As streaming video platforms started cutting into live television viewing on cable networks like Time Warner's (NYSE:TWX.DL) TNT and TBS, networks took to stuffing more ads into their broadcasts. Viacom (NASDAQ:VIA) was among one of the worst offenders, with its ad load increasing 7% year over year last spring.
That strategy was unsustainable. There's only so many ads viewers will put up with, and, in fact, the increase in ads may have driven them to more time-shifting and streaming video on demand (SVOD) services.
Last fall, Time Warner CEO Jeff Bewkes said the company would start experimenting with dramatic decreases in ad load for some of its prime-time programming. He highlighted the company's plan to reduce TruTV's prime-time commercials by 50%. Last month, TNT debuted Animal Kingdom -- described by the network as "an adrenaline-charged drama starring Ellen Barkin as the matriarch of a Southern California family whose excessive lifestyle is fueled by their criminal activities" -- with just 10 minutes of commercial time during the one-hour broadcast, and plans to do the same for all of its new dramas.
And it's working
Turner Chief Creative Officer Kevin Reilly says the move has been a hit with both viewers and advertisers. "Not only is commercial viewing higher, we're seeing a nice ratings lift," he said at the annual Television Critics Association press tour, as reported on Variety.com.
Reilly was light on the details, but if the move pays off in more viewers watching a higher percentage of the commercials as they air, it may make up for the lost revenue from showing fewer ads.
John Martin, chairman and CEO of Turner, provided encouraging news during the company's Aug. 3 conference call, saying that, "we're retaining higher audience levels during advertising commercials ... We believe the early results indicate that there's even higher recall for the ads that are there. We're working very, very hard to make the ads more relevant ... to make sure that the advertising is more relevant and contextual with respect to the content itself ... "
With demand shifting from television to digital, Turner isn't giving up a lot by cutting out ads that it had trouble selling anyway. Paul Sweeney, an analyst for Bloomberg Intelligence, was quoted in late 2015 as saying, "If the advertising market was really strong you probably wouldn't see this because there'd be too much revenue left on the table." During the earnings call following the announcement about reducing ads on truTV, Bewkes said, "We don't anticipate it will have really any revenue impact with respect to that network."
Still, other networks that have experimented with lower ad loads have seen mixed results. Viacom, for example, saw its ad sales decline 5% during its second quarter, but says sales would have likely declined just 3% had it not reduced the number of ads it showed. CEO Philippe Dauman said, "We believe [the reduced ad load] will improve our brand health overall."
Fighting digital with digital
More viewers are watching television through digital channels and the advertisers are following the eyeballs. Time Warner and other cable networks have an opportunity, however, to combat digital advertisements by copying some of their best features like data, analytics, and targeting.
Cable networks can access data from cable operators' set-top boxes, credit cards, and other sources to put together demographic profiles of their viewers. That enables more targeted advertising as well as better feedback on who exactly is watching the programming. Time Warner's sales team can now sell commercial time that guarantees marketers will reach a specific audience. That kind of targeting will make ads more valuable, making up for a decline in ad load. Additionally, an uptick in live viewership and actual commercial viewership makes those targets easier to reach.
While television isn't as precise as digital advertising, it's still tough to match the breadth of the audience watching TV. The average American still watches 4.3 hours of television every day. Five hours if you include time-shifted viewing. That compares to 3.4 hours spent across digital devices (not necessarily watching video). TV dominates time spent and it reaches just about everyone.
Turner's efforts to make its ads more valuable through a reduction in ad load and an increase in targeting and measurement have a lot of upside with minimal downside, as Bewkes and Sweeney have pointed out. The company may see some short-term negative impact as it adjusts to lower ad loads, just as Viacom did. The long run should show improvements in the number of people watching its ads as it expands the experiment to more shows and continues to improve targeting.
Adam Levy has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Time Warner. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.