Is it the death of the 30-second spot?

It's not good when they whistle at the Cannes Lions International Advertising Festival. But a chorus of ad industry executives gave the Cannes Boo to Lachlan Murdoch, News Corp.'s deputy chief operating officer, as he took the stage to receive his "media person of the year" award last month.

The whistling might have been expected from a jaded advertising crowd suspicious of anything too corporate, especially when Mr. Murdoch's acceptance speech dragged on a little too long.

Then again, maybe they were whistling because -- in an era of unprecedented change in the world of marketing -- they don't know which side Mr. Murdoch is on.

After all, News Corp. doesn't only sell billions of dollars of advertising for its newspapers and television channels each year. As Mr. Murdoch noted in his speech, the company is also the world's largest distributor of digital personal video recorders (PVRs) -- devices that threaten to undermine the very economics of television advertising, because they allow viewers to opt-out of watching ads.

Combine that with the rise of the Internet, video on demand, peer-to-peer file sharing and the bleeding of viewers from conventional network television to cable and digital channels, and it's no surprise that many in the industry are predicting the decline -- possibly even the death -- of the 30-second commercial.

"I believe that the 30-second commercial, which is the underpinning of the broadcast revenue model is -- I'm not going to say dying -- but quite ill," said Sunni Boot, president of Zenith Optimedia Canada, which buys advertising time on behalf of marketers.

"Is it dead? No, but it's wounded," added Doug Checkeris, president of Media Company, another major media buyer.

The signs are everywhere. In March, PepsiCo Inc. announced a major marketing push to reintroduce its Pepsi One brand without a single television commercial.

U.S. media reports say General Motors Corp. and Procter & Gamble Co. are both diverting marketing funds away from television commercials for next fall. And the Canadian subsidiary, Procter & Gamble Inc., says its overall marketing budget will be up in the fall, while television spending will be flat.

"If you focus all your energy on TV, you miss all the other touch points when you can reach out and connect with consumers. Frankly, we're putting a lot more emphasis on the other touch points," said Tim Penner, president of P&G Canada.

P&G is the largest advertiser in Canada, according to Nielsen Media Research. It spent $188.3-million on advertising last year, including $135.2-million on television.

But a major portion of P&G's marketing budget is drifting away from advertising altogether, into areas such as public relations and in-store promotions, Mr. Penner said.

For years, the company behind mega-brands such as Tide detergent, Pampers diapers and Crest toothpaste had a reputation as a cautious and conservative marketer with a heavy reliance on television advertising. No longer.

"There must be, and is, life beyond the 30-second spot," P&G's global marketing officer, Jim Stengel, famously declared at a media buyers' conference last February.

Despite such bold pronouncements, television still plays a central role in most large-scale marketing campaigns. And it's still the medium that advertising creative talent drools over. Nowhere is this more evident than at the Cannes advertising festival, where many art directors and copywriters think of themselves as filmmakers first and marketers second.

Or as Mr. Murdoch put it in a panel discussion at Cannes: "I can't remember the last time when an agency pitched an account and they didn't recommend a television commercial first."

But the threat is real. According to BBM Canada, 4.5 per cent of Canadian adults lived in homes with PVRs in the recent spring 2005 measurement season -- up significantly from 2.8 per cent in the fall of 2004.

And a recent U.S. study by Accenture estimates that PVRs are used today to skip 2 per cent of ads broadcast. Accenture forecasts the figure will rise to 22 per cent by 2009 as the devices make their way into more homes.

To many marketers and ad agencies, the response to PVRs is simply to make ads that people actually want to watch. But P&G's Mr. Penner says that's only part of the solution.

"That's always the first avenue we would pursue, but I think we need to look for other communications models beyond the 30-second or 15-second ads. I think very often the consumer who's zapping an ad at home doesn't pause to think if it's a good ad or a bad one. They're just skipping it completely."

It's not just PVRs that are threatening the medium. While young people are still watching TV, they are multitasking with other media at the same time. They are also spending more time on the Internet and with video games.

And many are consuming television in unconventional ways, through video on demand, or by exchanging high-quality, commercial-free programs on unauthorized file-swapping programs.

