Overview of television commercial production

Television commercials play an important role in the Australian film and television production industry. As well as contributing an Australian look and feel to our television, they help sustain the infrastructure on which the film and TV production sector is based.

Australian content regulation

The current Australian Content in Advertising standard (TPS 23) requires that Australian-produced commercials comprise at least 80 per cent of advertising time between 6 am and midnight, which means up to 20 per cent of advertising air time can be used for foreign commercials. See Free-to-air TV: Programming: Regulation and Commercials.

ABS data

According to the Australian Bureau of Statistics (ABS) Service Industry Survey, there were 443 businesses in the film and video production industry involved in making television commercials in 2002/03. For 279 of these, the production of commercials was their main source of income in 2002/03; this core group of businesses generated 93 per cent of all revenue derived from the making of commercials.

(Another ABS survey was conducted in 2006/07; however, for commericals, only updates on the value of production activity have been included in Get the Picture: see TV commercial production: Activity summary: Value.)

AFC research

In late 2004, the Australian Film Commission (AFC) surveyed 107 companies in the commercial production industry, building on a similar AFC survey undertaken in 2000. Key findings from the 2004 survey are presented below.

Number of commercials produced per year

According to the 2004 AFC survey, the number of commercials produced annually has remained fairly stable. In 2003/04, half the businesses produced fewer than 14 commercials a year and half produced more than 14, similar to 1999/00.

Forty per cent of the companies reported an increase in the number of commercials produced but around a third reported a drop. The remaining 20 per cent perceived no discernible change.

Most companies (59 per cent) produced commercials just for television broadcast. However, a substantial proportion (41 per cent) were also producing commercials for other media. Producing commercials for the Internet was the most common non-TV related commercial activity.

Budget ranges

• The 2004 AFC survey indicated a major shift to low-budget commercials: 77 per cent of commercials produced in 2003/04 were worth $50,000 or less compared with 35 per cent in 1999/00.
• Mid-budget range commercials between $51,000 and $150,000 have shown the largest decline, now comprising only 12 per cent of commercial production compared with 43 per cent in 1999/00.
• Production at the high-budget end (more than $500,000) is relatively static, comprising 4 per cent of commercials produced in 1999/00 and 3 per cent in 2003/04.
• Only 20 per cent of companies have produced a commercial in the $500,000–$1 million range and even fewer companies worked in the $1 million plus range. Companies working in these ranges generally only made between one and five higher-budget commercials in a year.

Business trends affecting budgets

Companies identified a number of business trends impacting on the budget range of commercials. These include:

• increased local competition from young entrants to the market willing to work for little on the one hand, and large agency-owned production houses on the other;
• globalisation of the advertising business with multinational agencies dominating, and a global market for commercial production reducing demand for locally produced mid to high-budget commercial production;
• fragmentation of the marketing dollar with other forms of advertising attracting a growing share of the budget;
• low-end technology changing client and agency’s cost expectations;
• increasing use of foreign commercials for corporate brand campaigns has reduced the demand for locally produced higher budget commercials.

Work sourced from overseas

• The number of businesses engaged in offshore commercial production has dropped around 20 per cent from 64 per cent in 1999/00 to 45 per cent in 2003/04. The number of companies getting the majority of their work from offshore halved, from almost a quarter in 1999/00 to 12 per cent in 2003/04.
• Australia was perceived to have lost its global competitiveness against new production centres such as South Africa, Eastern Europe and more recently South America. This was partly attributed to the rise in the value of Australian dollar and increased production costs.
• Asian clients remain the main source of offshore commercial production work: 67 per cent of businesses with offshore work were engaged by clients from the Asian region. China was the main source of work from the region.
• Despite this, the US and London are the most common offshore bases for companies. Around a third of the companies have some offshore representative or office.

Locations in Australia

For the majority of companies (63 per cent) all the shoots occurred in Australia. Only 5 per cent spent more than half their shoot days outside of Australia. The main reason for an offshore shoot was location requirements for overseas clients.

Company turnover

Most companies earnt the majority of their annual turnover in 2003/04 from commercial production. On average, commercials accounted for three-quarters of the company’s annual turnover.

Company turnover from commercial production varied widely between the different businesses, ranging from a total of $4,000 to almost $20 million. The median turnover was $550,000.

Profit margins

In the 2004 AFC survey of commercial production companies, a significant proportion of companies (43 per cent) reported a decrease in profit margins in the 2003/04 financial year. Most other companies felt there had been little change over the previous two years, while a small proportion felt profit margins had increased.

Companies reported adopting a range of strategies to improve their profitability and business survival in the face of falling budgets and reduced profit margins. These include:

• diversifying their commercial production business into other forms of advertising and marketing. A substantial number of companies (41 per cent) produce commercials for other media, particularly the Internet.
• diversifying from TVC production into other forms of production such as corporate, documentaries and DVD authoring;
• structural change to make their business more competitive such as incorporating post-production into the business to reduce costs and to retain a larger share of the commercial budget;
• reducing staff to make the business more cost competitive;
• moving business offshore to reduce labour, shoot costs and taxes.