Friday, October 08, 2010

As Audiences Get Smaller, So Too, Do Production Budgets

On the digital platform, advertisers can target more efficiently than ever before. The publishers are pushing this more precise targeting capability with the claim of “less waste for advertisers.”

Of course, this will come with a higher price. In other words, advertisers will soon be paying more for less.

But that’s not the only issue with smaller audiences. The larger issue is how are advertisers going to be able to afford to pay for creative for these new and improved, smaller audiences? After all, there is a direct correlation between audience size and production budgets. As one gets smaller, so does the other.

That’s because the cost of creative production is currently perceived as a fixed cost spread out over exposures. As exposures become fewer, the current economic model of commercial production stops making sense. According to the fixed cost theory, a smaller audience deserves a smaller production budget.

But the size of the audience has nothing to do with the cost of the idea itself. It only has to do with how many people will be exposed to that idea once it’s been produced.

What the size of the audience has offered advertisers is a way to justify the large production costs they’re paying. That a thirty-second spot will be seen by 50 million people somehow softens the blow that a production budget of $750,000 brings.

It’s much more difficult to swallow that budget if only 30,000 will see it.

What needs to be done? I see three options.
1. We need to find a way to deliver the same size audiences online that we’re used to offline.
2. We need to be able to produce $750,000 ideas for $150,000.
3. We need a new way to justify production dollars outside of exposures.

I doubt #1 is going to happen any time soon with the number of viewing options increasing, control shifting ever more rapidly to the viewer and more precise targeting on the rise.

As for #2, yes, technology is making it possible to create commercials for less money. The cost of equipment and gear is less. But the cost for the talent that comes up with, and executes, the idea still costs the same, if not more. Which means great ideas, well executed, will, and should, still be expensive.

That's why I see option #3 as being our best way out of this mess. After all, it actually shouldn’t be that difficult. All we need to do is to replace exposures with something else to justify the cost of creation.

What should that something else be?

How about time spent with the message?

In other words, make the cost of creating a commercial a variable cost (rather than a fixed cost) that is dependent on view duration, or time spent with the commercial.

Advertisers are already paying for the time their agency spends creating the commercial. What it they decided to pay based on the time the viewer spends watching it instead?

In other words, instead of paying for effort, they pay for outcome.

Radical, I know.

Which means the industry will continue to push for options #1 and #2 above, regardless of how futile they may be.

But the fact remains that as the number of impressions continues to get smaller, the need to make them deeper becomes critical.

As does the need to find a way to pay your creative agency for doing just that.

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