The average cost of producing a :30 TV commercial in 1998 decreased four percent as compared to 1997, according to the just-released American Association of Advertising Agencies’ (4A’s) annual Television Production Cost Survey.
Extrapolated from a database of 1,279 national :30s as reported by 21 participating ad agencies—including the top 10 U.S. shops in gross income and 14 of the country’s top 20 agencies—the ’98 4A’s report found that the average gross cost of a national :30 before agency commission was $295,000, down from $308,000 in ’97. When combining this body of :30s with spots of other lengths (i.e. :60s, :15s, :10s), the 21 agencies collectively represented a database of 1,834 national spots. The average cost of these commercials, without agency commission or any other form of agency markup, dropped seven percent to $271,000 from a ’97 figure of $291,000.
This is only the second time in the 12-year history of the 4As study that costs were found to have decreased. In ’95, a two percent dip was reported in the average cost of a :30.
According to the 4A’s, among the possible factors accounting for lower overall production costs was a decrease in time it took to shoot a spot in ’98 as compared to ’97. The 4A’s report found that the number of hours used for location shoots fell 11 percent in ’98, while hours for studio shoots declined by 15 percent and combination shoots dropped seven percent. When shot in studio, filming of a national :30 took an average of 11 hours last year (as compared to 14 hours in ’97). If lensed on location, a :30 took an average of 15 hours (17 hours in ’97, per 4A’s research). A :30 combining studio and location sites required an average of 16 hours to shoot (18 hours in ’97).
The 4A’s study also reported that fees paid to directors went down 10 percent from ’97 to ’98, averaging $19,000 for work on a national "traditional" :30 sans animation or special effects. Additionally, according to the 4A’s survey, production company markup dropped to an average of 26 percent, down from 27 percent in ’97.
David Perry, chairman of the 4A’s broadcast production committee and executive VP/head of broadcast production at Saatchi & Saatchi, New York, characterized the four percent drop in the average cost of a :30 as "remarkable." He speculated that a major cause for the decrease was runaway production, a factor not pinpointed in the study but alluded to in a chart. "This is my speculation but I have to believe," said Perry, "that shooting in Canada and [in] foreign countries has impacted the findings. I hear about a lot of work going up to Canada and I know how much we [at Saatchi] do. I don’t see any other major factor that would stop the increase in production cost and cause such a dramatic change [a four percent drop as compared to an 11 percent increase in the average cost of a :30 in the 4A’s ’97 report]."
Perry said that the decision to shoot in a foreign country is often born out of a scenario in which "the board is too big for the budget. … Agencies start to look at options to make the board a reality." The published report findings did not break down how many shoots took place in Canada, Australia, South Africa or any other specific foreign countries. However, the number of international shoots—defined as "any commercial shot outside of North America by an independent commercial production company"—nearly doubled from 32 in ’97 to 61 in ’98. As for Canada, the study as presented made it difficult to determine how many shoots traveled to the Great White North. The number of shoots that New York production houses took out of town—which could be anywhere in North America, including Canada—rose from 134 to 194. And Los Angeles-based production companies were involved in 131 out-of-town shoots in ’98, as compared to 85 in ’97.
As for the finding that spots on average took fewer hours to shoot, Perry conjectured, "Maybe we have made our boards ever so slightly less complex, or we’re getting smarter and doing things faster than we used to. I’m really not sure. But fewer hours obviously is a big reason behind the lowered cost reported in the survey. … And the drop in production house markup is also a factor."
Perry added that "it’s interesting that editorial costs sort of held the line—up three percent from $33,000 [in ’97] to $34,000 per :30 [in ’98]. In years past, the increases were greater and I think that was part of our adjusting to new technology. I think, for the most part, we have adapted to Flame, Inferno and online costs. So those costs have leveled off now, but at a high plateau."
Kathleen Quinn, VP of production services for the 4A’s, welcomed the news of a decrease in the average cost of producing commercials. "It’s great in an industry to have costs go down, particularly when the norm has been for them to rise," said Quinn, who came aboard the 4A’s four months ago. She succeeded Dorothy Forget Bechtel, who retired in June. Quinn has more than 20 years experience on the agency side, having most recently served as senior VP/ director of broadcast business at Partners & Shevack/Wolf, New York.
