April 13, 2010
 

Steve Grubbs & Harry Keeshan, Upfront PhDs.

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You don't have to be a brain surgeon or a rocket scientist to know how influential Steve Grubbs and Harry Keeshan are on Madison Avenue. You just need to be on the inside of the network TV media business. In many respects though, becoming an insider is more difficult to attain than getting a medical or science degree!

As CEO of PHD North America, and executive vp and director of national broadcast, Steve and Harry employ their intelligence and judgment over the North American portion of PHD's global media organization, which plans and invests approximately $5 billion around the world on behalf of its clients. And it looks as if that $$ amount is growing!

The MadAve Journal was therefore delighted to have the opportunity to chat with them, for those of our readers who are mystified about the 2006/07 upfront, as well as for those who consider themselves on the inside. We sent editor, Tim McHale over to PHD headquarters to meet with them. Here's Steve and Harry's view on the health of television and the atmospheric pressures that advertisers will face in the next cycle:

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Tim: Some of our readers are not well-versed in the technical aspects of the network TV marketplace, so I wanted to see if we could cover just how the upfront works.

Steve: That's fine.

Tim: Before we discuss this year, let's begin by looking back to last year's upfront. I saw a presentation from a well-known media agency who presented their upfront buy in August of 2005 with the claim that they were able "to beat down the market." It was kind of funny. Their opening slide had their two top buyer's faces glued to prize-fighter bodies. It raises an important question. Can any one agency or client have that much clout to drive prices down in the market?

Steve: No. There is no single agency or advertiser that is able to beat down the market. The upfront TV market has evolved in such a manner that most advertisers pay very similar annual cpm increases or decreases for each network over their previous year's base cost. However, there is still a substantial differential among advertisers' base costs. For example, most advertiser base costs on NBC that were going into the upfront negotiations for 2005-06 were a good bit higher with that network vs. its competitors.

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Harry: The mix of networks could have played an important role in what they showed you, as compared to what they purchased the year before. Generally speaking, everyone is very close to each other as far as the increases/decreases the networks write business at.

Tim: I remember back in the early 1980's when one network in particular was last. I was working on a major packaged goods company at the time who bought on the lowest cpm. The client made a huge multi-year commitment to the network with the lowest ratings when everyone had written the network off as a perpetual loser. Then, within a year, the network's management changed and it began rising to the top. The client was obviously thrilled, since their ad inventory now ran in must-see TV.

Harry: That's not unusual. A lot of the packaged goods companies do the same thing. Without mentioning names, you know who they are. They do it because they can put a lot of money where nobody else does and still achieve their goals.

Steve: In a macro sense, I believe we're looking at a trend where there will be very little inflation in national broadcast over the next three years, because the supply and demand side of the TV pricing equation should remain relatively stable. The expansion of communication channels now available through all manner of new technology devices is siphoning ad dollars from all media, and I don't see any anything driving TV ad demand up and therefore price inflation. The networks aren't the dominating force they once were, but television is still the most important medium in most communication plans.

Tim: Let's talk about the 30 second commercial. I'm a big advocate of interactive media. The one thing I see that's the most effective message is video that runs online. Everyone's talking about the end of the 30 second commercial, but I think it's just the end of the passive 30 second TV commercial. When you're interactive you're seeing the 30 second commercial. I think it actually works great. Pre-roll forces you to watch it first to get to the content.

Harry: I would contend that it is not the :30 that works, it's the interactive video. One of the advantages of online is that we can get our message across in far less time, like as little as 5 seconds to make the point. Simultaneously, depending on the complexity of the brand, it could take as much as 2 minutes to make your point. So we're very limited in what we can do with TV. Bottom line, video works. We're right back to sight, sound, and motion. Clearly, the ability to interact on the computer and solicit more information or even a direct sale is very compelling.

Steve: The :30 spot is not dead, nor is it mortally wounded. Online video and interactive applications are compelling; however, we shouldn't expect that we can directly migrate those same spots to online or mobile exposure. There is a growing body of evidence that suggests this is absolutely the wrong strategy. We need to produce original content for broadband applications, and it probably won't be :30 in length.

Tim: Speaking of broadband, what are PHD clients asking you about their network budgets? Are they nervous? Should they be worried about their media mix if they've historically spent it mostly on television? Are they feeling as secure as they did 10 or 15 years ago when the only handheld device was the remote control?

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Steve: I don't know that they're nervous. I think we're all working to find a better understanding of how consumers interact with emerging technologies. They're also asking about strategies for layering new media applications onto traditional media.

Tim: Let's talk about advertising on iPods. Does that mean they'll accept a Microsoft ad? To date, MP3 players have been technology apps. They haven't been ad vehicles, but it presents an entire new platform to consider.

