Pay for Performance in U.S. Local TV: Did You Get What You Paid for?

by Ebiquity Marketing
Wednesday, August 31, 2022

That is the question on every advertiser’s mind. Pay for Performance (P4P) (pay for performance) is the transaction model for Digital media that is recently taking hold within the local TV advertising marketplace. The approach offers a solution to this age-old question, but why is it cropping up now?

Due to legacy measurement technologies, local TV in the U.S. has traditionally been fully delivered at 90% or 95%. This is a much less favorable level of accountability to the advertiser than National TV at 100% audience guarantees, and digital having a pay-for-what-you-get scenario. Think about the value the advertiser is giving up in the media channel. In addition, since 2018 all Local TV audience measurement have been electronic and more reliable, making 100% accountability long overdue.

In addition, a significant trend is emerging in Local TV to transition from buying ratings to buying impressions. There are several reasons including the continued fragmentation and erosion of Local TV and Cable, the introduction of streaming homes to the population groups being measured, and the industry initiative to capture cross-screen viewing in reporting, which would necessitate impression-based reporting. By moving to impression-based buying in Local TV it levels the playing field and allows for a more direct comparison with National TV, CTV, and other digital platforms. In addition, impressions can be added across markets and mediums so a client and their agency can get a holistic view of their campaigns.

These changes have been a long time coming and benefit sellers, agencies, and advertisers.

Given this background, we are seeing agencies starting to negotiate pay for performance in Local TV, whereby advertisers pay only for the impressions they receive from the Local stations/cable providers.

How it works:

  • Pay only for the impressions that are received based on the Nielsen Media Research or ComScore TV audience measurement data
  • Seller-side guarantees at the station level (avoid owner group, if possible)
    • Note- It’s important that buyers still estimate all programming being purchased. Since these audience estimates are key to delivering the client's communication goals, this is still an important step to prevent the sellers from inflating estimates to maximize the cost of a unit sold.
  • Negotiate whether the impressions guarantee is based on the original purchased (contracted) or the final purchased audiences (reconciled).
  • Insist on 100% guarantees to be comparable with National TV and Digital
  • Define the time frame for reconciling invoices and payments.
  • Stations should issue a refund check for the value of the impressions lost based on the purchased CPM (cost per thousand), not a credit off invoices
    • This keeps invoices clean and historical data intact. Costs and delivery are memorialized and can be used for future planning.

By following the above steps, the client can immediately answer the key question, Did I get what I paid for?

Advantages to the client of the pay for performance approach:

  • More timely reconciliation process to 30-60 days instead of 90+ days for the pay for performance vendors. This gives the client timelier reporting on their financials and gives the advertiser preferred considerations when it comes to station access to programming and schedule monitoring.
  • Fewer maintenance issues for the agency in tracking compensatory weight. (Fewer headaches for clients trying to keep up with what is owed to them.)
    • Added benefit of avoiding pre-emptions of compensatory units in heavy demand and political time periods.
    • Time-saving for agency buyers and resources.
  • Dollars refunded to the client can be used to fund other marketing opportunities.
  • Advertisers can better compare ROI (return on investment) among the various media channels, guiding future decision-making.
  • Stations participating in a P4P program have a vested interest in delivering the client’s expectations and continuing to receive a strong share of advertiser dollars.

Nothing is perfect

It needs to be recognized that there are challenges to be weighed in moving to the pay for performance approach.

  • Depending on client strategy, airing compensatory weight may be more beneficial than cash back once expense has been realized.
  • Delays in Nielsen reporting and agency invoice reconciliation can slow the cash back process.
  • Potential buyer bias to purchase pay for performance stations with lower quality programming to the detriment of the client’s schedule. (All schedules should be evaluated and be placed in the client’s best interest regardless of transaction model.)
  • Stations that consistently underperform need to be evaluated if they are not helping meet the client's communication goals.

In summary, the pros outweigh the cons when it comes to P4P. Time is money. Agency buyers and stations can focus efforts on maximizing communications impact rather than chasing down and accounting for compensatory weight. And advertisers keep better control of their cash.