Advertisers Are Scrambling for Ways to Make TV Commercials Appealing

Network and cable TV providers are cutting back on ad time, but finding new ways to make more money.
By Amy Thielen ,

Television companies want a second chance.

After shoe-horning as much as 8 minutes of commercials into 30 minutes of programming, Time Warner (TWX) , Viacom (VIAB) - Get Report and 21st Century Fox (FOXA) - Get Report  say they're cutting back on so-called adloads in an effort to lure back commercial-weary viewers. The heavy adloads, they admit, is one reason they've lost viewers to ad-free programmers like Netflix (NFLX) - Get Report and Amazon (AMZN) - Get Report  Prime.

To make up for possible lost revenue, TV and cable networks are getting creative in their looking for new ways to make money.

Some, like CBS (CBS) - Get Report , are emphasizing primary sponsorships for sporting events like golf's The Masters, whereby marketers pay more for primary placement as the only advertiser during a commercial break, or only one of a few.

Another strategy is to place the ads at the beginning of the program similar to videos on Alphabet's (GOOGL) - Get ReportYouTube. Viewers might sit through the first 30 to 60 seconds of ads to get to the main program if that's the only commercial in a 30 minute program. Having that kind of a captive audience will cost the advertisers a premium well above traditional ads

"By creating programming that is customized to certain audiences, networks can charge more for those ad times," said Deacon Webster of the New York advertising agency Walrus.

Yet it's not the supply side of the curve that networks should be addressing, but the demand side, countered Steve Birenberg of Northlake Capital Management. By making programming better, and raising ratings, ad-time becomes more expensive.

"The goal should be to create a higher price for the ad through better programming," Birenberg said. "If networks can make that ad time more valuable through better programs, that alone will drive up the price of ad time," Birenberg added.

Time Warner, Viacom and Fox have already initiated plans to cut their ad times by as much as half starting in 2016. Time Warner executives said earlier this month that they're going to give this strategy a test run at TruTV before launching it on their other channels such as TBS and CNN.

By offering fewer ads, Time Warner hopes the strategy will boost ratings, subsequently raising the premium on limited ad time. And less air time means that advertisers will compete more aggressively for their share.

"It costs the advertiser more because they are one of the only advertisers in a program," Webster said. "Viewers will sit through commercials if there aren't as many interruptions."

But the burden isn't just on the networks. Fewer ads means ad agencies have to come up with better and more memorable commercials, essentially giving advertisers more bang for their buck.

And giving viewers less of a reason to switch to Netflix.

This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.

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