UBS 2015 Final Final WithNotes

UBS 43rd Annual Global Media and Communications Conference

Outlook For The Broadcast Networks - David Poltrack - December 7, 2015

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Good Morning

UBS 43rd Annual Global Media and Communications Conference 2


Welcome to the annual Outlook For The Broadcast Networks from CBS.



First, the required preamble.

The CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS



Following the format of past years, I will divide my presentation into two sections. The first section will address the short term picture and include my forecast for 2016.

The second section will address the longer term direction of the advertising and media markets.

I am going to hit you with a lot of slides that go by fast.

The presentation will be available on the CBS Corporation website tomorrow morning.



The first theme of my presentation today is, advertisers, informed with an increasing array of measurement tools providing comparative assessments of the digital distractions and diversions which have been a preoccupation for them during the past several years, are re-focusing on the central role of television advertising in their marketing programs.

My second theme is, since the recession, led by the growing strength of their procurement staffs, advertisers have become more obsessed with CPM efficiency as opposed to reach in their media selection process. And, this efficiency orientation has resulted in less effective television campaigns that have not captured the full power of the medium in driving short term sales or building long-term brand equity.

My message to you today is, in both of these cases, change is now underway.



Let’s get started with the short term forecast.



At the time of last year’s conference, when all of the forecasters were predicting significant declines in broadcast television advertising spending in 2015, I predicted a flat market with 2% underlying growth when adjusting for the 2014 Olympics. I argued that new ROI-based research was ratifying the superior ROI generated by television advertising which would result in money flowing back into the medium in the second half of the year.

The broadcast network television advertising market has been improving each quarter with the early results for Q4 showing the significant gains that I predicted. For this reason, I expect the final numbers to be very close to my forecast.

Recently, SMI released its October 2015 numbers. Their reported double-digit gain for the broadcast networks confirmed the growing strength of those networks. They also reported a very strong Scatter market,



What we have seen this year is buyer resistance in the Upfront market leading the networks to reduce their sellout levels in that market and make a bigger bet on the Scatter market. The Fourth Quarter turnaround is evidence that this strategy is working and that the Scatter market is robust.



For this reason, I am going to stay with my original forecast for 2015.



Moving to 2016, the first positive sign is the brightening economic picture. Gains in real disposable income coupled with lower unemployment are yielding growth in consumer spending.



In 2007, prior to the recession, advertising accounted for 24% of marketing spending. By 2009, that percentage had declined to 21.8%. As the economic recovery has progressed, advertising has not yet captured back much of that lost share. This is despite the emergence of a whole array of new digital advertising offerings since that time.

Looking to 2016, the big question is: given the growth in consumer spending, will advertising begin to recover its lost share of marketing dollars? If advertising were to return to its 2007 24% share, that would add $20 billion in ad spending.



It is clear that marketers are beginning to respond to the improving economic environment by increasing their marketing investments. It is also clear that we have recently seen a significant turn-around in broadcast network advertising spending .

When these trends are combined with the normal Olympics and Presidential election year stimuli, 2016 stands to be a very strong year for the broadcast networks.



My forecast for broadcast network advertising revenues in 2016 is a gain of 9.5% from 2015. Adjusting for the Olympics spending, that translates to a 5% underlying gain in demand for the broadcast networks.

With a strong Olympics, we might even see double-digit growth, If that happens, that would be the first double-digit increase for the broadcast networks since 2004.

I realize this is a very bullish forecast. I will now make my case supporting this number.



If the economy is strong, leading to greater marketing spending, leading to greater advertising spending; and, if the advertisers are beginning to shift dollars back to broadcast television advertising, then there is only one thing that could reduce the expected gains for the networks, that is poor ratings performance.

Let’s take a look at the increasingly complex audience measurement results for the networks.



The new television season is starting out in similar fashion to the previous few years.



Looking first at the Live+7 day results to-date, we see the rankings of the four networks basically unchanged from last year.



The pattern for the composite four-network audience is one of a slight decline in overall reported viewing and low-single digit declines in the currency demographics.

The question for the last couple of seasons has been:

How much of this decline is a true decline in the viewing of the network programs and how much of the decline is a function of the viewing outside of the current measurement system parameters?



Switching to the C3 “currency” measure, we see a pattern similar to the Live+7 results.

Based on these early results, I would expect the networks to have to deal with some Audience Deficiency Units, however, they will be manageable. I do not see these make-good obligations significantly limiting any network from participating fully in the strong Scatter market. Remember that the networks sold less time in the Upfront market this year, lowering the volume of units with audience guarantees.



When we look at the results by network, we see that NBC and FOX are actually performing above last season, CBS is closest to the four-network average, and ABC is showing double digit declines.



