A downward trend in the linear TV advertising market and a relatively modest position in the digital domain induced Ster to rethink its business model. Since he became director at Ster in 2016, Frank Volmer’s business objectives revolve around three main pillars: a new commercial policy, digital acceleration, and making the internal organisation of Ster ready for this acceleration. Volmer discusses, for instance, Ster’s new pricing model in the linear domain and emphasises the necessity for Ster to monetise the large potential digital ad inventory. Yet, all new activities need to fit within Ster’s main public tasks, its restricted commercial policy, and rules and regulation, such as GDPR.
Ster has a strong position in the linear TV and radio domain. “Ster is like a well-oiled machine when it comes to exactly calculating and predicting the success of TV and radio commercials. These calculations are almost like higher mathematics”, says Frank Volmer. “Ster achieves optimum performance in linear TV advertising as we have a conversion of viewing time into total net ad spend of ninety percent. At the same time, we have a relatively high GRP pricing level in the market, compared to commercial players such as RTL, SBS and BrandDeli.”
Ster cannot exploit all available commercial opportunities, as it pursues a restricted commercial policy. For instance, as opposed to commercial players, Ster is not allowed to have commercial breaks in the middle of a programme. Volmer: “But instead of seeing such a restriction as a barrier, we always turn it around and treat it as an asset, because our commercial policy distinguishes us from other players in a positive way. Advertisers should focus on quality content, because this will provide them with more added value. To be honest, I think too many TV commercials do not add to a positive viewing experience and will only drive more viewers to OTT players like Netflix. Indeed, it is commercially unwise because players in the current market for linear TV can’t afford to lose more of their audience. I’m an advocate of fewer commercials but better results.”
The annual payments of Ster to the Dutch Ministry of Education, Culture and Science (Dutch: OCW) amount to an average of broadly 200 million euros. However, the downward trend in the linear TV and radio advertising revenues, caused by diminishing viewing and listening time, results in lower payments to the Ministry. Volmer: “So far, it was always possible to make up this deficit using the General Media Reserve, but this reserve will dry up soon. For the first time the Minister of OCW has emphasised the causal connection between the public media budget and the performance of Ster. Public Broadcasters (NPO) and Ster will now need to find ways to boost their returns.”
An important decision Ster made in linear TV advertising is the introduction of a fixed base price for everyone, without discounts and compensations, such as consultancy contracts and so-called ‘kickbacks’ that media agencies often receive from broadcasters. The reason to introduce this base price was threefold: bigger advertisers received volume discounts while their ad volume was decreasing; there is a growing demand of small and medium-sized advertisers for public television advertising; and an increasing number of contracts, that were comparable in volume, often had different discount prices.
Volmer: “I sometimes make the comparison with kitchen retailers who give their customers huge discounts after some bargaining. Ster is now more like IKEA, which offers good products at a fixed price without special offers and discounts. Yet, this comparison does not apply one hundred percent, because if demand decreases we do use indexes to lower the price a bit, and we also have special prices around special events, such as the FIFA World Cup. Still, our point of departure is that all our clients get the same price.”
Ster also reduced the number of target groups. In 2017, Ster still had about 140 target groups, all with their specific pricing levels. Instead of having many different target groups, Ster now looks at the total group of TV viewers and radio listeners (linear part) and only uses a limited number of differentiators: male/female, high/low education, and a few age groups and a b-to-b target group. Volmer: “Combining these differentiators results in a simple matrix of some ten to twelve target groups. We still make analyses, but these do not affect our pricing level anymore. If our clients want specific targeting, they can use our digital inventory where programmatic offers plenty of possibilities for targeting.”
Volmer: “Excluding kickbacks and other commissions from the price calculation makes the advertising ecosystem simpler and healthier. In my view, media agencies cannot provide independent advice to advertisers if other stakeholders in the ecosystem also pay them. But I am not saying media agencies created this unhealthy and complex ecosystem; we all created it together. Besides, media agencies also suffer the negative consequences of the system sometimes.”
“You need to step out of the advertising ecosystem and look at it objectively to realise the ecosystem is unhealthy and too complex. Why not pay media agencies for their added value in the whole process instead of maintaining non-transparent procurement practices? Some media agencies still do not realise that these practices made the ad business unhealthy, but fortunately others seize the opportunity to try and bring about change together with their stakeholders. And advertisers can help to cure the industry by stopping the pitching process where agencies have to set GRP prices even before the publisher set them. This practice forces agencies to repair the damage.”