Prefacing her remarks with the fact that the 4A’s study is primarily statistical and not necessarily causal, Quinn nonetheless concurred with Perry’s observations relative to the dip in shoot hours and production company markup being among the factors contributing to decreased average costs in ’98. She added that while runaway production may very well have had an impact, the survey as structured can’t statistically address that contention, in that data on out-of-town shoots for L.A. and New York production companies isn’t broken down to reveal how many jobs went to Canada.
Quinn described the annual survey as being "a valuable benchmark. … Advertisers perceive that it has great value. It’s the only benchmark that exists out there and provides advertisers with a comfort level to have a basis for comparison; how valid a comparison depends on the advertiser. We must remember that this is ‘an average.’ There are as many examples above as there are below that ‘average.’"
Quinn noted that as in years past, the cost findings of the 4A’s survey do not include special effects and animation spots. The 4A’s rationale is that CGI-intensive spots and their effects/ animation brethren have costs so specialized that they’re difficult to compare fairly to the rest of the field.
Phil Shyposh, senior VP, member services, at the Association of National Advertisers (ANA), said his organization’s members generally find the 4A’s survey to be a useful benchmark. "The survey is a good starting point for our folks—particularly to look at trends over a period of years," assessed Shyposh. "The key is not to fall in love with the [survey] headline numbers. You need to dig beneath that for information that can be helpful to your company."
Ongoing Debate
As in past years, the Association of Independent Commercial Producers (AICP) questioned the study and how people are using its results. AICP president Matt Miller expressed concern that some believe this survey represents "the universe" of commercial production. "In this study, we’re looking at ‘a universe,’ not ‘the universe,’" contended Miller. "The study’s universe is based on certain info provided by certain agencies who need client permission to release that data, which isn’t necessarily all the relevant info. The makeup is changing from year to year, and the database doesn’t stay the same from year to year. We should be worried about trying to draw conclusions from an inconsistent database."
Miller noted, for example, that the highest cost quintile in the ’98 4A’s study is for :30s ranging from $438,000 to $1,347,000. That’s compared to a top quintile of $428,000 to $2,747,000 in ’97. "Are we to conclude that the top commercial this year cost half as much as that of last year?" asked Miller. "A lot of spots fall in over that $1.3 million range. It’s tough to base conclusions about the industry on that kind of data. That’s problematic."
AICP chairman Alex Blum, executive producer/partner at bicoastal Headquarters, also identified what he viewed as glaring inaccuracies. "Once again, the study concludes that studio shooting [at a survey-reported per day cost of $116,000] is cheaper than location shooting [a per day cost of $143,000]. Anyone with some knowledge of the business knows that isn’t true. Building sets and shooting in studio is generally more expensive than shooting on location."
Blum said that the finding that the "average" number of location shooting hours has gotten shorter is "laughable." He noted that location shoots are generally longer than what’s outlined in the survey. "These inconsistencies are never addressed, and that calls into question a lot of other things that are in the study," continued Blum, who conjectured that these alleged "inconsistencies" may be the result of survey figures based on how a job was bid and not on how it was actually produced. "The difference between a bid and how something wound up getting done is huge."
In that same vein, Blum questioned the conclusion that production company markup went down one percent. "Figuring a markup average is a complicated proposition," he said. "For a company to keep solvent, it has to have a reasonable markup percentage, generally not less than thirty percent. That helps pay for the jobs that don’t make that kind of money—the jobs done to develop young directors or that you do as a favor for a good client. There are jobs that you do for creative development that are done at an unrealistic markup. To average all that together and say the average markup is ‘x’ percent is wrong. Well-informed clients who understand production know this. Unfortunately, there are still some clients who equate markup with profit. They don’t realize the overhead [or the] costs of doing business [that] production companies carry."
Blum also had questions about the 4A’s methodology. "For example, is this study inclusive of overages?" he asked. "That can make a tremendous difference."
Addressing some of Blum’s questions and contentions, Quinn of the 4A’s noted that overages are included in the survey. She added that survey figures generally represent actual costs of production and not bids. Quinn explained that typically, agencies participating in the survey compile and submit their figures five or six months after the conclusion of the calendar year being studied. There may be jobs done late in the prior calendar year that agencies might have to make estimates for, but the figures for most of the commercials reflect actual costs, contended Quinn. As for the top quintile spread brought up by Miller and the location versus studio shoot comparison delineated by Blum, Quinn said that survey findings accurately reflect the data submitted by agency respondents. People in the production house community, she continued, may have data that they feel is valid, "but we can only go off of the information the agencies have provided us with for this survey."
