Whereas the typical marquee finding in the American Association of Advertising Agencies’ (AAAA) annual Television Production Cost Survey–which is in its 18th year–has been, for better or worse depending on your viewpoint, the average cost to produce a national 30-second TV spot, now the spotlight shifts to a bigger picture perspective, namely the number of commercials this and other averages are based upon.
The latest AAAA study, which covers calendar year 2004 as reported by 20 participating ad agencies and branch offices (including most of the country’s top 20 shops), shows a total pool of 1,579 national commercials–that’s 58 more spots than in 2003 based on returns from 19 agencies.
However when looking over the past four years, the tally of national commercials being produced, as reported in the study, is steadily declining. In 2001, per the AAAA survey, there were 1,741 TV spots. In ’02, the total was 1,725. When ’03 came in at 1,521 spots, there was conjecture that advertisers from some product categories might have started up their activity later in calendar year ’03 and continued it into ’04. It was too early, said some, to pinpoint a trend–the ’04 numbers would be more telling. Now that this tally is in and for the second consecutive year the total pool is in the 1,500-plus range, it’s reasonable to conclude, said David Perry, chairman of the AAAA broadcast production committee, that clients are indeed shifting some of their TV investments into alternative media.
Perry, who is also executive VP/head of broadcast production at Saatchi & Saatchi, New York, said the pattern of decline is becoming clear. He pulled out results of the AAAA report covering ’94 in which there were 1,958 national commercials reported by study participants. In ’95, there were 1,932. Perry noted that over the past decade, the total number of national commercials in the annual AAAA study database has plummeted some 19.3 percent.
“Ten years ago, there was concern voiced over declining TV viewership,” related Perry. “But back then, alternative new media weren’t mature enough to siphon off a significant amount of business. Now that’s no longer the case.” Perry specifically cited Internet advertising, and product placement in TV programs and theatrical features as media gaining momentum.
Perry noted that the increase from 1,521 national spots in ’03 to 1,579 in ’04 isn’t necessarily cause for optimism on the part of media traditionalists. This small hike could be attributed simply to the fact that one more agency participated in the ’04 study as compared to the prior year.
While Matt Miller, president/CEO of the Association of Independent Commercial Producers (AICP), thinks that advertisers are clearly exploring new media, he doesn’t regard the AAAA study as reliable confirmation of that development. Though the declining AAAA survey database of commercials could suggest an alarming trend for traditional spotmaking, Miller contended it’s dangerous to jump to conclusions. Miller said that the agencies and the clients they represent change annually in the study, bringing into question the viability of a comparison from one year to the next. “We don’t even know if these are the same agencies from year to year, much less the same clients.” He added that the report’s language describes “the majority of the top 20 agencies” as participating in the study. Miller asked if that majority is 11 agencies or 19 in a given year and how can you compare the collective findings–and break out trends–if the study respondents are different from one survey to the next?
PRODUCTION COSTS
Indeed the AICP stance has been consistent over the years, questioning the AAAA study’s findings and its viability as an industry benchmark, particularly when it comes to arriving at “average” costs.
Before getting into that debate, though, here’s an overview of the latest study’s results.
According to the AAAA report, the average cost of producing a national commercial in ’04–without agency commission or any other form of agency markup–rose three percent as compared to ’03. Extrapolating from a database of 1,028 national :30s as reported by 20 participating agencies, the AAAA report found that the average cost of a national :30 before agency commission was $385,000 in ’04. That’s an increase from $372,000 in ’03, based on a pool of 1,039 national :30s.
When combining the body of :30s in ’04 with spots of other lengths, the 20 agencies represented a database of the earlier cited 1,579 national commercials; the previous year yielded 1,521 spots. The average per spot cost of those 1,579 commercials, sans agency commission or other form of agency markup, was $338,000 in ’04, one percent more than the $336,000 average in ’03.
Perry viewed the increase of production costs for the “average” :30 as being relatively modest, noting that three percent is just a hair more than the rise in the consumer price index.
Most figures on average remained steady in ’04 as compared to ’03, continued Perry. For example, the total director’s fee per :30 was $24,000 in ’04, the same as the prior year–as was the production company’s average markup which came in at 25 percent in ’03 and ’04. Furthermore, the average total production company net costs went up three percent from $247,000 in ’03 to $254,000 in ’04.
