The average cost of producing a 30-second TV commercial in 1999 increased 16 percent as compared to in ’98, according to the American Association of Advertising Agencies’ (4A’s) annual Television Production Cost Survey.
Extrapolating from a database of 1,232 national :30s as reported by 20 participating ad agencies—including the top 10 U.S. shops in gross income and 15 of the country’s top 20 agencies—the 4A’s report found that the average gross cost of a national :30 before agency commission was $343,000 in ’99. That’s up from $295,000 in ’98. When combining this body of :30s with spots of other lengths (e.g.—:60s, :20s, :15s, :10s), the 20 agencies collectively represented a database of 1,753 national spots. The average cost of these commercials, without agency commission or any other form of agency markup, rose 14 percent, to $308,000 from a ’98 figure of $271,000.
The increases of 16 percent for :30s and 14 percent for the entire field of national spots are the largest in the 13-year history of the annual 4A’s survey. Previously, the all-time high was the 12 percent hike reported for :30s in ’91.
The survey pointed to several factors contributing to increased costs. For one, spots took more time to shoot in ’99, according to the 4A’s report. When shot in a studio, a national :30 took an average of 13 hours (a 13 percent increase over ’98), compared to 16 hours when filmed on location (a five percent jump from the ’98 figure). An average of 20 hours was required to lens a :30 shot both in the studio and on location (21 percent more than in ’98). The 4A’s survey also noted that more commercials are being shot on location than in studio. Per the study, the average cost for a studio shoot was $176,000—up 31 percent from ’98. The average location shoot cost $227,000—up 10 percent. And the average for a commercial shot in studio and on location was $306,000—an increase of 24 percent.
The study also cited an 18 percent average increase in production company net costs—from $200,000 in ’98 to $235,000 last year. Additionally, the average director’s fee per :30 climbed 16 percent in ’99, to $22,000.
However, the average production company markup was squeezed further, dropping from 26 percent in ’98 to 25 percent in ’99, according to the 4A’s survey.
Of the study’s 1,069 "traditional" national :30s—jobs without animation and/or special effects—96 percent were identified as firm bid, with 48 percent of those being "multiple bid" and 52 percent being "single bid."
The remaining four percent of "traditional" national :30s were cost plus fixed fee, with 74 percent of those being multiple bid and 26 percent being single bid.
The survey also reported significant increases in postproduction and music costs. According to the 4A’s poll, the average cost to edit and finish an original :30 rose 26 percent, from $34,000 in ’98 to $43,000 in ’99.
Sound recording and mixing costs increased 23 percent, as opposed to a two percent drop in ’98. Video finishing also increased, up 25 percent from ’98. And music costs posted a 35 percent increase, according to the study.
DOT-COM FACTOR
David Perry, chairman of the 4A’s broadcast production committee and executive VP/head of broadcast production at Saatchi & Saatchi, New York, observed that the 16 percent increase in the average cost of a :30 needs to be put in proper perspective. "The mix of work changes dramatically from year to year," said Perry. "For instance, last year, dot-coms were spending a lot of money. These were expensive commercials for many advertisers who rolled out aggressively and then disappeared. Their commercials had a strong impact on driving costs up in ’99—especially when you consider the Super Bowl, which had a high percentage of dot-com advertisers. A couple of dozen expensive commercials can have a major impact on the bottom line of the study."
Perry added that factoring the past two years of the study together probably paints a more accurate picture of the marketplace. Last year, the 4A’s study reported a four percent decrease in the average cost of a :30. "If you combine the last two years, that’s an 11.36 percent increase, meaning less than six percent a year," related Perry. "That’s in line with what we’ve had on average over the years—an average increase that’s about double the consumer price index."
In the big picture, Perry said that increased costs are largely a result of more ambitious, more complex creative work as advertisers and agencies seek to break through the clutter. "There will always be people, particularly cost consultants, who will see an increase as evidence that clients are getting gouged and agencies are not protecting clients," stated Perry. "But look at the fact that production company markup has gone down to 25 percent. That factors against any accusation that somehow production companies are taking undue advantage. Clearly, that’s not happening. The increase in costs has everything to do with what we order up, what we ask for. The production and post communities have been innovative and creative in helping us realize our aspirations.
"Perhaps 20 years ago," continued Perry, "it may have been easy to abuse things. But now we have knowledgeable buyers, particularly at the major agencies represented in this study. The kind of creative work we’re doing and the cost of achieving it is the primary explanation for the overall [16 percent] increase."
Perry added that the 4A’s takes the position that "increases are not necessarily bad and decreases are not necessarily good. There’s no value judgement on our part if the figures are up or down. The study is a dispassionate analysis of the industry’s statistics. And the increase of 16 percent in this year’s report is undoubtedly driven by the nature of the work we’ve been doing."
Kathleen Quinn, VP of production services for the 4A’s, noted: "Our role is not to interpret. We report the figures that the agencies have given us. We gather all this information from the participants, put it all together and put it out there. It’s a benchmark, but it’s an average. Although it can be helpful for people to look at, advertisers need to look at their own commercial production."
Like Perry, Quinn combined the past two years of the 4A’s study for what she described as a better perspective. "Twelve percent over two years—six percent a year—is fairly consistent if you look at the big picture and average out the ups and downs over the years," related Quinn.
