The American Association of Advertising Agencies’ (AAAA) recently released its annual Television Production Cost Survey (SHOOT, 12/1/06), which covers calendar year 2005 as reported by 21 participating ad agencies and branch offices (including most of the country’s top 20 shops). While production usually generates the loudest scrutiny, this year editorial and post were among the areas that showed the greatest changes, when compared with the survey results for ’04.
Editing and post costs–which had been on the rise–leveled out in ’05. The average cost to edit and complete an original :30 in ’05 was $51,000–which is two percent less than in ’04. But the ’04 average had gone up six percent over ’03. Video finishing costs were four percent less in ’05 as compared to ’04.
This represented a notable shift as finishing costs went up 25 percent in ’04 as compared to ’03. Creative/labor fees on a :30 showed a seven percent decrease while an editor’s markup declined by six percent from ’04 to ’05, coming in at $3,100.
Looking at the survey as a whole, it should be noted that the AAAA report shows a total pool of 1,444 national commercials–that’s 135 fewer spots, or nearly nine percent less, than in ’04 based on returns from 20 agencies. In fact, the tally of national commercials being produced, as reported by the AAAA, has been pretty much steadily declining since ’01. In ’01, for example, there were 1,741 national TV spots, which went down to 1,725 in ’02, and 1,521 in ’03. The general consensus suggested that the reason for this trend is that agencies have been shifting more of their TV investments into alternative media.
The Association of Independent Commercial Producers (AICP) has long questioned the validity of the survey. This year, SHOOT asked editorial and post professionals for their thoughts on the survey results. Here’s what was said:
Bob Cagliero, executive producer, bicoastal 89 Editorial; president, AICE NY Chapter The survey seems to be accurate on a number of levels from our experience as a bicoastal editorial company that also maintains a design and visual effects division. I think all of us can sense the number of traditional, national television commercials declining over the years throughout the industry. While such decline may have placed some strain upon the production and postproduction communities, the increase in “non-traditional” media has presented work to offset the decline. The challenge here, however, is non-traditional media has created non-traditional budgets.
A couple of years ago, agencies had to sell their clients on web films, virals, podcasts and the like. Some clients grudgingly experimented with the idea, while others enthusiastically embraced it. The risk factor [in the advertiser’s mind] initially put pressure from all involved to create these pieces with little or no budgets attached to them in effort to sell them to a client. In attempt to partner with their clients, production companies and editorial houses initially “took it on the chin” at times to produce this content. Now, many advertisers have found how effective alternative media is and attach such pieces to the list of deliverables of a traditional TV commercial production. Some projects are generated as purely alternative media from the onset.
The challenge is that this alternative or non-traditional media is still content that needs to be produced and postproduced with the tools and talent that its traditional partners require. However, while beginning to grow a bit, the budgets for the alternative pieces lag behind considerably compared to their traditional counterparts. That could certainly be a key ingredient in the reduction of production and postproduction costs in ’05 on top of the general belt tightening we all feel.
Agencies have less ways to make money than they did five to 10 years ago. Clients dictate budgets that are at times unrealistic. These are realities our communities have been dealing with for the past few years at least. What I believe this will continue to do is make the producers more creative, smarter and cost-effective. Editorial houses are becoming more and more self-sufficient. They have design, graphics, online conform, Flame/FX, and sound design/mixing capabilities they did not have in the past. This has enabled such houses to be more flexible and profitable than they could be in dealing with outside vendors as mark-ups continually decrease. Budget challenged jobs can be produced more effectively and be profitable in an environment where mark-up is jeopardized daily. On another level, it has produced a platform for the junior editor to have more opportunities to grow as some clients will let them “take a shot” at a cut on the jobs with little money.
While the 4As survey results are not surprising, I do think they reflect the continued budgetary challenges that are a byproduct of an industry still in the midst of redefining itself.
