Television has experimented with the Internet over the past three years like a chef looking for just the right combination of flavors for a winning dish. Banners, sponsorships, streaming advertisements and pop-up windows have been taken from the Internet spice rack in an effort to drive Internet-related revenues.
The search for the perfect recipe has had more than its share of overbaked dishes. But it now appears that there is growing consensus on how to mix TV and Internet revenue models: sell bundled or convergence advertising packages that use the reach of television to drive viewers to Web sites where the Internet can provide visitors an opportunity to get more information.
And, increasingly, that information isn't specifically related to the product. It means sponsorship of sections of a site where visitors can ask general questions of the sponsor related to its specialty (like doctors or lawyers) or, perhaps, get home-improvement ideas through a section based on house and home needs.
The goal, in short, is to create impressions that go beyond just attracting clickthroughs.
"There are ways that you can have advertisers more incorporated into the content if you can draw on their expertise that is a good adjunct to what you're doing," says Jeff Meyer, senior vice president, Internet ad sales for Scripps Networks, which include Food TV, HGTV and DIY. "I think those deals work the best because the advertiser gets seen as an expert in that area and [the site] gets viewed by the users as a good resource."
Mark Zagorski, president of WorldNow, a company that develops Internet businesses with TV stations, believes the problem most advertisers and sellers had when they began to look to the Internet is that they looked to sell and buy advertising as if they were dealing with TV spots. The results were not pretty.
"You can always find the spot cheaper someplace else, and that's why the people that went after the Internet first never got it," he says. "They were selling units and banners. They didn't sell packages."
Christine Di Stadio, vice president of marketing and new media for The New York Times Broadcast Group, says that the competitive advantage of offering bundled advertising packages is that every television station has the ability to drive traffic on-air to online and back again all day.
"Some segments seem more applicable to Internet advertising, but, in general, we've discovered that a well-balanced marketing mix of multiple media is the most successful approach," she says. "We are now able to offer multimedia, local convergent business solutions in every business segment."
The Times Broadcast Group's partner on its Web sites is WorldNow. The New York-based company sets up Internet technical and sales operations for local stations in exchange for a split of Internet-related revenues or a licensing fee. It is currently working with more than 110 stations in 15 affiliated station groups, including Raycom Media and Liberty Media.
Nick Ulmer, general sales manager at WAVE-TV Louisville, Ky., which also works with WorldNow, says his station will hit $1 million in bundled sales this year, with nearly $600,000 falling in the Internet column. He also says that the station has made nearly $300,000 from online classified sales, something he never expected. For those advertisers that have a presence on the site beyond classifieds, the on-air exposure costs are often shared with other online advertisers.
"For example, we have a hospital, plastic surgeon and seven or eight categories where we run an advertising spot on TV that advertises the elements on the site," he says. "Inside that on-air spot, the three clients will get mentioned, and they split the cost of that 30-second spot three ways."
Ulmer adds that a Lasik surgeon is the type of customer that previously would have trouble effectively marketing over television. But, with the use of TV spots and the Internet together, the surgeon can offer TV spots that drive traffic to see a five-minute video of the surgery on the site. "Potential clients can e-mail questions to the doctor, and he'll answer those questions," he explains. "It's very one-on-one."
Another company that helps TV stations with Internet-related sales and technical services is Internet Broadcasting Systems. IBS runs the Internet sites for 41 stations across the country, including Hearst-Argyle, Post-Newsweek and McGraw-Hill stations. And, like WorldNow, IBS is finding that the key is expanding the advertiser base, not just getting advertisers already on TV to spend additional monies on the Internet.
IBS CEO Tolman Geffs offers an example of a program that works in driving bundled revenues: "House and Home," a section on IBS sites that contains information on home improvements. "Local homebuilders and mid-tier furniture stores constitute an ad category broadcasters typically don't get," he notes. "It's a package that offers a deep online package with information as well as on-air spots to drive traffic to the site."
Geffs adds that the relationship between a TV station and its Web site is similar to that with an LMA station. "You can offer something distinctive that your competitors can't do," he says. "And while it isn't as strong as a good LMA, a good Web site has the same function."
One of the challenges of getting into sponsorships is making sure the content being offered meets the editorial standards of the rest of the site. "You need to make sure the information is up to the level of what you're used to doing and that the user won't find it self-serving," says Meyer. "The edit staff of the site would be very involved with any business deal to make sure they're comfortable with the information and how it's presented. So it's a very detailed process to make a deal like that work."
Both IBS and WorldNow are seeing revenue gains. According to Craig Smith, senior vice president, distribution and local revenue development, WorldNow pulled in $12.2 million in local-market sales in 2000, and its top 20 stations are each on pace for $500,000 in sales this year. Those figures are a combination of TV and Internet revenues, but, because of the way WorldNow shares revenues (the station and WorldNow split both the TV and Internet revenues), the company has to make sure the online portion of the sale is equal in value to the TV portion. If not, the station could actually lose out on the deal. For example, if the TV station could sell the TV spot alone for $15,000 but WorldNow sold a $20,000 Internet/TV bundle, the station would lose $5,000 vs. selling just the TV spot.
The approach taken by IBS is different, with the TV station taking the entire TV-related revenue while splitting the Internet portion, again, minus costs. Because the company is privately held, Geffs can't specify the Internet-related revenues.