The performance of the broadcast networks also has to be contrasted to that of their major cable rivals. After seasons of cable gains and broadcast losses, last season we saw a turn-around in the performance of the broadcast networks versus their Top 10 cable competitors. That pattern has held this season with the composite Top 10 cable network decline exceeding the composite four–broadcast network decline.



Let’s take a closer look at the cable competition.



The majority of the Top 10 cable networks are down from last season in the key demos.



If you broaden the view to encompass all of the Nielsen-measured networks, you see a two-to-one ratio of down networks to up networks .

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To-date, the broadcast networks have won back one full share point from the Top 10 cable networks.





The important summer season did not see the arrival of any new strong cable programs and many of the bigger summer cable franchise program s experienced significant declines.



That pattern has continued into the fall.



As a result of the declining performance of their original series, many of the big cable networks have become more reliant on broadcast network program reruns to fill their schedules.

So, on the broadcast versus cable front, the broadcast networks are more than holding their own.



Another key performance metric for the broadcast networks is their ability to replenish their schedules with successful new programs each year.



Last fall was a particularly strong one for the networks in the introduction of successful new series.

While this season has not quite matched that performance, it has been a solid year, significantly better than 2013.



On a Total Viewer basis, the networks have already introduced six solid new series.



If you focus just on the younger Adult 18-49 currency demo, you can add THE MUPPETS to the list,

Viewers are definitely finding and adopting these new series, however, we did see a change in how the discovery process is unfolding for these freshmen entries this fall.



In our daily tracking with our Entertainment Panel during the first two weeks of the season, last fall we saw an increase in VOD and Streaming as sources of this viewing and a decline in the traditional DVR time shifting. This year we saw the reverse, a gain in DVR viewing and declines in both VOD and Streaming viewing of the new series. More about this subject later.

Let’s look at the viewing pattern for one of these new series.



Here are the results for LIMITLESS, one of this season’s top performers.

When you add up the DVR time-shifted viewing beyond the day of the telecast, plus the VOD viewing and the online Streaming of this program, the total audience adds up to almost 16 million viewers, 62% more than the Live+Same Day audience of just under ten million.



In terms of currency Adult 18-49 rating, the time shifted viewing more than doubles the Live+Same Day rating, +126%, and all but half a rating point of post-three day DVR playback is monetized.



The “discovery” process continues far beyond the first two weeks of the season. This chart shows the number of newviewers that have sampled LIMITLESS as the season has progressed. During the most recent week for which data is available, Week 7 of the season, Limitless still added over two million new viewers. That was actually up from the previous week.

The number of viewers that have now sampled LIMITLESS is approaching forty million.

(Pause)

When you add in all of the time-shifted viewing, viewing that is in and out of the scope of the currency measurement, for broadcast network programs…



…you find that the average network program today is being watched by more, not less, viewers than was the case ten years ago.

The average multi-platform audience for the CBS primetime series programs this season to-date is 13.8 million viewers, versus just 13.3 million ten seasons ago.

Clearly, the networks are benefiting from new media platforms that are making their programs more accessible to audiences. However, it is important to look at these audiences in the context of …



…media consumption dynamics. Early this year, right before the beginning of CES, we conducted a survey at our TELEVISION CITY research center in Las Vegas in which we asked respondents about the changes in their media consumption habits since the 2009 digital conversion.

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Not surprisingly, we found that most respondents believed that their media consumption habits had changed “A Great Deal” (55%) or Significantly (33%) since 2009.

However, less expected were their answers regarding in which year they felt the biggest change took place.



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The majority of the respondents reported that the biggest change for them came in either 2010 or 2011, with the number naming each consecutive year declining each year.

Could we have already seen the major impact of the proliferation of new media consumption options?



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This could be the case, considering that each of these technologies has been available since 2010.

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Through the first two months of the new season, we are not seeing significant increases in the sources of time-shifted viewing compared to those early, post-digital conversion years.



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Let’s look at each source separately. First, the DVR.





DVR penetration growth has slowed to a crawl as it nears fifty percent.

While DVR playback continues to grow in primetime, we have seen a reversal in where that growth is centered. Up until recently, the younger, Adult 18-49 audience accounted for most of the growth. This season we are seeing an actual decline in primetime DVR playback among these younger viewers and a gain among Adults 50+. It would appear that some of the younger time shifters have moved on to VOD and Streaming as the older, Late Majority and Laggard portions of the population are just adopting the DVR.



The DVR, with its ad skipping feature, has been the most problematic of the new time-shifted viewing options for the broadcast networks. If, in fact, younger viewers are moving to VOD and Streaming, where their viewing will be fully monetized, that is welcome news to these networks.