But perhaps the biggest threat to the medium comes from the fragmentation arising from the 300-channel universe. Conventional television accounted for just 42.8 per cent of hours watched in the fall of 2004, down from 79.4 per cent in 1985, according to BBM Canada.

Over that period, CBC's share of television viewership fell from 17 per cent to 4.6 per cent. CTV's fell from 22.5 per cent to 10.2 per cent.

Where did the viewers go? To dozens of Canadian and U.S. specialty channels that saw their audience grow from an aggregate 2 per cent in 1985 to 44.4 per cent in 2004, according to BBM.

The addition of new digital channels will further fragment the television audience. But that may be nothing compared with the fragmentation that would come with a more seamless integration of computers, televisions and personal handheld devices.

Some predict that we are headed toward a future in which there is little difference between websites and television broadcasters -- a scenario that would transform the 300-channel universe into the 300-million-channel universe. It's not inconceivable that Google or MSN could one day bid against today's broadcasting giants for the broadcast rights to the Super Bowl or the Olympics.

That could be years away, or it may never materialize. But already, marketers, media buyers and advertising agencies are coming to grips with the reality that placing commercials on network television no longer guarantees a spot in customers' living rooms.

"It wasn't all that long ago that you could put a 30-second spot on the air and count on it reaching the vast majority of your audience with a relatively short campaign of light weight. The reality now is that's not the case," said Andy Macaulay, president of Toronto agency Zig Inc.

Like many other agencies, Zig says it has adopted a philosophy of "media neutrality," which means that traditional media such as television, newspapers and billboards aren't the automatic answer to any client problem. Instead, the answer could involve publicity stunts or the Internet.

"I don't think the 30-second commercial will ever die," Mr. Macaulay said. "I think that's an overdramatization of the fact that we will rely on it less and less as technology gives us and consumers more options."

So if marketers, media buyers and agencies are relying less on television, you would think the money flowing into the medium would have fallen dramatically -- especially for conventional network television.

But it hasn't. TMS Media Intelligence estimates that U.S. advertising dollars for cable TV will increase 11.6 per cent this year, while spending on network television will be up 1.6 per cent. In the Canadian market, Zenith Optimedia predicts that advertising on cable and specialty channels will grow by about 9 per cent, and conventional television by 3.5 per cent.

What this means is that while viewership numbers have fallen -- especially for network TV -- ad rates continued to increase.

That leads some to speculate that a major correction in television ad rates is imminent. Ron Lund, who speaks for many of Canada's largest marketers as president of the Association of Canadian Advertisers, predicts that when television rates fall, it will be "cataclysmic" instead of gradual.

"When it does happen, it will be a real event," Mr. Lund says. "I don't think it will be a crash, but it will be a correction."

Media Company's Doug Checkeris said a correction in television rates is already beginning as marketers come to grips with the fact top-rated network shows no longer deliver mass audiences. And that will create new challenges for broadcasters, he said.

"The big problem they have is: What's the economic model that's going to replace the one they have in place?" Mr. Checkeris said. "Because without the revenue from 30s and 60s [second commercials] where's the money going to come from to produce programming?"

Part of the answer may be in product placement and integration. According to Instat/MDR, revenues from product placement were $2-billion (U.S.) in 2004, up from $600-million in 2003. The company predicts that the market will grow to $13.3-billion in 2009. And CBS chairman Les Moonves has estimated that 75 per cent of all CBS prime-time broadcasts will incorporate product placement by 2008.

Jim Patterson, president and chief executive officer of the Television Bureau of Canada, which represents broadcasters and industry professionals, said Canada's broadcasters are taking the PVR threat seriously -- not because they buy into the worst of the doom and gloom scenarios, but because other important people do.

He said consumers still love television and spend hours watching each week, even though most already have an "ad skipping device" -- the remote control.

"We are not going to let this baby [television]die. It's just too powerful," Mr. Patterson said. "Does that mean we should all be complacent? No, of course not."

Broadcasters are experimenting with different ways of responding to the PVR. Mr. Murdoch told Cannes delegates that News Corp. -- which owns several television properties including the U.S. Fox network -- will focus more on live programming, which is less vulnerable to ad skipping.