Steve: Yes, but will that advertising be in lieu of a download fee for the program? I think that the iPod is brilliant and it's certainly been embraced by consumers. But it remains to be seen whether it will be embraced by enough consumers at an effective price point, so that it becomes a financially viable business. I think it does.

Tim: We have more TV vendors than ever before, yet due to consolidation we have far fewer media buying companies than we had 10 years ago. It seems to me a sort of juxtaposition.

Steve: Well, we have fewer buyers, but I don't know that we necessarily more sellers. I mean, how many independents are really out there?

Harry: Not many at all.

Tim: But isn't the upfront buying process inhibited because of it, or twisted in some way? How can you do truly integrated deals with multiple tangential or related technology touch points and have it done in a matter of hours.

Harry: You can't and we don't. Our teams have been seeing presentations since the middle of March, and they'll continue to see them right up to the end of May. If we see ideas that we feel are compelling for our clients, or have the opportunity to build out a concept, we'll do it starting then. However, every network is not going to have a multi-platform deal as part of our upfront negotiation.

Steve: I think what you're asking is "How many components come together in a deal that is negotiated in a 36-hour timeframe? The answer is that other elements are worked into the deal either in advance or agreed to in advance of the upfront negotiations. Comprehensive cross-platform deals are negotiated outside the realm of the traditional upfront.

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Tim: I understand. So if the timing of the cross-platform deal coincides with the upfront, it's more coincidental.

Steve: One of the positive side effects of the upfront is that it is a call to action for clients to set their budgets at a specific point in time, even though the timing is too far in advance to be totally actionable. So it's no surprise that all media properties, not just TV, want to come in and talk about their inclusion in the upfront. Everybody sees this big pot of money sitting there that's earmarked for television, so now all media sellers want a piece of that. We've been solicited for a branded content upfront; an e-commerce upfront, a broadband upfront, a cinema upfront and so forth and so on.

Tim: Well, to some degree as a planner I can understand them. I think television has benefited by having a counter-calendar time period versus calendar, because they lock up funds in the middle of the year. Print or interactive or radio is normally negotiated in late 4th quarter or early 1st quarter for the year ahead; or in reality whenever the client gets to it. Clients know they have to book their TV dollars in the upfront so the TV medium benefits by that.

Steve: It will be really interesting to see what happens now that there's been two to three years of a soft scatter market. What tends to happen in the upfront following a soft scatter market is that clients are emboldened to withhold budgets and play the short term market. If they don't register those budgets as part of the upfront that will further deflate cpm's but it could result in a tighter scatter market.

Tim: Are you seeing clients cutting the upfront or cutting their television spending?

Harry: No, not really. But it will be interesting over time to see how the pressure of new technology and money filtering to everywhere else will impact TV.

Tim: I've heard that it's not protocol, or it's not polite to make an upfront buy and then cancel the Q2 and Q3 inventory of the following year in order to go back into the marketplace and re-buy the same inventory at a lower price. Is that done? Is that unfair? Will they write you off if they find out?

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Steve: Anybody who is recommending that is an amateur.

Harry: They'll do it once and then they'll never repeat it. And here's the reason why. The network is not going to sell it back to you back at the lower price. The upfront deal is basically a good faith deal that we'll commit a certain amount of dollars for an agreed-upon low cost. Now if you're saying, "I think I can do better by dropping my upfront", to cut back on one network and buy another network, you'll get away with it once or twice, and then they'll catch on to you. They always hear. It's such a small community.

Steve: What you won't be able to do is cut back on NBC, and then go in and re-buy NBC. They'll say, "No, we're not taking your money".

Tim: Yes, but I've seen situations where the agency has two clients, one of which wants to off-load inventory and one that wants it, where they'll take it over assuming the network can't sell it to someone else.

Steve: That's entirely different. That's saying "we need to get out of this inventory and we have another client here that will take it." But even there, the networks will say "The agency is an agent, it is not a principle". The agency can't just pass the inventory from one advertiser to another. We need the sanctioning of the broadcaster to do that.

Tim: But aren't you negotiating with the broadcaster?

Steve: Sure, on a client by client basis. For example, if we have a contract with specific shows and specific air dates, and we have a client who wants relief from that inventory, and we have another client seeking that inventory", we cannot just shift it to him.

Tim: That's the point. The way I see it is that the networks have protocol so they have maximum control. And even if that changes, they'll still most likely hold on to the cash, because the client's money will just move from one part of the media conglomerate to another.

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Harry: Yes, the network would have to sanction that. It's the networks' inventory. This is where it really gets interesting. There's a whole liability issue. The client doesn't own the inventory until it airs. I've never seen a case in which anybody has just said, "You know what, we're not going to run our commercial and we're not going to pay you." It somehow always gets resolved.

Tim: But there was one high-profile advertiser this year that received a lot of press just before the SuperBowl because they wanted to run a provocative spot that the network wouldn't approve. The advertiser and the network were able to find a compromise. I assume though that if the advertiser chose to not run their spot, they would have to end up paying for it anyway, correct?