Remember that the single biggest viewing choice during each hour of primetime is DVR playback.

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It would appear that the balance between the Live viewing of broadcast network programming and the time-shifted viewing of that programming is reaching a point of equilibrium, particularly for the younger audience.

A significant amount of this viewing is to programs outside of the three day currency window. If that delayed viewing is shifting more to VOD and Streaming, where it is fully monetized, that is a win/win for the broadcast networks.





Despite the fact that DVR viewing is trending towards an older audience, the overall profile of the DVR viewers is younger and more upscale than that of the Live audience.

All the more reason for the networks to want to redirect this time-shifted viewing to the fully monetized VOD and Streaming platforms.

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This point becomes even more critical when we see that the length of time from the Live broadcast to the DVR playback of that broadcast is lengthening.

This post-seven day time-shifting is currently not monetized by the broadcast networks. If they can convert it to VOD or Streaming, it would be of value.



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Moving to VOD, we see an actual decline in VOD activity versus last season.

This is somewhat surprising since just about every network program is available on VOD and more viewers seemed to be using this form of time-shifted viewing.





VOD has grown to represent a significant portion of the overall C3 currency audience since Nielsen added it to that measurement. For the average CBS series, it now accounts for a 5.3% lift in the key Adult 18-49 audience. On the high end, it represents almost ten percent additional audience for the hot, new LIMITLESS series.



The VOD audience also is a valuable audience, younger and more upscale than the Live audience.

In addition to more of these viewers now being monetized within the currency windows, the stand-alone VOD post-3 day market is growing as the MVPD providers build their Dynamic Ad Insertion (DAI) capabilities.

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The third time-shifted viewing source is online streaming.

This form of viewing continues to show growth, albeit at a slower pace than past years.





The source of this viewing is gradually moving from the desktop and laptop to mobile devices and tablets.



Despite this relatively modest growth in overall streaming, many of our panelists continue to report that they were using this form of distribution; “More” versus those reporting “Less”.



Once again, these streamers were significantly younger than the Live viewers.

Viewers are well into the process of establishing their viewing protocols.

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The one area in which we are still seeing significant growth in penetration is in the multimedia devices such as Apple TV and Roku boxes. However, due to the small current base, the 79% gain in activity only amounts to only 0.6 points.

These new devices along with the growing number of Smart TVs are bringing OTT video services to the television screen, further supporting the argument that it is all television.

Over three quarters of Netflix subscribers watch this service on Smart TVs.





How has this changing media consumption pattern affected broadcast and cable economics?



One form of impact we see is the gradual decline in the performance of a repeat episode relative to the original episode of a program. This has led the broadcast networks to add more original content to their schedules. At CBS, our schedule was almost three quarters original programming for the just concluded 2014-2015 broadcast year.

Cable originals represent just under on quarter of all cable telecasts. While that percentage has been growing, the cable networks are not really gaining any significant ground on the broadcast networks in this metric.



At CBS, we expect to add to our percent of originals next year.

You may note that our Percent Original number is lower than the four-network average. Fortunately, our schedule contains several series that get very solid repeat audiences.

Nevertheless, we are adding more original product to our schedule every year.



As I have pointed out in the past, the original/repeat ratio is important because viewers of original episodes of a program are likely to be more engaged and to recall the advertising in those programs. Because cable networks air more repeats, the fall-off in advertising recall between an original episode and repeat telecasts of that episode is likely to be greater in cable.



I will conclude the short term section of my presentation with a look at the broadcast network programming outside of primetime.



The composite network television audience is up for Late Night, Evening News and NFL and down slightly for the Morning News and Daytime.



I would like to point out that CBS has accounted for much of the gains in these non-prime dayparts.

To conclude this portion of the presentation, I do not anticipate that any performance issues will significantly impact the broadcast networks’ ability to take advantage of the stronger demand now being seen in the Scatter market.



I will now move to the Longer Term Outlook where I will address some of the fundamental opportunities and challenges the broadcast networks will have to address in the next few years.



Here are the five areas of interest I will be discussing in this section of my presentation.

Let’s begin with a hot topic of discussion this year, audience measurement dynamics.



There is certainly a great deal of controversy on the audience measurement front. This controversy centers around the unprecedented reported declines in overall television viewing. And, in particular, there is continuous discussion around the Millennial generation and the future role of television in the lives of this generation.

I will also provide you with the latest viewing reports coming from our Media Demand Landscape segmentation.



This is now the second season that is beginning with lower reported viewing levels.