Over the past ten years, Ster paid around eight million in kickbacks a year. Transposing this number to the total advertising market, Volmer estimates the amount of kickbacks in the market to be 175 million euros. Volmer: “Ster taking eight million euros out of the ecosystem did not have serious consequences, but taking 175 million euros out of the market would cause a serious financial shock effect. Other market parties will therefore choose a more gradual solution.”
One potential solution to boost results in linear TV advertising is addressable TV, which is a hot topic in today’s market. Volmer sees commercial breaks that offer targeted commercials on linear TV as the way forward. Volmer: “Although this is still some way off, linear TV already offers some features on smart TVs that may pave the way to the further digitalisation of linear TV. For instance, Dutch music channel XITE offers the possibility to skip to the next music video. This is a small step, but we will see more and more such features in the future. It’s a very exciting thought that all the things that are possible in the digital domain will also be possible on linear TV. Targeted advertising is one of them.”
Volmer wants the audience to be in the driver’s seat with regard to watching ads and content. OTT platforms are the perfect environment for this and Hulu can serve as an example here. “At Hulu viewers can watch a film by paying a certain amount of money, but they can also decide to watch three commercials of their choice and pay nothing for watching the film. This way, you show your audience that you can see content without commercials by paying a subscription fee, or you can watch the content after watching
self-selected commercials. Another option could be to fill in a questionnaire before watching the film, which means you pay by providing personal data. Based on these data you then get free content and a well-balanced number of targeted commercials. Of course, public broadcasting has a public service task, as it is paid out of public funds. Is it then desirable to hide content behind a paywall? That is a topic for discussion.”
When Volmer started working at Ster two years ago, he was surprised to see that Ster barely monetised its digital ad inventory. Volmer: “Although the digital ad inventory (i.e. page views and video starts, ed.) in public broadcasting is considerable, Ster does not have the necessary banner positions or pre-rolls and only manages to bring in a few million euros in revenue. Ster does not have a market position in the digital domain comparable to commercial parties. This is partly because it’s not always clear what Ster is, or is not, allowed to do in this domain, but also because we are still building a focused team of digital professionals.”
The activities of Ster always have to be part of its main public tasks and are under supervision of the Dutch Broadcasting Commission and the Dutch Ministry of Culture Education and Science (OCW). Volmer: “Developing new digital initiatives can be a struggle, because many stakeholders have a say in it. As Ster and the Dutch public broadcasters (NPO) have a public interest task, they cannot explore boundaries and just try new things to see how it goes. For instance, we cannot afford to be accused of violating privacy regulations (GDPR). If we are not sure about a possible solution, we always decide to play safe and do not wait for the Dutch Data Protection Authority to rap us over the knuckles. We offer our advertisers a safe ad environment, which also justifies the fact that we are premium priced.”
The General Data Protection Regulation (GDPR) heavily affects the digital market, including programmatic advertising. As a result of GDPR, Ster has lost some of its inventory due to consumers who refuse to give their consent to share their data. Volmer: “The refusal of consent has to do with the way consent is asked and the fact that it’s not yet clear who is responsible for that. You need cookies that contain some data of the web surfer in order to serve online ads, so refusing consent to share data almost works like an ad-blocker. In today’s market, working out a solution for the cookieless serving of pre-rolls and display ads is in full blast.”
“The TV advertising market is under pressure, and therefore so is Ster and its contribution to public broadcasters”, Volmer concludes. “We are working hard to innovate our service offering, and improve ways to measure our added value. New technologies enable this ambition, but it also requires a different mindset in certain parts of the organisation. Regardless of our efforts, we need to be realistic and understand that part of the viewing time will move to international players. A challenge for the Dutch broadcasting industry is to see how we can organise ourselves and benefit from this trend, for instance by offering our local quality content to a global audience.”
For the past fifty years, the Dutch Foundation for Broadcast Advertising (Ster) has been selling advertising space around public broadcasting programmes, under the authority of the Dutch Ministry of Education, Culture and Science. Ster contributes substantially to the Dutch national media budget and reaches an audience across all platforms of public broadcasters: TV, radio and online outlets. Based on decades of unique research about listening and viewing habits and the effects of commercials, Ster knows how to predict and optimise the success of commercials.
Entertainment & Media Industry Leader in the Netherlands, PwC Netherlands
Tel: +31 (0)88 792 65 20