Why is a one-year term the longest contract typically offered in radio?
In recent years I've had the opportunity to write some sports contracts with a three-year option, but that's about it.
Why don't we offer 5- or even 10-year contracts, for example? (Insurance agencies do this all the time with term life policies.)
I wonder if by thinking long-term, we'd be taken more seriously by businesses that are serious about their own long-term branding and growth.
What's your take?
Rod:
In the past the reason I did not offer longer than a year is that I wanted to be able to raise the rates in a year. Today? Well with certain caveats I am willing to take longer contracts. We must all remember however that an early cancellation must have a penalty. Sales people do not like these! (If we charge him back he will never come back to us again!). But without an iron clad policy on chargebacks, that three year contract does nothing more than guarantee him a rate while we have no assurances in return.
Agree wholeheartedly with you on the matter of chargebacks or, as we used to call them, rate adjustments (i.e., to what the rate would have been for the shorter term contract). Nothing unfair about that; quite the contrary, in fact.
I understand the rate increase argument, too; it's what one would expect to hear as a reason for not going out for more than a year. And if demand--pushed or pulled--for a station's limited inventory is so high, say above a threshold of 90%-sold-out continuously, then perhaps the discussion is moot, because that kind of demand will almost certainly continue to put upward pressure on rates.
Still, not every station enjoys the luxury of being continually sold-out at its upper-end rates. In markets where a company runs several stations (or 6, or 9), it's unlikely that they're all going to be performing with equal panache. Absent that high demand, it might not be unreasonable to offer an advertiser rate protection for the duration of a long-term contract. Haven't you found, even with your best one-year-at-a-time accounts, that once you've settled on a schedule or contract, it's easier to concentrate on making the advertising work - on message development, rather than having to worry about the next sale or contract renewal?
It might not even be out of the question to build in reasonable rate increases over the life of a 5- or 10-year contract. The rate would go up, though presumably not as much as if the client were buying a year at a time; so he'd still have some financial incentive to commit to it, in addition to the other benefits that accrue with long-term planning.
Sometimes it can be beneficial to re-examine the things "we've always done this way." If nothing changes afterwards, at least we have the satisfaction of knowing why we continue to do it that way.
Chris,
That hadn't occurred to me, primarily because I don't delegate responsibility for copy to someone else. (There is no one else, but that's beside the point.)
I guess my presupposition it that the salesperson has a vested interest in the growth and success of his client, seeing his own success is also inextricably tied to it. If this is not the case, it suggests a much larger problem than the duration of a contract.
Helpful insight though.
With Insurance, I know I'm going to die, and when I do the contract ends and my family gets paid when it's over. With an ad contract, anything can change the game. The owner dies, the company goes BK, world events like 9-11 or the '08 crash, maybe a Katrina storm, etc, etc. Or the product the store sells falls out of favor. You have a question today about the demise of the Yellow Pages. How much have they spent in radio and TV ads over the years.
Plus the fact that when your annual cancels and you have to drop a six figure amount from the stations numbers, corporate, and your immediate boss, don't look kindly on it. I often write annuals in 3 or 6 month orders just to be safe.And don't forget that most radio contracts have that 2 week cancelation clause.
The longest contract we've done here is 3 years.
In sports marketing, price increases are built in on multi-year deals. We can do the same thing in radio. The length of the deal dictates the amount of the increase. For example, a 3-yr deal may have an annual increase of 7%, a 5-yr deal 5%, and a 7-yr deal 3%.