The questions that have to be addressed are:

First, whether or not these lower viewing levels are real or just the result of more viewing happening outside of the framework of the current audience measurement system.

And, second, what are these declines telling us about the future of the television medium and, in particular, the future of the broadcast networks.

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Season-to-date, the reported decline is minus 2% on a Household basis and minus 5% with younger viewers.



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These levels are below last year’s declines.

Addressing this issue at last year’s conference, I isolated four factors contributing to the decline.



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The first reason for the lower reported viewing levels is a change in the measurement itself. Nielsen is now including Broadband Only homes in the base sample. From last season to this season, these homes have grown from 2.6% to 3.2% of the sample.

Broadband Only households are defined as homes having a TV or monitor with a broadband connection capable of showing online video and no TV or monitor connected to a traditional source.

Needless to say, Broadband Only homes watch very little traditional television. Their inclusion in the sample, therefore, lowers the overall HUTs and PUTs. However, the little that they do view is added to the audiences of the programs viewed.

The concern about adding these homes at this time is whether the increases shown in the number of these homes are a function of real growth in this type of household or Nielsen improving in its ability in recognizing and effectively recruiting these homes.



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(Build 1)

Nielsen is reporting no change in the number of Broadcast Only Homes with High Speed Internet. Last year, that percentage had grown from 5.0% to 5.6%.

(Build 2)

On the other hand, Broadcast Only Homes without high speed Internet did continue to show growth, up 0.6% points.

(Build 3)

This change is good for broadcasters, since, in these homes, they are losing their cable competition and not getting any new internet competition.

(Build 4)

Netflix continues to add homes, albeit at a slower pace. This year’s gain of 6% points is just half of last year’s 12% increase in subscriber homes.

(Double click to go to next slide)



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As we saw last year, the shift of homes from non-Netflix to Netflix status results in a lowering of the reported TV viewing level for Netflix households and an increase in reported viewing for non-Netflix households. This is because the households making the change to Netflix households were lighter television viewing households to begin with.



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The major reason that Nielsen-reported viewing levels are lower in Netflix households is because Nielsen does not include Netflix viewing in its HUT/PUT computation. They cannot currently measure Netflix viewing with accuracy.

When you put all of these factors together, you get a two percent decline in reported HH viewing levels and a five percent decline in viewing by Adults 18-49.





Overall, the decline is centered on the Netflix issue of more and more homes having a significant amount of their “television” viewing not included in the Nielsen count because that viewing is to Netflix and other unmeasured OTT services.

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Bottom-line, we see a decline in Nielsen-reported viewing of two percent versus three percent last year. The contribution to this decline from each of the four causal factors is lower than last year, with the lower reported viewing in Netflix homes responsible for the majority of the decline.



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But is this a real decline or is this the case of viewing not being captured by the measurement system?

Once you accept the argument that the viewing of television programs via streaming should be included in the definition of viewing television, then it is possible that overall viewing is not down, it may even be up.



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You can see from this chart that viewers in Netflix homes do not confine their streaming to Netflix alone. You can also see that they are more likely to record more than less streaming activity to all of the streaming options.

Some of this streaming of television programs by Netflix households is to the broadcast network programs on the broadcast network websites.

But that viewing does not constitute the total involvement of the broadcast networks. These networks also license past episodes of their programs to Netflix and other SVOD players.



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Last month, we asked our panelists that had a current Netflix subscription which of the thirty-six current broadcast network primetime series available on Netflix they had watched on Netflix in the past thirty days.

Forty percent of the Netflix subscribers named at least one program, with the average response including three or more programs. That translates to 1.3 programs viewed per Netflix subscriber.

Netflix is not only a valuable purchaser of programming from the broadcast networks. It also allows viewers to enjoy episodes of these programs from past seasons, building the overall engagement of each program’s fans with that program.





When industry observers report about declining television viewing, they almost always focus on the young Millennial generation.

From 2010 to 2014, measured viewing by adults over 35 actually grew slightly while viewing by Adults 18-34 declined ten percent.

Then, in the most recent television season we saw a slight decline in measured viewing among older adults and an alarming 11% decline among the Millennial viewers.

Some of this decline is explained by the already discussed addition of broadband only homes to the Nielsen sample in 2013. These homes now represent 3.2 percent of all Nielsen homes and they are concentrated among the Millennial homes. As I have already pointed out, these homes watch less traditional television than the average household.

And note my emphasis on measured. Are these young viewers actually watching less television programs or are they just watching more of those programs outside of the measurement



framework?



This data from comScore clearly shows Millennials may watch differently, with a significant portion of their viewing coming from devices other than the TV. In fact, numerous other devices are pushing north of 30% of their viewing.

