TV networks and advertisers are augmenting Nielsen ratings with new so-called engagement metrics to determine prices for ads—and their effectiveness
For decades, ad agencies and broadcasters have negotiated prices based on the time-honored Nielsen ratings that measure whether TVs are tuned to a certain show. But as talks gear up about ad rates for next fall and winter, the so-called up-front season, more negotiations than ever will center on a new metric: engagement.
In recent years, advertisers like Procter & Gamble (PG), Toyota (TM), and Home Depot (HD) have struck a growing number of deals with broadcast and cable networks based on new tools that aim to measure how closely viewers are paying attention to the programs, not just whether a set is switched on.
A Better Picture of Return
With the recession pounding retail sales and consumer confidence, the pressure to squeeze every dollar is driving advertisers to prove to their finance departments how efficient these deals can make their shrinking ad budgets. In turn, that's driving advertisers' push to make engagement measures the rule rather than the exception. By some estimates, more than half the top 100 U.S. advertisers are now pegging prices to viewer engagement. "Advertisers have been frustrated by the increasing research showing more people ad-skipping and multitasking on PCs and mobile phones while watching TV and are getting much better at understanding the true return on their advertising investment," says Andy Prakken, executive vice-president and managing director of media buying agency Mindshare/Team Detroit.
Advertisers hungry for the data have compelled networks and cable channels to buy such program research as a condition of doing business. The networks pay for their programs to be measured, and the advertisers pay for the ad measurement. One of the dominant companies in the field, IAG, which Nielsen bought in 2007, now has more than 30 network and cable station clients, plus Telemundo and Univision for Spanish-language programming.
Ford Motor (F) is among the latest companies to insist on pricing based on engagement. With an overall ad budget of about $1 billion, around half of which is for network and cable TV, Ford had been using the program engagement ratings of firm IAG Research for a few years to better plan its selection of TV shows. It found, for example, that while the Discovery Channel's (DISCA) Dirty Jobs series, starring Mike Rowe, delivered puny ratings points, the engagement level of the show's viewers is off the charts—and proved to be a ripe demographic for Ford trucks. That led Ford not only to advertise on the show, but to strike a deal with Rowe, who appears in Web videos for Ford showing how tough the F-Series pickup is. "It's a hugely efficient buy for us, but none of that happens without the kind of data we can get now on what people are tuned into, for how long and how closely they are watching our ads, because the Nielsen ratings alone wouldn't have led us there," says James Farley, Ford's chief marketing executive.
Engagement ratings, when laid atop traditional Nielsen ratings, have become invaluable for measuring product integration deals like Toyota's (TM) running deal with Bravo's Top Chef and Ford's with American Idol. Those companies have their products enmeshed in the programs, for instance having aspiring chefs riding around in and sometimes winning new Toyotas, and a weekly Ford commercial on Idol that features the remaining contestants.
Tweaking Weak Ads
Engagement ratings have earned credibility with advertisers because IAG provides the ratings for the networks' programs and the advertiser's ads from the same panels of consumers who rate both. Advertisers are able to quickly match up high-engagement ads with similarly scoring programs. Conversely, this system exposes weak ads quickly, letting advertisers yank them, fix them, or replace them—sometimes within days.
In the fall of 2008, for example, Ford increased the engagement scores of a Lincoln MKS ad that seemed as though it should be scoring higher simply by tacking on details of a popular retail promotion that was launched after the ad began running. Fixing ads quickly based on the daily data feedback saves Ford millions in inefficient ad impressions. "When we get price guarantees on the TV program's engagement scores, it's almost like we are getting the prices guaranteed on how well our ads are doing and how closely they are watched, and that is pretty close to the holy grail for me," Farley says.
The enormity of the data collected by IAG over several years has helped define an effective commercial. According to Lois Miller, president of Nielsen/IAG Automotive, a specialty unit of IAG, the firm also digs into the show's viewer demographics. That allows a company such as Ford or American Express (AXP) to make sure that underperforming ads not only are recalled, but that ads are scoring up to expectation among viewers in the target demographic. "If the overall engagement score for a Ford pickup truck ad was mediocre, but was very high among men 25 to 55, that's what is important and that's what they need to know," Miller says.
Nielsen/IAG's method is fairly straightforward. Each night the firm surveys tens of thousands of TV viewers, out of a panel of 2.5 million, on how well they can recall program and ad details. Answering 10 out of 10 questions right demonstrates engagement. If the respondent gets only 3 of 10 questions correct, not so much. The same method is applied to how well viewers liked and recall the ad, and whether they understood the message intended.
No Universal Pricing Standards
NBC (GE) opened the new ratings can of worms in 2006 when it cut a deal with Toyota to guarantee the automaker certain engagement scores for programs like Heroes and Top Chef. If IAG's engagement ratings for the shows were too low, Toyota got "make goods," or additional ad time for no charge. That way, NBC closed the gap between the number of engaged viewers it had pledged the auto company and what it delivered.
Yet as limited as traditional Nielsen ratings may be when measuring multiscreen, ad-skipping TV watchers, many players aren't ready to shed traditional Nielsen ratings. That system remains the primary currency between networks and ad buyers because of competing ideas on how to best measure engagement. "Engagement ratings are proving very useful media planning tools, but they aren't to the point where we can use them as a hard currency, a standard that absolutely everyone agrees on, to replace Nielsen ratings as our primary price guarantee" says Alan Wurtzel, president of research and media development at NBC, which is signing engagement-rating deals with numerous advertisers including American Express, Verizon Communications (VZ), and General Motors (GM). "That's a high threshold to clear."
But many others don't see that as a problem, says Sam Armando, a senior vice-president at media-buying agency Starcom MediaVest Group, which handles clients like Coca-Cola (KO) and Miller Brewing. In 2005, Starcom cut what many believe is the first engagement-rating price guarantee deal with Court TV, which was looking to attract more advertising despite its small audiences. "We did that hoping people would say it could have been done lots better and then would have some better ideas to get us off Nielsen ratings, which was the point," says Armando. But companies and critics, he argues, have been so busy since then trying to establish a perfect new standard to measure engagement that "we're probably not as far along as we could be."
"We don't need a perfect new standard," says Armando, "we just need the tools to make us a lot smarter so we are advertising to as few people who are asleep or otherwise not paying attention, as possible."
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