Bob Solomon, president, Ascent Media Creative Services, Santa Monica The AAAA study is stale given that the reporting period covers 2005. However the objective evidence shown in the AAAA study regarding macro trends confirms my gut instincts about declines in traditional broadcast production. That feeling is supported both by other independent evidence–Film LA reports that the number of commercial shoot days through the third quarter of 2006 was down 7.5 percent compared with the same period in 2005–and by anecdotal evidence. We are seeing the number of TV spots that are being produced for individual campaigns have declined compared with prior industry norms. Conversely we see an increase in finishing for non-broadcast alternative venues, primarily theatrical.
Relatively few clients are leveraging original production assets by employing them in multiple campaigns, optimized for different distribution platforms–that is finishing broadcast, broadband, wireless and theatrical from the same source material.
Pressure on production budgets is a reality –particularly on post which seems to often get whatever is left over after covering production costs. This is particularly true with visual effects contracts where there is still an ample supply of visual effects facilities willing to do projects at unsustainable margins.
It is difficult to compare total costs for post for the period ’04 to ’05 due to the increase in HD finishing, where comparable work incurs greater costs. To accurately measure year-over-year gross cost, you have to consider the finishing requirements of the sample projects in ’04 versus ’05.
Tom Duff, president, Optimus, Chicago and Santa Monica; president, AICE Chicago Chapter On one hand, we are all happy to see stability of pricing. On the surface, a two percent decrease can have that feel good effect, but it also is indicative of a potentially scary trend. Tightening budgets out of the agencies certainly are the biggest factor in the reduction of costs.
The landscape is more competitive than ever, so we are being forced to take hits on our profit margins to stay alive. However, this hasn’t changed the demands of our clients; in fact, the demands are greater, they want more for less.
Basically, we are investing more capital than ever to keep up with the diverse demands of multiple formats, data flow and forms of video content. It’s work we love, but we aren’t recovering the costs as we did in the past. Toss in the proliferation of agency in-house post facilities that literally suck away the needed capacity (volume) from the independent editorial community, and our industry could be facing a big downsizing. We are already seeing houses go out of business at an alarming rate. We care so much about our client’s creative product and will never compromise it. It’s just getting tougher to maintain the equipment and staff necessary to do that.
Steve McCoy, president, FilmCore, Santa Monica, San Francisco, New York
Assuming that the AAAA survey is correct in stating that the number of commercials produced each year is trending downwards, that decline could be offset by a rise in production of advertising for other media. Advertising for the web and other emerging channels is clearly on the rise and while a lot of it is repurposed broadcast content, it may include more original content in the future. Regarding the survey’s conclusion that the cost of producing commercials has declined slightly, that result is unlikely to hold due to the increase in HD work.
Stephanie Apt, president, Final Cut, bicoastal/international
Editing and post costs for TV spots are decreasing because clients are moving their budgets into new formats and alternative media. This has become the norm now for many advertisers. Just look at the number of spots breaking on the Internet or on mobile phones. We’ve experienced an increase in multiple-format campaigns over the past year, many of which include interactive and viral components. Our editors are being asked to not only cut content for the traditional TV spot, but also the web versions. There are more and more channels of communication, but smaller budgets and creative fees. And there is a proliferation of editorial companies in the industry–with many that have been based in one location now expanding their reach into other cities and markets contributing to a more competitive environment.
Arthur Tremeau, executive producer, Northern Lights, New York
[Analysis of the survey] all depends on how you look at spot production. Maybe the average cost has dropped off, but it may actually factor in greater efficiency in the process. Agencies are aware of limited budgets and their clients are more accommodating when it comes to instant feedback. Posting spots for approval also helps. So if the question is, “Has the average cost per spot decreased?”–then, the answer is a resounding yes. Has it affected the bottom line? No, because we get more work done in a shorter period of time.
Editor’s Note: For more on the overall AAAA study, see SHOOT’s 12/1/06 issue for a rundown of the annual survey’s findings as well as a sidebar on reaction from the AICP.
