Network Ad Revenue at Risk?
Listen to/Watch entire show:
I'm Matt Holzman with The Business Brief, a guide to what's happening in and around the business.
With the world's financial system on the brink of collapse, I know what you're wondering: how will all this craziness affect the TV networks? Well, you're probably not be wondering that at all, but it's pretty interesting so I'll tell you anyway.
Logic would tell you that when things get bad, companies stop advertising. But it's just not that simple, at least when it comes to national network TV. Each May, media buyers take their shopping carts to the CostCo of TV ad time and snap up about 75% of all the ads available for the twelve months starting the following September. For their "up-front" commitment at the aptly named "up-fronts," advertisers generally get preferred pricing and placement.
The rest of the networks' inventory is sold on a piecemeal basis during the rest of the year in what's also aptly known as the scatter market.
So for the most part, contracts for the $9 billion worth of national TV ads that were sold at the up-fronts last may are just going into effect now. If advertisers are skittish about the short-term future of consumer spending, they could pull out of those contracts but they'd have to pay a penalty. And they're not likely to do that now, at the beginning of the all-important holiday shopping season. But everyone is waiting with great trepidation to see what will happen after the first of the year and for the rest of 2009. If it's any indication, scatter market sales – those are the ads that are left over after the up-fronts -- are already down.
You can bet that pizza is being brought in for late-night confabs in the marketing departments of companies around the country. And make no mistake, cuts in ad budgets are coming. But network TV may be the last item on the chopping block for a long list of reasons. One, no one wants to pay a penalty to pull out. Two, network TV still is the best way to reach the most people at one time.
Three, if you give up your up-front buy, you also give up that awesome placement for your new soda during that hot new sitcom, or that perfect adjacency for your tools next to that home improvement show.
In any event, you're still going to have to find a way to advertise if you've already retooled your factories for the new car models, or printed a billion labels for your "new and improved" detergent or spent $250 million making that super-hero sequel.
So if network TV should be ok, at least in the short term, who is going to take the hit? Everyone else. You can bet that newspapers, which are already in real trouble, are going to suffer mightily.
The irony here is that with people afraid for their financial future, they're liable to stay at home doing what? Watching TV. And higher ratings could keep advertisers happy and in the market. Unless they ask themselves the following question: is it worth advertising to people who are watching TV in the first place because they're afraid to spend?
I'd love to know what you think. Send me an e-mail at TheBusiness@kcrw.org. You can podcast this commentary, share it with a friend, or embed it on your blog with the click of a button from our new media player at KCRW.com/TheBusinessBrief. For KCRW, I'm Matt Holzman.