Harry: No.

Tim: Oh, really?

Harry: Not if the network didn't approve it.

Tim: Oh, okay, it's always subject to approval.

Steve: Theoretically the client owns it, but that's not what really happens.

Tim: Let's talk about integrated deals where you're putting an unusually high amount of money with one media company that you didn't do historically in order to receive more value add or integration. Isn't it just a nicer word for a price decrease?

Steve: If you asked the networks they'd say no way. It's not about price. In some cases, greater share does come hand in hand with a better deal.

Harry: Somewhere there's an advantage to the advertiser; both in the price model and in what they get for that

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Steve: But also in the integration itself, and the way that the message is communicated.

Tim: Right. So with many of the top media companies, an advertiser could clearly achieve their reach and frequency goals by concentrating their funds with one company.

Steve: Well, you wouldn't keep all of your dollars there.

Tim: Okay, say 70%, a substantial amount.

Steve: Well, it depends who you are. It depends on what route you take. If you look at some networks strong in adults 25 to 54, you could negotiate with them better if your demo is 18 to 49. That's why it works well for packaged goods advertising. For certain clients, it works very well.

Tim: Let's talk about programming. One of the effects of consolidation on the media side is that media companies are no longer restricted from producing their own programming as they used to be. There used to be that wall. You could make the same case with agency holding companies. The thinking is, "Why go outside the agency network and use a non-affiliated company? Keep the money in the holding company." This has become more the norm than the exception, unless the client is dictating that its vendors work with non-affiliated companies. On the agency side, one could make a reasonable case to keep it all in one house. But let's talk about the media side.

Steve: That's true. The largest broadcasters prefer to get the best quality programming from their in-house production assets.

Tim: What's the emphasis between the major media buying community and different production companies and producers shopping music and entertainment content directly to clients? I'm just curious since we're getting into more branded content. How is Hollywood impacting any of the deals you do today? Any influence at all?

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Steve: Absolutely. We are spending more time working with production companies seeking unique forms of brand integration into content. This is an additional revenue stream for producers.

Tim: Does timing of the upfront impact these kinds of deals? Does it speed things up at the client or just the opposite, say if the deal isn't done by the upfront, then the integrated deal just goes away?

Steve: Are you talking specifically about some kind of product integration?

Tim: Yes.

Steve: They're built year-round.

Tim: How about a major portal and a non-related production company? Is there any leverage dealing with the production company separate and circumventing the normal network media relationship?

Harry: Not really. It's a three-way deal. You can't totally circumvent the normal network buying relationship.

Tim: Is product placement saturated already? Have consumers become tired of it?

Steve: Product placement is first generation. Product integration is something much more substantial and compelling. The industry has improved how we manage brand integration, but we still see some really schlocky examples. I think what Cingular did with American Idol or what Banana Republic did with Project Runway is very appropriate. Does it bother anybody? Does it offend anybody? No.

Tim: How about for any automobile companies?

Steve: There are some good and bad examples like all categories.

Tim: Are you bringing those ideas to the network, or are they bringing them to you? Clearly, they know the brands that you are buying for.

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Steve: I think it's both. We're always looking for script opportunities. Some clients have approached us with ones that interest them. It's built together with the client. They are the primary drivers since they know their message better than the media company with the script.

Tim: A few more questions. On a career level, what's the coolest situation you've been involved with?

Steve: A few years ago, I was servicing a major beverage company account who was giving a million $$ away in the SuperBowl. It coincided with the first Gulf War. We actually had two spots that invited consumers to make a phone call to a special telephone number to see if they had won the prize. We were all set to do that when the government, the Department of Defense approached us because they were worried that it would shut down all the phone lines on the communication grid across the country. I remember meeting with the sports division at the network who was telecasting the SuperBowl that year who had already contracted to run the spots. As a result, they were worried that our client would drop the spots to accommodate the government's request. They were very nervous. The client was worried because the giveaway had been widely promoted, and they were concerned that consumers would be upset when they cancelled it. The question on everybody's mind was how to accommodate all parties, the media, the client and the government.

Tim: So what happened?

Steve: Our side wanted the network to take some of their programming time to provide a series of disclaimers over the course of the day. The network was worries we'd pull our spots, and they'd lose the revenue. Once we presented what we wanted, you could see the relief on their faces! We realized we should have asked for more.

Tim: What was the deal?

Steve: The network agreed to run a scroll and a disclaimer just before the game and at halftime with the message that the contest had been changed due to government intervention.

Tim: Cool. If you were to give advice to someone coming into the media business, besides being prepared to burn the midnight candle, what would it be?

Harry: I would tell an entry-level person to start with an agency.

Steve: And then, learn from watching what other people do well.

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