Blum claimed that "most really well-educated clients who know how they spend their money for production don’t waste their time with this kind of study." But the problem, he continued, is that those clients who aren’t savvy about production may regard this survey as gospel. This, added Miller, leads some of these clients to wonder why they’re paying higher than the "average" 26 percent markup or why their production costs haven’t gone down four percent.
Miller acknowledged that there are some interesting pieces of information in the study but that they needed to be taken in the proper context. He noted, for example, that the runaway production issue—as referenced above by Perry—certainly could have figured in bringing costs down. But, he cautioned, while "running out of the country is something that people are taking advantage of now more than ever," it needs to be pointed out that the savings in production costs are "somewhat of a temporary benefit based on the strength of the dollar. It [leaving the country] may not be as effective a tool in the future."
Editorial Feedback
John Palestrini, national president of the Association of Independent Commercial Editors (AICE), and CEO of New York-based The Blue Rock Editing Company, felt that the 4A’s study results were generally plausible relative to editing and postproduction. The aforementioned three percent increase in editorial "is in line or below inflation," related Palestrini, adding that "the average creative fee [$9,600] has stayed pretty much in line."
Palestrini noted that the seven percent increase reported in video finishing "can probably be attributed to the transition from D2 to D1. There’s more D1 finishing going on now than a year or two years ago. It’s a justifiable cost [a total ‘average’ cost of $16,000 for video finishing on a spot], given the higher-quality product."
The one figure that struck Palestrini as unusual was the 10 percent increase in the cost of alternate :30 versions from ’97 to ’98. The average cost to finish each variation was pegged at $23,000. "Maybe we’re just working alternate versions harder, doing more title treatments and more elaborate ‘rough cut’ presentations, spending more money before we ultimately present to the client. …Still, based on my experience, I find it difficult to reconcile that high a jump in alternate versions," Palestrini said.
Music
Of the 1,279 :30s in the ’98 study database, 1,184 used music of some type. The "average" total music costs for a :30 in ’98 was $26,000. That’s four percent less than in ’97. The average jingle ran $26,000—that’s 21 percent lower than a :30 in ’97. An underscore averaged $30,000, which represents an increase of 15 percent in ’98, as compared to the previous year. Average stock music rights were $4,400 per song to license, more than 50 percent above the ’97 average. Of the 892 :30s using original compositions, there were 153 jingles and 739 underscores.
"Some of the figures don’t correspond to my experience," said Lyle Greenfield, president of the Association of Music Producers (AMP) and a partner in bicoastal Bang. Greenfield cited the :30 underscore average of $30,000 as being higher than what he’s generally seen in the business. Greenfield conjectured that many music houses often put charges for underscoring a :30 and a :15 lift on the same invoice, and that perhaps the 4A’s study derived its :30 underscore average from those combined billings.
As for jingle costs going down 21 percent, Greenfield found such a significant decrease to be difficult to reconcile as well. "I’m not sure what that means. Are there fewer demos commissioned and do they involve a smaller number of companies?" he asked, grappling for a reason behind the cost drop. "Are there fewer creative explorations going on before the final music is done? Those figures don’t parallel my experience or what I know from my colleagues at other companies."
Additional Findings
Of the nearly 1,300 :30s in the ’98 survey, 1,137 used on-camera principals; on average there were four principal performers/ actors in a :30, the same as in ’97. Of the 848 spots with extras, the average number used was 12 per :30, four percent above ’97. The average cost for the use of all talent was $13,000 per original :30, eight percent higher than in ’97.
The 4A’s study also provided a breakdown of spots by product category. Compared to the previous year, the cost increases reported were relatively modest. The category, however, that witnessed the greatest increase (50 percent-plus) was corporate image/media promotion, with a ’98 average of $264,000. Budget increases of more than 20 percent were found in such categories as apparel/clothing (23 percent), beer/wine (34 percent), beauty fashion/cosmetics (23 percent) and office equipment/ computers (25 percent).
Several categories showed decreases in production costs, including autos/trucks/motorcycles (14 percent), auto accessories/supplies (26 percent), banking/financial/insurance (25 percent), retail and fast food restaurants (36 percent) and drugs/toiletries (14 percent).
When categorized by commercial type, costs rose more than 50 percent for song-and-dance spots, followed by a 22 percent increase for single situation/voiceover :30s.