Finding out what the advertiser wants is one of the challenges in the move toward a bundled selling approach. Organizationally, very few sellers or buyers are set up to handle cross-platform deals. Melissa Gluck, senior analyst at Jupiter Media Metrix, says that sellers are probably a little more advanced than buyers in terms of being ready to sell bundled packages, and that is because they've either integrated their sales units or set up a separate unit.
"The problem the last few years is there has been too much competition between the television and Internet sales forces," she says. "I think the sellers have started to put in place organizations and structures to encourage cooperation. The problem is, the agencies aren't there yet."
This adds a level of difficulty for the seller. It not only has to convince the client of the concept but also has to work out the deal among hesitant agencies.
"The challenge of working with some traditional agencies is that they have yet to get the concept of true convergence marketing," says WorldNow's Zagorski. "They continue to be stuck in the old paradigm of only buying TV or radio or Internet spots because it's easy and they often get a fat commission without working too hard. But they miss the whole idea behind a sophisticated marketing package with multiple elements."
Andrew Susman, president and CEO of Studio One, points out, "It's easier to sell [crossplatform] by dealing with customers because they have one set of goals while the agencies may have competitive sets of goals."
Gluck concurs, adding that a bundled buy is often at the request of the client. "What we're finding is that, in some cases, the interactive media and traditional media are in two separate agencies altogether," she says. "And when they do reside in the same agency they're still pretty separate."
Nonetheless, headway is being made with the agencies.
"The larger agencies' buying approach is still catching up," says Geffs. "We've had success at the local level and with smaller agencies, but we have had success with some larger agencies."
He says that a recent deal IBS signed with Volkswagen is proof that the market can be broken. "What we find we have to do is spend the time with the agency to educate them on what this can accomplish. Once we do that, they figure out a way to fit this into their budget."
At the network level, the approach is similar, albeit on a different scale. Dick Glover, executive vice president of Internet and Digital Media for ABC, says that, like TV, the proposition to advertisers is that the site will bring in an audience. "The challenge is to provide that positive surprise so that, when a person gets what they want at the site, they add a page view."
A recent example of this effort involved the season premiere of Alias, which was sponsored by Nokia. In an online contest called the "Code Breaker Sweepstakes," secret codes were sent to viewers' phones. The only way to unscramble the clues was to visit the site and watch the program. Answers to the clues were found in the first episode of Alias.
Harry Lin, vice president, content, ABC.com, says the network also builds out specialized versions of its Who Wants to Be a Millionaire?
interactive game for advertisers. "We built one for Chevy that they paid for. The interface looks like the dashboard of one of their cars, and the questions relate to their line of automobiles," he says. "It worked really well."
Getting advertisers to spend money on the Internet is one thing; getting them to come back, another.
A major selling point of the Internet only a couple of years ago was that advertisers could find out how many people actually clicked on an advertisement. The concept of creating a brand was replaced with the concept of getting a response. The end result was misery for both advertiser and site owner as click rates fell, giving advertisers a sense that they were not getting the value they expected.
The key, Zagorski says, is not breaking the package into components. The totality of the package—Internet, TV, e-mail newsletters—is what lends it the credibility to sustain higher advertising rates. A station that breaks out the banners separately from the rest of the package immediately loses out on the negotiations.
"The package has a goal," he adds. "It has components, you don't separate them. That's the worst thing you can do to yourself because you commoditize your own business."
Glover agrees, adding that the current advertising climate is no reason to start slashing prices. "We've resisted very hard ever discounting the value of the Internet because we believe in it," he explains. "There has clearly been a constriction of media budgets across the board. The temptation is there to say there are fewer dollars so I'll discount dollars to drive volume. But we've resisted that because this product has a lot of value and an advertiser who spends their money here gets that value."
One of the tricky issues when it comes to keeping advertisers happy is how do they measure success? The Internet medium is still too young to have well-developed ideas of what advertising is effective. "The effectiveness of an ad has more to do with just the size and shape," says Gluck. "Interactivity, placement and targeting are factors."
He says that, today, advertisers are leaning toward performance-based pricing as much as possible—that is, pricing based on clickthroughs and response. To date, this has been both the curse and the blessing of the Internet.
"For one thing, focusing on clickthrough is just about the worst thing you can do, because we haven't seen any correlation between clickthrough and conversion," she says. "Secondly, it doesn't take into account the branding potential of the medium."
Adds Di Stadio, "I think that the idea of clickthroughs in itself is flawed, and some advertisers are beginning to understand that, too. Consumers are too pattern-trained in their buying habits to make impulse purchases. When the consumer does decide to make the purchase, the brand that sticks in his or her mind will often be the product of choice."
With performance pricing out of the way, the Internet may become more like other media, where branding becomes a major focus. A number of studies have been done to show branding effectiveness with the Web, but Gluck says the problem is that those studies are based on single- exposure tests rather than frequency.
"The studies tend to claim that larger ads are remembered more," she says. "While that's logical, it hasn't been proven whether that leads to affinity or greater intent to purchase. And the issue for a company like Nike isn't awareness. They want deepening affinity."
One of the inherent advantages of a bundled package is reach. "We have to provide reach figures, but our reach is in many different ways," says Susman. "We're targeted to online, but we have the radio, we have TV. So there might be four or five different reach elements."
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