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Sunday, September 6, 2009

A Media Bellwether and Then Some

Today, we cover Direct Response Television (DRTV). I know that some of you may already be snickering, because the common perception of DRTV is late night hucksters who belong in the scrap heap of failed advertisers. But please hang on, my friends. The story is a bit more involved and worth a moment of your time.

DRTV is any advertising that asks consumers to respond directly to the advertiser. It almost always involves calling an 800 number or often visiting a web site these days. DRTV has two basis categories—short form and long form. Short form is two minutes and under and long form can go to 28 and1/2 minutes. Since the mid-1980’s when long form hit its stride it has been referred to as infomericals.

Today, the majority of billing for DRTV is done by specialists who only handle the arcane medium. Many conventional agencies dabble in it and some do it very well. DRTV rates are much lower than the conventional rates for package goods or financial institutions because all time purchased is remnant inventory. DRTV thus performs a very useful function for local station operators and for national cable networks and satellite players. Any time that is unsold they can offer to DRTV at fractional rates. If they find some one at the last minute to pay full bodied rates, the DRTV is immediately pre-emptible and does not run. So, by accepting DRTV, a station or cable player can easily find replacement revenue for their enterprise on very short notice. The DRTV advertiser has to be flexible. There are no ironclad etched in stone media efforts for them. Many of us have seen DRTV advertisers run 200 rating points in a market in a single week and then only “clear” or run 50 the following week. But the price concessions they receive cover a multitude of sins.

Historically, over the last 25 years that I have been involved in the medium, DRTV clearances are highest in mid-summer and from December 26-February 1st when stations and cable properties are never sold out. At other times, you can usually tell how tight a station or cable network is by monitoring how heavy the load of DRTV is as a percentage of total advertising. As a result, DRTV is something of a bellwether to tell you the state of the TV marketplace.

This point has been especially clear during this long and painful economic malaise of ours which some are referring to as “The Great Recession.” As the car business went south, a reasonably alert observer could observe that there was more DRTV all over the place. By March of this year, it was everywhere. DRTV has long been famous for keeping minor or new cable TV networks afloat. But early this year it was amazing. A New York cable executive told me that he had weeks where 80% of his advertising was direct response. Why did they take it? Some of the gadgets and cleaning products were not the ideal backdrop for some of the high quality shows that you see on cable. But there is an old Swiss saying from the Latin which sums it up—Pecunia non olet. It translates “Money has no smell.” Things are not going well now but were much worse earlier this year. Broadcasters and cable sales executives took money from those who could pay the bills and who can blame them.

Infomercials are a whole other category. Often, you see them referred to as paid programming. Some are hilarious (remember the real estate guys who promised you a million dollars in equity in 18 months) and you wonder how anyone would purchase. But remember this: if an infomercial is not performing, it gets yanked very quickly. One snowy Saturday morning several years ago, I vividly remember grazing across the cable offerings and counted seven infomercials featuring gadgets that guaranteed, with faithful use, a noticeably trimmer mid-section. Somebody was calling in and ordering the “belly-busters” or they would not keep running week after week and fighting such stiff competition. Mysteriously, when I hit the beach a few months later, the rock hard abs all of the gadgets promised were not in evidence.

The main appeal of the infomercial is that it promises a “magical transformation.” The product will make you beautiful or rich (although the real estate hucksters have largely dried up with the crash in home prices nationwide). In addition to the magical transformation, kitchen gadgets and special golf or fishing equipment often are big sellers. For stations and cable players, the paid programming offered by infomercials can be lucrative. You have no virtually no staff or production charges and often there is a line of people who pay upfront wanting to get on your program list.

A dozen years ago, DRTV never worked on local cable as the pricing was never right and the audience too small. Generally, about 1 in a 1,000 people viewing calls in and responds. So, if a cable channel only had 1,500 viewers in a local TV market, maybe one call would come in, maybe not. Now, larger systems can run short form and make it work. A combination of rational pricing and some bonus units across a wide range of channels can amortize the expense and often make DRTV pay out in many markets. In smaller markets, both on broadcast and local cable, DRTV is usually problematic due to the low number of viewers and 1 in 1,000 response rates.

Nielsen also weighed in recently which may be a straw in the wind regarding the future of DRTV. They have just introduced a new product, Sigma, which allows an agency or buying service to monitor all 210 Nielsen television markets (DMA) daily. So, a DRTV advertiser can get a good read on what has run yesterday. Most shops of any size have proprietary software or subscribe to a service that helps with monitoring. Nielsen’s willingness to enter this marketplace may indicate that demand for DRTV will continue to grow.

In recent months, I have been candid in this blog about the difficult prospects that all forms of TV face over the next few years. Will DRTV suffer the same fate? Clearly, it will be harder to make it work. But, if business is really bad, broadcasters will love the upfront payment from smaller players and paid programming works for them as the risk is taken on by the advertiser. I have always felt that the infomercial viewer was just a bit different demographically and psychologically that the rest of us. They catch people who are bored. Keep in mind no one turns on the TV set with the purpose of watching an infomercial. You stumble on to them by accident. So, it is likely that infomercials may always be with us. And, if TV and cable really do lose as DVR, Hulu.com, and You Tube and a dozen other options get even more traction, short form may have a renaissance for a few years. This could happen if bootstrap entrepreneurs with a new gadget step up to the TV plate as major players cut back sharply or even abandon it.

Meanwhile, track the short form closely. It is a fine bellwether for what is happening out there. And, some of it is just plain fun and a wonderful example of American Pop Culture at work.

If you would like to contact Don Cole directly, you may do so at doncolemedia@gmail.com

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