Taking off his 4A’s hat and conjecturing as an agency head of production, Perry offered some explanation for the significant increase in postproduction costs: "We’re simply doing things we didn’t use to do in editorial that used to be part of production," he assessed. "We’re pushing into postproduction the achievement of certain visual effects that used to be part of live-action photography. That’s done at a cheaper cost in post, but those costs are added into post. I don’t think the unit costs are going up dramatically, but the number of units are—the hourly cost of a Flame, for example."
John Held, executive director of the Association of Independent Creative Editors (AICE), observed: "The main reason editorial costs have gone up is that advertisers want their commercials to be as effective as possible. Media costs are huge. Every second of the commercial has to be perfect. All creative people—that includes the editor, director, agency and client—have one final opportunity during post to correct anything that needs fixing, while using the latest technology available. Graphics, video effects and multiple versions for clients also have increased post costs. The 1999 4A’s Television Production Cost Report is accurate, informative and valuable to the industry."
ONGOING DEBATE
However, not all industry association heads find positive value in the 4A’s report. As in past years, the Association of Independent Commercial Producers (AICP) questioned the study and how people are using its results.
"This is a study that less-educated advertisers and agencies try to benchmark their own work against," contended AICP president Matt Miller. "If that’s not a purpose of this study, I don’t know why it’s done. To try to draw conclusions or trends from incomparable databases and have those trends serve as findings that these advertisers and agencies benchmark to is really dangerous. … We should be worried about trying to draw conclusions from an inconsistent database."
Beyond the notion of comparing apples to oranges in terms of jobs that are dramatically different in their creative scope and size from year to year, the survey, claimed Miller, can be significantly skewed by the seemingly slightest change. For example, Miller noted that the overall agency database has decreased by one agency (there were 21 agencies in last year’s 4A’s report) but has increased (from 14 to 15) in terms of the number of shops that rank among the country’s top 20 agencies. "That alone can change the entire makeup of the database," said Miller. "Year to year, similar agencies can change because of the client makeup. But you compound that by adding one of the top 20 agencies and taking at least two smaller agencies out. That can have a dramatic effect on the study’s figures."
Miller said that he found other confusing discrepancies. The 4A’s survey reported that the typical :30 shot in studio entailed an average of three-plus hours of overtime, 13 percent greater than in ’98. Similarly, the average :30 lensed on location averaged five hours of overtime, eight percent more than in ’98. But, pointed out Miller, those percentage increases are incorrect—because according to the 4A’s report for ’98, the average overtime hours were the same: three-plus hours for studio shoots; and five hours for location shoots. SHOOT looked back on the ’98 report and confirmed Miller’s findings. At press time, SHOOT was awaiting an explanation for the apparent discrepancy. (The percentage increase in overtime for the average :30 shot both on location and in studio, however, did jibe with the ’98 report. According to the latest 4A’s study, combined studio/ location shoots entailed an average of six-plus overtime hours, a 20 percent increase over ’98.)
Miller added that there’s no context given for increases in the duration of studio, location and combo shoots. "Again, are they trying to say they’re the same kinds of jobs [from one year to the next]? Or have the jobs become more complex? I’m not sure how to interpret that, or what they’re trying to imply," said Miller. "The only good use of this methodology would be for an individual advertiser whose type of work is consistent year in and year out. In that situation, an advertiser could benchmark its own work."
Also troublesome to Miller were the 4A’s findings of reduced production house markup, and slightly less single bidding. On the latter score, he conjectured that "asking more people to bid out jobs that are not necessarily going to be awarded could increase costs—because it’s costly to bid out jobs in the first place."
As for decreased production company markup, Miller observed: "The study concluded that commercials cost more, are taking longer to produce, but production companies are making less. Companies deserve to be making more if jobs are more complex and taking longer."
PRODUCT
CATEGORIES
Several product categories showed substantial production cost increases in ’99 as compared to ’98, according to the 4A’s report. Rising more than 50 percent were apparel and clothing commercials, auto accessories/supplies and corporate image/media promotion.
Also showing escalated costs were retail and fast-food restaurant spots, at 42 percent; drugs/ toiletries, at 41 percent; beer/ wine, at 30 percent; and soft drinks/snacks, at 22 percent.
Only one product category significantly decreased in production costs: Travel/vacation destination dropped 41 percent. Seven other categories declined by less than eight percent.
FOREIGN FARE
The 4A’s study did not break down how many shoots took place in Canada, Australia, South Africa or any other specific foreign countries. The number of "international" shoots—defined in the report as "any commercial shot outside of North America by an independent commercial production company"—held steady at 62 last year, just one more than in ’98.
Canada wasn’t covered under the "international" designation in the survey. As structured, the report made it difficult to ascertain how many spot shoots traveled to Canada. The number of shoots that New York production houses took out of town—which could be anywhere in North America, including Canada—declined from 194 to 136. And Los Angeles-based production companies were involved in 167 out-of-town shoots in ’99, as compared to 131 in ’98.
Shooting in foreign countries figures to be heavily scrutinized in the next 4A’s report, which will cover calendar year 2000. That survey—which may be released as early as next summer, according to Perry—will reflect the production cost impact of the nearly six-month-long strike by the actors’ unions against the U.S. advertising industry. The strike prompted much runaway American spot production to Canada and overseas.
Editor’s Note: Look for follow-up coverage on the 4A’s study covering ’99 spot production, later this month in SHOOT.