And, as we’ve noted, many of these devices are not yet fully measured in the same ways traditional TV has been.



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When we say unmeasured, we are referring to the currency measurement upon which the advertising industry relies. There are many new measurement initiatives attempting to measure the missing pieces of the viewing pie. One new service, Symphony Advanced Media, has just introduced a new all-sources measurement solution.

Symphony has built a 15,000 person panel for whom they are measuring all video exposure on all devices, in or out of the home, through innovative smartphone technology.

Their latest results show 30% of the viewing to broadcast programs by the Millennials was from sources outside of the established currency parameters.



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Here is the breakdown as to the source of this unmeasured viewing. Most of that viewing and almost one quarter of all viewing of television programs by Millennials is OTT.



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Are the Millennials truly different from previous generations? Will they continue to stay away from television viewing as they age?

I have had to deal with this question twice before in my career. First, it was whether the anti-establishment Baby Boomers would embrace alternative media. Next, it was whether the Gen X’ers, the so-called MTV generation, would continue to reject the broadcast networks’ programming.

Let’s see what happened.

(Build#1)

This three year snapshot of viewing patterns for 1990, 2001 and 2006 shows that as these generations aged, their amount of television viewing increased as well. The percentages were essentially the same for all three years.

The current question is whether the Millennial generation will follow this pattern or continue to deviate from the path of previous generations.

The leading edge of the Millennials has now moved from the 18-24 to the 25-34 age segment. How has their viewing changed as they made this transition?



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(Build#2)

They clearly appear to be following the pattern of previous generations.

(Build#3)

TV viewing increased slightly more than the historical pattern to +44%, as Millennials moved past 25.



(Build#1)

When we focus on the viewing of the primetime broadcast programs,

(Build#2)

the Millennials are shifting their viewing towards these programs

(Build#3)

at a far faster rate than previous generations, albeit coming from a lower base.

And remember this is measured viewing. A significant amount of their viewing of broadcast network programming is through distribution sources not yet included in this viewership total, distribution sources that were not available to previous generations.

The fact is that, when it comes to popular television programs, young adults have always enjoyed them as much as older adults. The difference in viewing levels has always been life stage related. Younger adults spend less time in the home where measured television viewing takes place. This is particularly true of the Millennial generation.



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One of the distinctive attributes of this generation is their reluctance to leave the nest. Today only two-thirds of Adults 18-34 live independently The percent of them living with their parents has grown from 24% to 26% in the last four years….



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…Even though the number of unemployed Adults 18-34 has declined from 12.4% in 2010 to 7.7% today. Confronted by the high cost of housing and the burden of student loans, even those with good jobs are reluctant to leave their parents’ homes.However, you can be sure that they spend as little actual time in these homes as possible.



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The recession and the continued burden of high unemployment, high housing costs and student debt have significantly reduced the economic value of the large Millennial generation up until this point in time. However, they are now beginning to enter a period during which their economic impact will grow substantially. This is the life stage in which people get married and start families. It is also the life stage in which more of the Millennials will finally leave the security of mom and dad’s house and find a home of their own.

And when they do, many of them will, like the generations before them, purchase the biggest screen television they can afford, get a recliner, and more fully enjoy the benefits of broadcast television and broadcast television advertising.





But, as I have argued in past presentations, at CBS we do not believe that the traditional age/gender classifications are definitive enough to define television program audiences or the prospects for any major product or service. That is why we developed our Media Demand Landscape segmentation in 2011 and then updated it in 2014. Nielsen,… our partner in the development of this comprehensive profile of the U.S. adult population according to a combination of media consumption, lifestyle and life stage characteristics, …has integrated it into the framework of its other research products including the National Peoplemeter Panel. This allows anyone the opportunity to look at Nielsen ratings by each of these segments. Let’s see how things look this fall.



First, here are the seven segments. As you may recall, we have selected Media Trendsetters, Program Passionates and the younger Engaged Streamers as the three most important segments.



Here are the results of the Fall 2015 fusion of the Nielsen Peoplemeter results and the Media Landscape segmentation.

The composite ratings for the four networks vary somewhat by segment, but the pattern is similar to the overall viewing pattern.

CBS, the overall number one network, is number one in 5 of the 7 categories and a close second in the other two.



And here are the top ten non-sports programs. Note how many of the same programs can be found on all of the lists.

Certainly, the members of the Digital Selectives and the TV Traditionalists could not be more different in life stage, lifestyle and demographic composition. Yet. six of the top 10 programs are common to both segments.

Despite what you may have heard, the top broadcast programs still have universal appeal.



That is also true in the sports area.