The prime areas that showed a more significant swing from ’03 to ’04 were editing and post, according to the AAAA study. The average cost to edit and complete an original :30 in ’04 was $52,000–six percent more than in ’03. Video finishing costs increased 25 percent in ’04, while sound recording mixing decreased 14 percent. Creative/labor fees showed a 15 percent increase while the cost of an editor’s markup declined by eight percent to $3,300.
Perry said that even with this flux, the bottom line total costs remained about status quo from ’03 to ’04. He conjectured that the post costs rose because that sector encompasses more than just editing and finishing. Perry said that visual effects, graphics, moving titles and other disciplines get bunched under the post category, which might represent the reason behind the larger percentage swing reflected in the AAAA survey.
FOREIGN FLUCTUATION
What appeared to be another major fluctuation this time around was in the international shooting arena. For ’04, the number of international productions–not counting Canada–increased dramatically in the AAAA study as compared to ’03. In ’04, agencies participating in the survey collectively had 161 “international” shoots, some 60 percent more than the 98 reported in ’03. One-hundred-and-sixty-one represents 10 percent-plus of the total 1,579 commercials in the ’04 AAAA study database.
However, last year Perry voiced the concern that the international shoot figure of ’03 was in error. He theorized that some work might have been improperly categorized within the context of last year’s survey. For example, an agency might have reported a job being awarded to a New York production house, which was regarded as a job being shot domestically. But the New York production company might have gone on to shoot in a foreign country, meaning that the project was not accurately credited in the study as an international shoot.
Because of this possible inaccuracy, Perry said that the AAAA survey this time specifically included instructions as to what constituted an international shoot–and that the awarding of a job to a domestic house didn’t necessarily translate into that job being lensed stateside. Perry said this might have helped bring the international shoot figure of 161 more in line with what had been accurately reported in the AAAA study for ’02, which was 166 international shoot days.
New York shoots went up slightly from 137 in ’03 to 144 in ’04. Los Angeles shoots went down marginally, from 422 in ’03 to 411 in ’04.
“Out-of-town” shoots for Los Angeles production companies decreased from 172 in ’03 to 127 in ’04. Similarly “out-of-state” shoots for New York production houses dropped from 71 in ’03 to 48 in ’04. The “out-of-town” designation is difficult to pinpoint in that this description could refer to jobs lensed in other parts of the U.S.–or perhaps to shoots that went, for example, to Canada.
AICP PERSPECTIVE
Beyond questioning the methodology of the AAAA study and thus the so-called averages and trends that come out of that report, AICP’s Miller said that even if one placed credence in the numbers, the resulting findings are puzzling.
He cited as an example the bottom line conclusion that production costs are up for the average national :30, and for national commercials in general. Miller said that per the survey, the average cost of a location day and a shoot day are down while the average production house markup and director’s fee are the same. These factors, he said, shouldn’t translate to an increase in overall average costs.
From the study, continued Miller, it appears that the increase in finishing costs have skewed the overall AAAA averages up. The rise in finishing, conjectured Miller, might be due to advertisers requesting multiple formats. But at the same time, music costs have decreased five percent for the average :30, per the study.
In the latter arena, costs are down primarily in the original music/sound design sector. By sharp contrast, major expenditures are being made for the licensing of famous songs. That cost has gone up for the average :30 a whopping 40 percent, from $87,000 in ’03 to $122,000 in ’04.
Miller found the music figures interesting, but again is cautious about placing too much stock in the AAAA report, especially when it comes to striking averages and identifying trends.
He noted, however, that some AAAA study results–such as bidding practices–corroborate the feedback he’s received from the production company community. The study, said Miller, cites growth in multiple as well as in cost-plus bids. “These are labor intensive areas for production companies without any assurances of actually being awarded the job,” related Miller. “[Production company] markup remains the same, according to the study, while the process of booking and administering the job has gone up. The amount of bids has increased which doesn’t translate into increased income [for production houses].
Adding to the financial squeeze on production companies are “more restrictive and onerous client and cost consultant guidelines,” continued Miller, who also alluded to the slow payment problem, which was cited in the AICP’s own independently conducted membership survey as the leading threat to the health of the commercial production house community (SHOOT, 10/21, p. 1).