The world of television advertising is undergoing dramatic change, and one of its top executives is taking a page out of history to help fix it.
In 1981, the TV ad world was dealing with its first wave of fragmentation. Cable television was just taking off, and one-third of US households had now switched out their rabbit ears for a cable box. Tens of millions of viewers were watching new channels and broadcast network ratings in those households were slipping dramatically, with measured per-show losses of 8%-18% for pay cable households.
This was bad for large national advertisers, since virtually none of them were buying cable ads yet. Not only were big portions of their broadcast TV spend now being wasted on lost audiences but, more critically, they were missing out on the opportunity to reach the now-substantial, still-growing, upscale audiences watching cable. TV planning and buying needed a reset.
The Bates 5% Solution. Ted Bates & Co. was one of the top agencies at the time. Its media director, Walter Reichel, was one of the industry’s smartest practitioners, and he had an answer to the cable/fragmentation quandary.
The rest is ad industry history. Bates implemented the 5% Solution across its client base. It was evangelised up and down Madison Avenue, and prominently publicised on the pages of broadsheets like The New York Times and virtually all the top industry trade publications. A movement was founded.
The rest of the industry followed suit, shifting ever-increasing amounts of its TV ad spend year over year from broadcast to cable to “recapture the audiences” as cable and multichannel TV penetration grew from its 34% level in 1981 to over 90% today.
The Levy 5% Solution. Turner president David Levy, one of Ted Turner’s front-line troops in the late ‘80s, has been a pioneer in the world of audience-based targeting and an innovator across television (and also a good friend, mentor and advisor of mine). Now, recognising the challenges posed to TV buying from increasing audience fragmentation on TV and competition from Google and Facebook, Levy has taken a page from Bates and Walter Reichel. As part of this year’s upfront, he has called for TV advertisers to shift 5% of their budgets this year to audience-based ads, as reported by Multichannel News.
Why should advertiser adopt the ‘Levy 5% Solution’? Because Turner’s experience, as well as those of its TV network competitors, shows that if marketers shift just 5% of their budget to audience-based ads, they will get a 7% better overall return on investment compared to keeping 100% of their spend targeted by sex/age demographics alone.
Will the TV industry respond to levy as it did to Reichel, and start moving away from its myopic focus on demographic TV ad buying, adding audience base into the mix — just as marketers did 37 years ago, when they started moving away from 100% reliance on broadcast TV?
Time will tell, but I’ve already made my bet. I believe that they will.
Dave Morgan, a lawyer by training, is the CEO and founder of Simulmedia. He previously founded and ran both TACODA, Inc, an online advertising company that pioneered behavioural online marketing and was acquired by AOL in 2007 for $275 million, and Real Media, Inc, one of the world’s first ad serving and online ad network companies and a predecessor to 24/7 Real Media (TFSM), which was later sold to WPP for $649 million. Follow him on Twitter @davemorgannyc