Sure, NFL telecasts of the various networks deliver their highest numbers with Sports fans. But these games also end up on the top ten lists of all of the other segments with the exception of the older, female-skewed TV Traditionalist segment.

It is hard to find anyone who does not watch one or more of these top entertainment and sports programs at least occasionally.



We believe that our segmentation, available to all Nielsen clients, provides a superior way to develop target markets versus the traditional age/sex demo approach.

A marketer using this segmentation approach will be provided not only with the size of each program’s audience but also with valuable media consumption and life style profiles of each program’s audience that offers valuable insights regarding how to effectively communicate with that audience.

But the measurement tools have now moved beyond measuring the size and composition of a program’s audience to measuring the actual results of exposure to the ads within that program in terms of sales generated for the advertised brand.



To demonstrate how we are using this new data to help advertisers get the optimum return on their advertising dollars, I will address two major issues that the broadcast networks face today.

First, many advertisers have been “leaning the television mix” since the introduction of cable television. This practice really accelerated in the years following the recession.

Second, some advertisers have been using television dollars to fund their new digital advertising programs.With these new results-based measurement tools, we are able to prove to advertisers that both the “leaning of their television mix” and the movement of dollars from television to digital will lower the return on their advertising.



The practice of “leaning the television mix” refers to the reduction or elimination of high-rated television programs in an advertiser’s television advertising campaign in favor of low-rated, low CPM programs. This approach puts efficiency over reach as the primary goal in selecting a television plan.

This practice has been prevalent with CPG advertisers since the turn of the century, but has increased most notably since the recession. We have found that the advertisers implementing this approach have attained significantly less weekly reach with their advertising. The question is:Does added efficiency make up for the lost reach and generate superior ROI results?

With the new single-source measurement tools now available to us, we can answer that question for the advertiser.

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This type of ROI analysis is the cornerstone of our Campaign Performance Audit product, a five-step analytical research process to help our advertisers first design and execute their TV campaigns, then measure the ROI of those campaigns.

Our use of this product over the past year has provided us with insights into how the “leaning of the mix” approach has undermined many CPG television campaigns, reducing both the short-term ROI and the longer-term brand equity provided by television advertising.





This slide shows how CPG advertisers have been leaning their television mix since the turn of the century. In 2000, 40% of CPG national TV dollars went into Primetime.

That level declined to just 22% in 2013 and held at that level for 2014.

To illustrate the misguided nature of the leaning of the mix in television campaigns, I will offer two case histories.

The first of these case histories deals with two food brands that are top competitors in a large, crowded segment of that category.



Looking first at the 4th quarter of 2013, we see that both brands were active in prime and non-prime dayparts.

Brand B had the clear advantage in terms of reach among category buyers, 57.2% to 48.7%.



Now let’s move to the 4th quarter of 2014. We see that both brands have now abandoned broadcast prime and both brands have also seen significant drops in their weekly reach.

Let’s look a little deeper at the comparative reach of the campaigns.



Together the two brands only reached about one half of the category buyers each week.

Almost three-quarters of those buyers saw ads from both brands. Brand A had more buyers exposed to their ads exclusively, 15% compared to 11% for Brand B.

Let’s look at how each brand did with the buyers that saw both ads and the buyers that just saw the one brand’s ads.



First, Brand A.

We see that those exposed to their ads exclusively accounted for 7% more in revenue than those that were not exposed to their ads.



The difference between the unexposed and those exposed to both ads is +6.4%, slightly less than the lift for those exposed exclusively.

So the good news is that exposure to the ads increases buyer activity and exclusive exposure to the ads increases that activity even more.

Not surprising, but comforting.

Now, let’s look at the results for Brand B.



Here the lift for those exposed to Brand B’s ads exclusively versus those not exposed to their ads at all is a more impressive 12.2%.



Brand B also does better with those exposed to both ads, +8.9%

Do you see the problem here?

You have two major competing brands with effective advertising, generating incremental sales moving in a parallel manner, that is reducing the number of potential buyers they reach with their advertising each week.

What if one of them had not cut the broadcast primetime that was working so effectively for them in 2013?



Looking at Brand A, we added three spots a week in broadcast primetime to their schedule.

The weekly reach went up from 48.5 to 54.6, a +13% increase.



Not only does this increase the weekly reach, it increases the overall campaign reach and it accelerates the reach build-up trajectory.

It also increases the all-important Effective Reach level from 17.5 to 19.5%

Bottom line, either of these brands could have gained a significant competitive advantage by adding broadcast prime to their schedule, broadcast prime that had delivered a positive ROI for them in the past.

Instead, they both cut out broadcast prime and reduced what was a positive ROI TV campaign.

