Why TV Networks Are Cutting Back on Commercials
Time Warner, Fox, Viacom respond to ad-free streaming services
Commercial time had increased to make up for falling ratings
Hate commercials? Good news: You may see fewer of them.
Media companies, including Time Warner Inc., 21st Century Fox Inc. and Viacom Inc., have started cutting back on commercials after years of squeezing in as many ads as possible.
The new strategy is an attempt to appeal to younger viewers, who are more accustomed to watching shows ad-free on online streaming services like Netflix Inc., and to advertisers concerned their messages are being ignored amid all the commercial clutter.
Time Warner’s truTV will cut its ad load in half for prime-time original shows starting late next year, Chief Executive Officer Jeff Bewkes said last week on an earnings call. Viacom has recently slashed commercial minutes at its networks, which include Comedy Central and MTV. Earlier this month, Fox said it will offer viewers of its shows on Hulu the option to watch a 30-second interactive ad instead of a typical 2 1/2-minute commercial break. Fox says the shorter ads, which require viewers to engage with them online, are more effective because they guarantee the audience’s full attention.
TV networks are under more pressure to scale back on commercials as viewers have more options than ever to watch shows ad-free. Google Inc.’s YouTube and Hulu LLC recently introduced ad-free subscription services, joining Netflix and Amazon.com Inc.
“We know one of the benefits of an ecosystem like Netflix is its lack of advertising,” Howard Shimmel, chief research officer at Time Warner’s Turner Broadcasting, said in an interview. “Consumers are being trained there are places they can go to avoid ads.”
By airing fewer ads, the theory goes, the remaining ones become more memorable, and thus more valuable to advertisers, letting programmers charge higher rates. Yet, by shrinking the commercials, they run the risk of leaving money on the table at a time when the industry is under growing pressure from consumers ditching pay-TV services for cheaper online alternatives.
“The customer can avoid a whole number of other ads, so we’ll charge a higher price,” Fox CEO James Murdoch said at a conference in September.
For years, TV networks have stuffed more ads into commercial breaks to offset shrinking ad revenue caused by falling ratings. Some programmers, like Time Warner’s TBS channel, even use compression technology to subtly speed up shows and movies to squeeze in more ad time, the Wall Street Journal reported in February. Since 2009, the average commercial time on cable TV has risen from about 14:27 to 15:38 minutes per hour, while broadcast network ad time has increased from 13:25 to 14:15 minutes per hour, according to Nielsen.
Yet, showing more commercials has made streaming services like Netflix “that much more preferable for viewers made numb by the absurd amount of ads,” Todd Juenger, a media analyst with Sanford C. Bernstein & Co., said in a research note.
Media companies may also be trying the new strategy for another reason: there’s less advertiser demand as ratings have declined, so cutting back on commercial time won’t affect revenue that much, said Paul Sweeney, an analyst at Bloomberg Intelligence.
“If the advertising market was really strong you probably wouldn’t see this because there’d be too much revenue left on the table,” Sweeney said.
Time Warner executives say they will test reduced commercial time on truTV, a network aimed at younger viewers who are considered most resistant to commercials, before introducing the strategy across its other channels, which include TBS, TNT and CNN.
The company hopes fewer ads will mean better ratings and higher returns for advertisers.
“It could be the best of both worlds,” Turner’s Shimmel said.