the entire U.S. cable industry. Television watching on all channels declined 3 percent in 2015, according to a study by Michael Nathanson, senior media analyst of MoffettNathanson, and Netflix viewing accounted for half the decline. One reason for that decline is ad fatigue. “We have overstuffed the bird,” Kevin Reilly, president of cable networks TBS and TNT confessed to the Television Critics Association in early 2016. In a halfhearted attempt to reduce ad clutter, Reilly's networks and the Fox network announced that they would reduce their ad loads, however slightly. NBC's
Saturday Night Live
said it was paring its commercial breaks by one third. Others gingerly followed. Mindful that his cash register was filling nicely, Les Moonves declined to join. Asked if she worried about ad clutter, Jo Ann Ross says she doesn't. “Maybe down the road this model gets tweaked. But so far, people haven't come to us and said, ‘I'm not buying you because you have too many commercials.'”

Moonves was aware of other competitive threats, including Google's YouTube and Facebook, each of which commonly—and falsely—boast that their audience exceeds that of network TV. In June 2014, RBC Capital Markets's respected television and video analyst, David Bank, released a study revealing that for advertisers the ratings value of watching YouTube for an entire week would only match the value of a single original episode of CBS's
The Big Bang Theory
.
*
YouTube executives invented new ways to assert that their audience was bigger than it was. They proclaimed that their twenty-three videos from
Jimmy Kimmel Live!
averaged 9 million views, more than the average 2.2 million viewers of the ABC late night show in May 2015. Yet Steve Hasker, Nielsen's global president and COO, notes that TV viewing is measured by how many viewers watch in an average minute, while digital outlets like YouTube measure the gross number of times the video is viewed for either one minute or one second. Since Nielsen was only measuring the average audience in any given minute, the average hourly
Kimmel
show in May 2015 had 5.3 million views nightly and 43.1 million adults for the month.

Unlike television, which has Nielsen to grade it, Hasker pointed out that Google and Facebook did not allow “independent third-party measurement.”

Another long-term problem awaited Moonves, one that paralyzed most newspapers and magazines when they were first confronted by the digital threat in the late 1990s. Broadcast television could offer advertisers vast audiences, but they could not offer targeted ads and could not tell advertisers who actually watched their ads and bought their products. Unlike most newspapers and magazines, broadcast television remains a robust mass medium. However, unlike Internet or digital video, it lacks the tools to target audiences, the addressable
advertising that helps explain why digital advertising spending would catch up with the $70 billion ad dollars devoted to television.

Moonves and his network brethren also resist computerized programmatic advertising that automates the targeting of audiences. Brian Lesser, the North American CEO of GroupM, is not alone in predicting that “all media will be digital”—meaning the TV networks will be streamed over the Internet just as Netflix is—and “all TV will be bought and sold programmatically.” Moonves resists, believing that if he turned over ad sales to machines it would take the skill and the timing of the salesman or saleswoman out of the equation, reducing CBS's leverage. “Programmatic buying is fraught with peril,” he says. “Somebody is selling inventory cheaper than you're selling it for.” Networks like the mystery that the only way you can reach, say, women eighteen to forty-nine is by watching
Scandal
.

Also assailing
Moonves and the networks was a six- or seven-year-old digital advertising bazaar—the New Front—meant to vie with traditional television's Upfronts, the period in which the four major broadcast networks sell up to 80 percent of their $9 billion worth of ads for the year. For several weeks in May 2016, thirty-nine digital companies sponsored presentations at which they made their pitch to about ten thousand advertisers and agency representatives. The New Front is organized by Randall Rothenberg's Interactive Advertising Bureau, and MediaLink kicked off the New Front at a May 2 breakfast at the New York Times Center on West Forty-first Street, presided over by Michael Kassan. MediaLink served as host and sent the invites, though the breakfast was paid for by two MediaLink clients, Vox Media and Kargo, a mobile marketing firm. The large hall was crowded with agency representatives and with many of Kassan's digital clients. By his count, Kassan says he represents 80 percent of the digital companies
seeking to sell ads at the New Front. Surveying the crowded room, Harry Kargman, the founder of Kargo, said he saw the breakfast as an opportunity. “MediaLink allowed Kargo to be in front of people we may not have had the ability to get in front of,” he says. “We want CMOs to say, ‘What are we doing with Kargo?'” That's what he hoped happened when he spoke at this breakfast. And after this breakfast, he said, “Michael can pick up the phone and say, ‘You've got to know this guy Harry Kargman.'”

This schmoozefest was gently interrupted by two panel discussions, the first moderated by Kassan, at which Jim Bankoff, CEO of Vox, without ever mentioning CBS or the networks, sought to distinguish “premium” digital video ads, primarily native ads, offered on Vox from the “interruptive” ads on television. Bankoff defined a “premium” ad as having three qualities: It's “creative,” it “loads quickly,” and “it engages me rather than interrupts me.”