He said News Corp. stations are also experimenting with ways of having a program continue -- perhaps silently in the corner of a screen -- during ad breaks. And the company is experimenting with the length and frequency of commercial "pods," he said.

"The traditional pod of ads in two to three minutes is -- let's face it -- a stupid idea. It tells people to change the channel," he said in a panel discussion at the Cannes festival.

In Canada, the networks are less open to discussing what they are doing to research and combat the threats to the 30-second ad.

CTV declined an interview request altogether. And Greg Treffry, vice-president of business development at CanWest MediaWorks, said he couldn't discuss the specifics of what Global is working on for competitive reasons.

But he said CanWest is working with marketers on product placement and testing the effects that PVR fast forwarding has on its own promotional spots -- to make sure they still convey a message when a viewer sees them at high speed.

He acknowledged that the fragmentation of television and the rise of PVRs are challenging the economic model of television. But he said companies don't fail because of new technology, but because they don't respond to it.

And the threat of the PVR, Mr. Treffry believes, is very likely overblown. He said research shows that people buy PVRs so they can watch programs at their leisure -- not to skip ads. And he said people who own PVRs tend to watch more television than those who do not.

Even the most stalwart apologists for television acknowledge that the medium is either in, or heading into, a period of massive change.

But the very factors that threaten the medium -- fragmentation of audience and the shift to a world where the consumer is in control -- also present terrific opportunities for marketers.

If consumers choose the commercials they want to watch, rather than simply having ads pushed at them, they will opt into messages that are most relevant. And in a world of narrowcasting, it's much easier to target a message to the specific interests of each consumer.

"What everybody forgets about is that with fragmentation and fractionalization comes very good targeting . . ." said Ms. Boot at Zenith Optimedia.

"You don't need to spend as much."

A fresh take

Pepsi-Cola Canada Ltd. launched its new Mountain Dew Energy drink in Canada last month without a single television commercial.

The strategy underscores efforts by major marketers to seek non-traditional ways of reaching consumers, instead of relying on the 30-second spot, which has been the centrepiece of most marketing campaigns for more than 40 years.

"Initially, people assumed we would use television. It's what Mountain Dew had done in the past . . ." said Stephanie Nerlich, a vice-president on the Pepsi account at the beverage company's ad agency BBDO Canada.

"And then as we looked into it further, we thought this was an opportunity to do something different."

The campaign, which broke in late June, involves posters in subway trains and other public places. Efforts were made to make the message interactive. In one example, half of an ad's message was printed on posters on one side of a subway car, with the rest of the message on posters on the other side. Another example involved posters requiring consumers to lift a flap to get the whole advertising message.

"The budget wasn't huge and we wanted to find ways to create compelling commercial ideas without worrying about a traditional media plan," Ms. Nerlich said.

She said that if the product had been launched five or 15 years ago -- when the TV audience was less fragmented than it is today -- the media plan would almost certainly have involved television.

"If you wanted to reach a young target [back then] there were five shows you did it on. Now there are 30 shows and none of them do the range they used to," she said. "That becomes a challenge."

"In 1965, when Pepsi started 'the choice of a new generation,' TV was the prominent medium, and that's the one we drove. We're seeing now that there's other choices for consumers," said Richard Burjaw, vice-president of marketing at Pepsi-Cola Canada.

He said a TV campaign doesn't always make sense in 2005.

"It may have been in the sixties and seventies that you always had to do a 30-second commercial. As a result there was probably a lot of money spent on television that was wasted because there wasn't an idea that was worthy of being on television," he said.

Harder to reach

The appeal of TV ad spots is being eroded by the rise of alternative media, especially on the Internet, but the biggest factor changing the way advertising dollars are spent is the rise of digital and cable channels. In Canada, the CBC has seen its share of viewership plunge from 17 per cent 10 years ago to 4.6 last year. The latest disruptive technology is the rise of personal video recorders, which allow viewers to choose to skip ads altogether.

Diminishing reach

NETWORKS' PERCENTAGE SHARE OF CANADIAN VIEWERSHIP

SOURCE: BBM CANADA

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Consorting with the enemy

THE EMERGENCE OF PERSONAL VIDEO RECORDERS IN CANADA

SOURCE: BBM CANADA SURVEY