Bottom line, both brands lost market share and had sales declines.



Case History #2 deals with two major brands in a competitive household goods category.





In this case history, Brand A was running just five Broadcast Primetime spots per week compared to 72 cable prime spots and over 300 very low rated non-prime cable spots.



That schedule reached 57.7% of category buyers. The primetime spots contributed 10.5 of those 57.7 reach points.



Since there were so few broadcast primetime spots on theses schedules, we combined broadcast prime with high-rated cable prime defined as a program with a rating of 1.5 or more. Seventeen of Brand A’s cable spots qualified.

Those exposed to the ad in the high-rated prime spots alone bought 4.1% more of Brand A than those exposed to the balance of the television or not exposed to the campaign.



That translated to $3.56 in incremental revenue for every dollar spent.



Those exposed to just the CBS prime spots accounted for 5.5% more spending than the balance of consumers.



That added up to $4.72 in incremental revenue for every dollar spent on these CBS spots.



Brand B, a major competitor to Brand A, also ran just five spots a week in broadcast network prime and had 400 spots in low-rated non-prime cable each week.

None of this brand’s cable prime spots qualified as high-rated.



The Brand B schedule delivered far lower reach, just 38.8%. In this case, the contribution of the limited prime spots was 14.6 reach points.



Those exposed to the prime time spots spent 6.3% more on this brand.



Which translates to $1.36 for every dollar spent on high-rated primetime television advertising.



Again, the return for the CBS programs was higher, +7.5%...



... or $1.64 per dollar spent.



For both brands, the incremental sales provided by the prime time spots were relatively evenly divided between current buyers and new buyers of the brands.



.I would also remind you that through the years research has shown that the longer term, brand equity building value of television advertising multiplies the full ROI provided by television advertising.

This historical work was confirmed by a major study conducted by CBS, Nielsen and Kellogg’s and first presented at the ARF Audience Measurement Conference in June of 2014.

That initial work was then expanded and presented again at this year’s annual ARF Conference.



That research proved that

• Advertising does have a long-term effect and it can be measured using true single source methodology

• The full value of advertising may be higher than previously believed: Nielsen Catalina Solutions (NCS) measured the range between 1.8 and 4.5 times the short term ROI.



The other misguided practice that is undermining advertising spending television is the diversion of dollars by advertisers from television into their Digital and Mobile adventures.

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To measure the wisdom of this tactic, we had Nielsen do a complete reach/frequency analysis of the actual television and digital schedules for over 300 brands covering a range of budgets, digital/TV mixes and product categories.

Since the goal stated by many advertisers in most cases is to extend the reach of the television campaign, we first looked at the reach of the television and digital portions separately.

As you can see, the digital campaigns reached far less HHs in the target categories. Over the 300 campaigns, the maximum threshold for the digital campaigns was around 40% compared to the maximum threshold of the television campaigns of around 80%.

If I could have you remember just one slide from this presentation, this would be the slide.

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Next, we divided the 300 campaigns into terciles by television weight and digital weight. We then looked at the campaigns by various high/low combinations.

For those campaigns that had high levels of both television and digital, we found that, on average, they reached 81% of the target market with television alone providing 63 of those reach points, Both digital and television exposure accounting for another 14 reach points and digital alone accounting for just 4 incremental reach points.



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For those campaigns that had high levels of television and low levels of digital, we found that, on average, they reached 73% of the target market with television alone providing 72 of those reach points, both digital and television exposure accounting for another 1 reach point and digital alone provided no unique audience.



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In the reverse situation, high digital/low television we found a significantly lower average overall reach level of 47%. Despite the relatively high digital levels, television alone provided 34 of those reach points, Both digital and television exposure accounted for another 5 reach points and digital alone still only accounted for just 4 incremental reach points.

It is clear from studying this comprehensive sample of cross-media campaigns that currently digital is being employed primarily as a supplement to broad reach television campaigns by most national advertisers and that its value in extending the reach of those campaigns is marginal at best.



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We selected one campaign as an example of a campaign that was highly weighted towards digital. This campaign for a major retailer had a digital base that reached 34.4% of the target. Yet, even at that level, the television portion of the campaign delivered a greater unique audience with a TV only contribution of 34.4 points versus the Digital only contribution of just 11.9 points.

The dominance of television over digital in generating reach within a given target market as each is currently deployed by national advertisers is confirmed by this comprehensive analysis of actual cross-platform campaigns. Other research has also demonstrated that digital campaigns work better when supported by strong television campaigns.

And, as we saw in our case histories, major brands are not running television campaigns that have fully exploited the reach capability of the medium.