Bankoff and Kargman nodded their agreement on the second panel when Kassan concluded by declaring an end to the networks' Upfront monopoly: “I am a strong believer in this becoming a Video Front. It's all one. And at the end of the day, we subscribe to all the platforms and love all of the children equally. . . . If you adopt that view, it's all the same. The siloes are broken down.”

The New Front brought bombast as well as competition. At YouTube's well-attended New Front presentation at the Javits Center, CEO Susan Wojcicki declared fallaciously that YouTube “reached” more 18- to 49-year-old mobile viewers “during prime time than the top ten shows combined.” But as noted earlier, “reach” does not equal viewing. Nielsen reports that the average audience per minute on television accounts for 95 percent of video watching, with smartphone video accounting for only 1 percent (and PCs 4 percent). Dave Morgan, the CEO of Simulmedia, a marketing technology company that designs targeted TV ad campaigns, says TV's ability to attract eyeballs far
exceeds that of Internet darlings like YouTube. “
Judge Judy
today in thirty minutes,” he says, “will deliver more seconds of advertising consumed by more people than all of YouTube will in all of America all day. One show!” Actually, more than YouTube delivers in an entire month, an RBC Capital Markets 2014 analysis reported. With 260 episodes per year, each containing 8 minutes of advertising for
Judge Judy
's 9 million daily viewers, an estimated 1.6 billion minutes of ads were offered viewers, or twice as many as the 830 million minutes of ads per month on YouTube.

Some disruptions occur more slowly. At least in the short run, even with traditional TV's vulnerabilities, CBS and the networks have strengths other legacy and digital media can only envy. Networks may one day lose some leverage if programmatic advertising becomes dominant, but in 2015 Martin Sorrell said WPP sold only about 3 percent of its ads programmatically. Networks like CBS still command the attention of a vast audience. Ten of the top-ten-rated shows on network TV in February 2016 were on CBS, the first time ever that a single network captured all ten. By 2016, CBS owned just over 80 percent of the programs it aired in prime time, allowing the network to sell those shows to TV outlets in the United States and abroad. And by 2016, Les Moonves's CBS was making more money than when he joined CBS twenty years before. “When I first came here,” Moonves says, “the CBS television network was losing money.” Other parts of CBS, like the local stations it owns, were making money. Today, the network is the primary profit engine, one of several reasons CBS outperformed all media stocks over the previous five years.

Entering the 2016 Upfront marketplace,
all the networks knew that the 2015 Upfront fell below expectations, with lower volume of sales and CPMs, or cost per thousand viewer. In the months leading up
to the 2016 Upfront and the ensuing negotiations between buyers (the agencies) and sellers (the networks), Moonves says, “It's always a cat-and-mouse game. Someone always has the upper hand.” Because a disappointing 2015 Upfront was followed by ad prices jumping 15 to 20 percent over the rest of the year in what's called the scatter market, and because he believed “the bright, shiny object,” as he referred to digital video, had lost its luster, in late April he predicted that “this Upfront will be a little bit of a renaissance for networks.” His head of sales, Jo Ann Ross, would set a higher CPM price.

Several days earlier, Irwin Gotlieb of GroupM, the largest buyer, relaxing in his office wearing an open-necked pink dress shirt and tailored jeans, sat on a low couch and likened the Upfront to a futures market. “There was a futures market for Bordeaux in 2000 and 2003. But there wasn't in 2001, 2002, or 2004. You know why that was? The better vintages had scarcity. Good wine and reduced supply equals a strong futures market. Television continues to be a limited supply market. It will be a little more limited this year because I think people are looking very seriously at reducing commercial loads.” Thus he predicted, as did Moonves, a buoyant Upfront for the networks. Which led Gotlieb to conclude that the buyer who jumps in early and makes a large dollar commitment to a strong network like CBS is likely to get a price break. To illustrate, he had his assistant place 10 bottles of water on the coffee table. “Let's say the total supply is 10 bottles and the cost per bottle is $100.” Thus the total market demand is $1,000. “If I buy eight bottles at a two percent advantage because I bought early,” the cost is reduced to $784. Similarly, if he chooses to buy late for a weaker network, the bet he is making is that the faltering network will offer a steeper discount in order to finally sell its ad inventory. For the buyer the question is always: “How do we read the futures market?”

What the seller always tries to do is steer the buyer away from a pure economic analysis by stroking their emotions in an Upfront
presentation with the kind of showmanship the New Front cannot match. CBS invited thousands of buyers and the press to Carnegie Hall on May 18, where they were welcomed from the stage by Jo Ann Ross, who came out in a floor-length white fur coat, white top hat, and bedazzled cane. A video greeting from
Hamilton
creator Lin-Manuel Miranda was followed by late-night comic host James Corden performing as Hamilton in an eighteenth-century costume, surrounded by an ensemble, and rapping, “We just want your Hamiltons!” Lisa de Moraes of the
Washington Post
tweeted, “Another Hamilton segment at an Upfront! This makes three, or is it four?” But when Corden finished she tweeted, “James Corden's Hamilton performance puts other networks' Upfront Hamilton references to shame, including ESPN's Hamilton, ABC's Hamilton, and, sorry, Jimmy Fallon's Hamilton.”