Observations & Questions On Network Integration Fees

By: Bill Duggan

In February, the ANA and the AAAA issued a joint perspective titled “Are Network Integration Fees Legitimate?”  Only ABC, CBS and NBC charge network integration fees, which add up to an annual bill to advertisers that totaled $125 million in 2007 (as estimated by TargetCast tcm).  In addition to the $125 million, network integration fees have other hidden costs to both agencies and advertisers -- they are a burden for agencies to administer and the extra manpower required to do so invariably costs advertisers more in labor fees.

In the press release accompanying the joint perspective, we formally invited the networks to join a task force to address the practice of charging network integration fees.

• ABC declined.  According to Mike Shaw (President, Sales & Marketing), “ABC is not prepared to join a task force as your letter suggests.   We are however, willing as always, to discuss the issue with the individual advertisers who advertise on the ABC Television Network., or their respective agencies.”
• NBC also declined. According to Mike Pilot (President, NBC Universal Sales), “We recognize this is a topic of interest among the industry  and appreciate your efforts to further the conversation.  As you cite in your February 2008 joint perspective, marketers are demanding better  accountability for their investments and more transparency in their relationships with media partners.  At NBC, this is a top priority as well.  While we are always open to talking with our clients about our business relationships, we prefer to have those conversations directly with our  clients rather than through a third party.  For this reason, we respectfully decline your invitation.”  We promptly responded to Mike to assure  him that we would indeed include his clients in the proposed task force, yet NBC continued to decline.
• CBS has accepted and that meeting is in the process of being scheduled.

This all leads to some interesting questions.

Why do integration fees exist on the ABC and NBC networks – but not on related cable, syndication or local TV?

ABC network imposes integration fees.

• ABC/Disney cable properties do not.  These include The Disney Channel, ABC Family, ESPN and SOAPnet.  So a commercial on “General  Hospital” on the ABC network has an integration fee; but a commercial on “General Hospital” on SOAPnet does not.
• ABC syndication does not charge integration fees.  This includes programs such as “Live with Regis and Kelly” and “Who Wants To Be a  Millionaire.”  But when “Millionaire” ran on the ABC network, integration fees were charged.
• ABC owned and operated local stations do not charge integration fees.  So a commercial on “Desperate Housewives” on the ABC network  has an integration fee; but a commercial on “Desperate Housewives” run locally on an ABC owned and operated station (or affiliate) does not.

NBC network imposes integration fees.

• NBC cable properties do not.  This includes Bravo CNBC, MSNBC, USA.
• NBC syndication does not charge integration fees.  This includes “Access Hollywood”, “The Chris Matthews Show” and more.
• NBC owned and operated local stations do not charge integration fees.  So a commercial on “The Today Show” on the NBC network has an  integration fee; but a commercial on “The Today Show” run locally on a NBC owned and operated station (or affiliate) does not.

Why does the cost of integration fees vary by daypart?
The integration fee is about $470 for prime and evening news and about $230 for day and late night.  It would appear that the fees are in some way related to media costs, and it’s unclear why that would make any sense.

Why has the cost of integration fees remained unchanged for more than a generation? 
The networks have not increased integration fees for years (over 30 years according to one ANA TV Committee member).  This is interesting.  If network integration fees are in some way related to a labor costs, how is it that fees have remained unchanged?  Another TV Committee member speculated that any cost increase would cast an unwanted spotlight on these fees.  Advertisers are curious to understand the process the networks perform to integrate commercials as well as the physical hard costs associated with that.

SUMMARY
In today’s environment, marketers are demanding accountability from their media investments and transparency in their relationships with media partners.  CEOs, CFOs, and procurement specialists are asking more questions than ever before about marketing expenditures and the impact on business results.  Every dollar invested has to prove its worth.  Given all this, it’s only natural that marketers are again questioning the network integration fees.

We appreciate that CBS has provided the opportunity to discuss this.  And we are disappointed that ABC and NBC have chosen not to have that dialogue.

In the meantime, we strongly encourage marketers and agencies that advertise on network television to ask the networks:

• Why do network integration fees still exist in today’s media environment? 
• Can network integration fees be rationalized? 
• And whatever else is on your mind on this topic.

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Comments

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