At Networks, Less Means More
Guest Commentary
By Marian Azzaro -- Broadcasting & Cable, 11/30/2003 7:00:00 PM
This season's market for prime time advertising is proof that supply-side economics cannot work for network television. We've seen the blazingly hot prime time network upfront market of May turn amazingly cold for scatter buying.
It's not the economy, but it is economics.
Knowing that advertisers are buying audiences, network executives see the eroding network audience as diminishing supply. We all know from Economics 101 that diminishing supply in the face of continuing demand should drive prices higher.
According to a recent study of trends in prime time network audiences and corresponding CPMs that I compiled (and will send to you on request), the major networks have been playing the game of supply-side economics for several years. Looking at the past 10 years, the study confirms steady declines in average audience supply while CPMs have increased significantly.
The study shows that the average prime time audience for four-quarter programming on the three major broadcast networks—ABC, CBS and NBC—has declined an average of 3.8% per year. Yet, over the same period, the same three networks have collected significantly higher prices. Prime time network CPMs have increased at an average rate of 6.2% each year.
During the upfront market earlier this year, Robert Iger of Disney confirmed the network's supply-side thinking. Harry Jessell reported in BROADCASTING & CABLE (June 2) that Iger said, "We believe, obviously, that CPMs will increase simply by virtue of the fact that ratings are down." Jessell appropriately called this the Iger Paradox.
Network executives may claim they have had success with this strategy. They point to higher prices and record advertising revenues as evidence of strong demand. However, the average audience figures show this isn't "real" demand.
As the prime time network-TV audience has declined, so too has advertiser demand for that audience. It's true that networks are selling, and advertisers are buying, more commercial inventory, but the real measure of demand is audience. Even with a 27% increase in commercial inventory available, advertisers today are buying less and less of the prime time network audience.
According to the same 10-year study of trends, an advertiser today would need to buy 42% more commercial inventory on the three major networks just to reach the same size audience it reached 10 years ago. That simply isn't happening.
It was predictably only just a matter of time before the market turned sour for ABC, CBS and NBC. Something has to give in the supply-side model, and that's what the major networks are finally seeing this year. Audiences and advertisers have changed channels—to other broadcast and cable networks or to other media altogether.
There is an important lesson to be learned here, and the other broadcast and cable networks should take heed. With supply-side management, the networks themselves have driven away the staple needs of their business: audiences and advertisers.
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