So the last thing an advertiser should be doing is using television dollars to fund its digital efforts.





Since the introduction of cable networks in the 1970’s, the broadcast networks have coveted the dual revenue stream, subscription and advertising, of these competitors. When the broadcast networks were granted the right to seek compensation in turn for their granting permission for MVPDs to carry their signals in 1992, they, for the first time, had the ability to generate indirect subscription revenues through their negotiation on carriage with these MVPDs.

It took several years but now the broadcast networks, through their affiliated stations, are getting per subscriber retransmission consent fees form the MVPDs.



These revenues, which were essentially non-existent just ten years ago, have risen to over six billion dollars today. SNL Kagen estimates that this second revenue source will grow to over ten billion dollars at the end of the decade.



Another source of new revenue for the broadcast networks is syndication fees from Netflix and the other new SVOD players. These revenues do not go directly to the networks, they go to the studios and production companies that produce the programs for the networks. However, those studios are most likely to be owned by the broadcast networks’ parent companies.

And, with the competition in the SVOD sector heating up, the value of these franchise network series to the players can only go up.



Now let’s look at an important part of the digital market, online social media



One demonstration of the fact that the American public is not losing its love for television programs is seen in the latest report from Keller Fay, the research company that regularly tracks the word-of-mouth interaction of the population. In October 2015, Keller Fay projected that TV programs accounted for 647 million word-of-mouth conversational mentions, up 20% from last year.

Television programming remains a primary driver of the interaction between people. This results in exponential social amplification, social amplification that can include discussion of the advertising messages contained within those programs.



And, despite the attention paid to the new internet-based social media, most of this social amplification comes from offline conversations.



Compared to conversations about brands in other categories, the WOM discussion about television programs is much more likely to be positive in sentiment. This is particularly true for CBS programs.



In 2012, I first addressed the potential for interactive applications involving the television and a smartphone or tablet at this conference. We had tested numerous beta versions of this type of application including the earliest version of the Shazam app you now see featuring Coca-Cola.

While I was very enthusiastic about the promise of this interactivity for advertisers at the time, it was clear that the products were not yet technically ready and the public was not comfortable enough with the smartphone itself to embrace these products.

This year we tested a new interactive application called mobii, which is being developed by actv8me. It was immediately clear to me that actv8me had successfully addressed many of the technical issues that had been holding back this technology. More importantly, the respondents were now so adept in the utilization of the full power of their smartphones, that they were able to immediately utilize the Mobii product.

They were also very enthusiastic about its potential.



Following that research, actv8me conducted a live test of mobii with Univision in Houston and Austin.

The results were very encouraging.



This test covered the audiences of the Univision stations in these two markets. Almost one-half, 47%, of these homes had someone download the mobii app. User growth continued through the test at a rate of 5% per day.

During the test, over three million offers were made available through the app. That led to an extraordinary response. In all, over 670,000 offers were saved to Apple Wallet and Google Wallet, 22% of all of the offers.



The delivery of offers and the downloading of those offers increased each week and extended beyond the test period.



The test also went viral generating over 160,000 shares on Facebook and Twitter reaching far beyond the two trial cities.



As you would expect, the major adopters of the app were younger. However, there was a significant level of use among all age groups.

The interactive applications possible from the linkage of the television and smartphone screens during periods of simultaneous use are endless. This test demonstrates just how powerful a marketing tool that linkage might be. The Mobii team at actv8me has several national tests scheduled for 2016.



That concludes my opus.

I hope that I have conveyed to you my enthusiasm for, and belief in the future of the broadcast network business.I realize that I am considered far from an objective analyst. That is why this presentation is filled with statistics supported by sound research as opposed to the hyperbole, misinformation and unsubstantiated projections that characterize much of the dialogue around media and advertising today.

Yes, I am a CBS executive. But I am also an individual that has devoted his career to the study of television and advertising, an individual that has served as an Adjunct Professor of Marketing at both the NYU and Columbia Graduate Schools of Business and who is currently the Chairman of both the Advertising Research Foundation and the Executive Committee of the Marketing Science Institute.



I believe in the preeminence of television advertising as a means for generating both short term results and long term brand equity for advertised products and services because over the years I have measured and documented its impact.

I see nothing on the horizon that will threaten that preeminence and many new developments that will serve to further enhance the position of television advertising.

We now, for the first time, have the analytical tools that will allow the advertiser to harness the full power of the medium, something less and less of them have been doing in the recent, post-recession years of cost efficiency as opposed to reach building media planning.

I also see the continued expansion of the new “second revenue streams” centered on providing direct consumer access to our compelling content both in the U.S. and throughout the world.

UBS 2015 Final Final WithNotes

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