What does the Sky Viacom Deal mean for TV Advertisers?

It’s been a month since Viacom announced that it would be moving Channel 5’s ad sales business to Sky, an agreement that, whilst widely expected, nevertheless managed to surprise many. Now, with June 1 marking the point where this deal comes into effect, Guerillascope assesses the possible impact on TV advertisers and agencies.First, some context. On May 1st Viacom announced the transfer of Channel 5’s TV ad sales arm to Sky as an extension to the pre-existing deal between the two, which saw the latter selling ad space on pay-TV assets owned by the former, including: MTV, Comedy Central, Nickelodeon and newcomer Spike TV.

Channel 5’s ad sales portfolio, worth £250 million a year, was also subject to strong interest from Channel 4; keen to augment its own media sales branch. C4’s failure to secure the deal has seen Sky increase its share of the commercial market to approximately 25% - the same as Channel 4, though both still lag behind ITV’s share of 46%. The remaining 4% is divided between the likes of Disney, Turner, Ethnic Media Sales, Media 15 and Axiom.

For Viacom, the decision was based jointly on its desire to have one point of control in its ad sales division and to increase ad revenues, whilst for Sky the agreement fortifies its traction within the market. However, what about everybody else? How will this deal affect TV advertisers, viewers and agencies in terms of pricing, content and advertising effectiveness?

TV rates

Two factors have triggered disquiet amongst insiders when it comes to pricing. The first centres on the fact that, in the recent past Channel 5 has been sold at a discount. This is due to the impasse with Omnicom and the reams of TV advertising inventory freed up by the agency’s refusal to book airtime.

Now that Sky’s in control, this is likely to change, with Omnicom poised to flood revenue into the Channel 5 market once more. With Viacom now likely to be freed from the shackles of unsold airtime, there will be no pressure to shift inventory, thus removing the need for concessions.

The other common concern in wake of the deal is that too much of the TV advertising market is now controlled by too few players, a by-product of which could be higher TV rates.  Yet, whilst it cannot be disputed that a lack of competition could have a detrimental impact on pricing, the fallout may not be as noxious as anticipated by some.

For agencies like Guerillascope – the likes of which have already brokered fixed rate deals with Channel 5 – nothing will change. Once these agreements come to an end, agency accounts will go under review, the likely result of which is pricing that for 5* and 5USA, falls in line with Sky’s pre-existing multichannel rates, whilst C5 as an ex-terrestrial broadcaster will naturally be set at a higher premium.

TV agencies buying inventory without a deal in place could see double-digit pricing increases, with Sky now in a stronger position to negotiate higher rates. Additionally, for larger agencies and advertisers, volume deals will now likely include a proportion of Channel 5 airtime by default. For smaller, nimbler TV advertising agencies, the flexibility and freedom with which TV airtime is currently bought will not change.

TV programming

One big positive of the Sky and Viacom agreement is the increased investment in programming it is expected to stimulate; this is chiefly due to the fact that the amount paid by Sky for Channel 5's commercial impacts will allow Viacom to devote more resources to content.

Unless you’re the BBC, quality content can only be funded by advertising and/or subscription revenues; the fact of the matter is that, since its inception as a commercial TV broadcaster, the Channel 5 sales arm simply did not accrue enough of this revenue to invest in programming capable of competing with ITV, Channel 4 and Sky, save for perhaps Big Brother. The lack of interest from TV advertisers was palpable.

However, this is going to change. With Sky and its dynamic offerings for TV advertisers now at the helm, and the likes of Omnicom expected to return to Channel 5 with around £30 million of spend, Viacom is primed to invest heavily in quality drama, entertainment and sport in a bid to increase viewing audiences – the lifeblood of any TV advertiser. Viacom has already confirmed that it plans on overhauling C5’s identity this year to make the channel more generally accessible with a wider breadth of content. Programming currently airing on Viacom’s digital portfolio of channels – typically aimed at younger viewers - could find its way onto Channel 5, along with a glut of original commissions, as seen with 10,000BC.

The signs are already there: within the last week it has been confirmed that Channel 5 has agreed a ground-breaking three-year deal with the Football League, which will see highlights of matches from all three divisions aired during a prime-time Saturday night slot – a tactical shift that should attract new viewers to the channel. Capital One Cup highlights have also been secured.

Sky too is busy on the investment front. A significant increase in spend on children’s TV content is in the pipeline; a move instigated primarily in response to the new deal with Viacom and Turner. This spending upsurge will see the creation of a new TV channel in the Sky EPG, as well as a huge swell in on-demand content available to TV viewers. With a raft of high quality drama commissioned for Sky Atlantic and Sky 1, as well as the new record-breaking TV rights deal for Barclays Premier League football, it appears as though Sky and Viacom exhibit similar ambitions over new, engaging content.

TV advertising technologies

The third and final key change TV advertisers can expect is the incorporation of the Channel 5 portfolio into Sky’s sophisticated advertising formats. Of particular note here is the strong possibility that the channel will be integrated into the burgeoning Sky Adsmart platform, which enables TV advertisers to pinpoint specific audience groups by an unprecedented number of demographic profile groups.

This technology accurately matches a TV advertisement to relevant viewer interests defined by third-party data. Acknowledging Sky's current struggles in terms of fulfilling bookings for Channel 5's macro regions, we suspect that the entire framework will be made obsolete in the near future; adding weight to the idea that Sky will assimilate the channel into its Adsmart portfolio.

Currently Adsmart represents a small proportion of TV advertising spend, though this can be explained by the fact that it is currently still available on only a selection of channels. With an ex-terrestrial TV channel in its arsenal, Adsmart could explode – redefining the advertising capabilities available to TV advertisers seeking greater relevancy and efficiency, and at potentially greater scale.

Let’s not forget Sky’s infrastructure of connected platforms either, with Sky Go and Now TV both widening the coverage of TV programming and, by extension, advertising. Whilst Channel 5 was appreciated for the innovation of its commercial TV offerings, moving over to Sky amplifies the possibilities for how viewers can engage with – and how advertisers can utilise – Channel 5.

Different, but the same

Ultimately, whilst the content and targeting capabilities for TV advertisers using Channel 5’s portfolio are set to receive an upgrade, for agencies such as Guerillascope, the low pricing structure will remain pretty much the same for the foreseeable future – meaning advertisers can enjoy all of the new gains, for the same TV costs.

With TV advertising significantly up year-on-year across many sectors – revenues have swelled by 10% on average, according to the latest analysis – the Viacom-Sky deal has come at a time of strong confidence in the market. It’s our belief that the changes to our industry will not just result in a boon for TV, but for advertisers too.

If you would to learn more about how this deal may affect your business, give the Guerillascope team a call today on 0207 352 0555.