There’s a new drinking game for media professionals – every time you hear the word “erosion” or “cord-cutters”, you take a shot of your favorite adult beverage. The decline in Linear TV ratings over the past four years is astounding and it was only accelerated by the pandemic and adoption of Streaming services (see trends below). Advertisers have become victims of the related rises in Audience Deficiency rates, known in industry lingo as ADU value owed. If your agency is telling you they cannot secure ADU, or that they must choose between cleaning up old liabilities and delivering the current guarantee, you are in this hole. Raise the red flag and discuss how the accounts will be settled. More importantly, discuss how are the agency buyer’s audience projections being course-corrected for future buys so that you are not throwing good money after bad.

Why Are There Audience Deficiencies?

Unlike Digital media, Linear National TV (as well as Local TV, Cable, and Radio) is sold on estimated, and guaranteed, audience delivery.  When a commercial runs, the Advertiser is invoiced and pays for it.  Later, the audience is measured and any shortfalls versus the guaranteed audience are identified for recovery.  Recently, the sellers have not had enough inventory, or audience, to fulfill those guarantees, or deals.  Think about it:  the networks are not going to roll back unit rates and reduce revenue, nor are audience declines front and center in their proposals.  (Yes, this is why your TV costs are skyrocketing.  Higher prices for fewer viewers.  Demand is up and supply is down.)

How Does This Impact the Advertiser?

Any audience still owed to fulfill the guarantee is a pre-paid expense for the Advertiser.  While the commercial time was paid for, the Advertiser has yet not yet realized the full value of the product/service purchased (in this case, humans viewing your commercials).  Basically, the Advertiser has provided an interest-free loan to the media property (and sometimes to the Agency depending on whether audience delivery requirements are part of the contract).

There have always been audience liabilities, the tracking of which has been a big part of MMi offering since 1995.  The task is to minimize this churn and carryover.

What Are Agencies and Networks Doing About It?

MMi purview is billions of dollars and thousands of National TV deals each year.  Our answer is “not much”.  Sure, they are funneling money to other media channels with growing or more reliable audiences, but they are managing the Linear TV shortfalls via clean-up rather than re-expressing the deals that were made.  Networks are negotiating settlements of liabilities through means other than like-for-like impressions.  The sellers are going so far as calling these settlements “Liability Wipes”.  Imagine how that description alarms finance, procurement, and internal audits stakeholders.  Many MMi clients are calling this “Alternative Restitution”, and demanding best practice documentation of the liabilities owed and value, the agreed settlement and value, and the proof of performance.

MMi is seeing settlements in a few forms:

  • Impressions on an alternate network or the network’s streaming service (same impressions volume, but lower reach)
  • Impressions in upgraded programming (fewer impressions than owed, but more “valuable”)
  • Sponsorships such as title rights, billboards, or vignettes (impressions other than produced commercials, but more “valuable”)
  • Improved Cancelation Options, or relief from future committed budgets (more difficult to quantify, but often of great value to the advertiser)
  • Cash back – very, very rare.

What Can Advertisers Do About It?

Your company has an Agent.  You have hired them for their expertise in this area.  Your agency buyers should be trending, projecting, negotiating, and stewarding media buys on your behalf.  Establish guardrails for the acceptable maximum “Alternative Restitution” you are comfortable accepting, and thresholds for liabilities of enough value that you want to be involved in the negotiation of settlement.  Above all, include Media Performance KPIs in your contract – and reward excellence where possible – and you will be amazed at the improvement in results.

Someday Linear TV might evolve to “pay on delivery” like Digital.  Until then, Advertisers are best protected by a very critical eye to agency audience projections and trends, seller audience estimates, and a bit more awareness and micromanagement on restitution timing and formats.