Behind the rising
cost of TV advertising
Pricing is up on the broadcast networks, led by Fox
By Diego Vasquez
Dec 7, 2010
Ratings are down on broadcast and, for the first time in years, cable, but the networks are still seeing gains in pricing this year thanks to strong demand. A new report from New York agency TargetCast tcm finds that the average cost per unit for a primetime 30-second spot in second quarter was up 1 percent over last year. Paced by "American Idol," by far the most expensive show on television at $600,000 per spot, Fox had the highest unit cost at $211,732. ABC was second at $125,940, followed by CBS in third at $110,794 and NBC in fourth at $81,784. During third quarter, Fox led again with an average spot at $104,842, though overall pricing declined slightly. Cable saw much bigger gains. The average unit cost of the top 15-rated cable networks in primetime among adults 25-54 grew 9.6 percent in second quarter and 7.1 percent in third, paced by ESPN both months. Gary Carr, senior vice president and executive director of national broadcast at TargetCast tcm, talks to Media Life about the hot scatter market, why broadcast pricing should be up in fourth quarter, and which cable networks are tops.
Why was second-quarter pricing up slightly? What factors contributed to the rise?
It was a very robust scatter market, combined with limited available inventory. So it wasn't hard for prices to be up. The dynamics of pricing is really supply and demand. The unit cost is affected by demand, and also average rating. When ratings are down, and even if CPMs are up, unit cost can still be down.
There was a very strong marketplace, a lot of dollars chasing the ratings points. And secondly, upfront sellout was very high. And you compare that to a year ago when the world was coming to an end.
Did Fox have the highest unit cost primarily because of "American Idol?" What other shows rank highly in terms of pricing?
"Idol" is a $600,000 show per spot, and combine that with the fact that Fox only programs two hours per night, they have only 14 hours a week versus 22 for the other three networks. So you have a show like "Idol" that runs four hours some weeks, that weighs pretty heavily. Also shows like "House," that's a big hit.
Do third quarter spots traditionally dip with the start of summer and the slower season for broadcast?
First of all, the ratings go way down, that's No. 1. And ratings drop so much once repeats start. Plus cable is running high-profile programming at that time. Even though third-quarter CPMs aren't low, the ratings drop so low, therefore unit prices drop.
You mention the limited inventory on TV. What has contributed to that?
There's a bunch of things. It depends on how much of the money is upfront versus scatter. In the upfront market last year prices were way down, so a lot of inventory got eaten up by low CPMs. And then scatter comes along and all the people who held back money, now they're coming in with tons of money and for what inventory was left, prices get pushed way up.
Secondly, a lot of networks had to give away inventory to make good on guarantees, leading to even more limited inventory. Where there's a lot of money chasing few units, the prices and CPMs get pushed up.
Why was cable pricing up so much? Does it follow broadcast in terms of pricing softening in third quarter? Why or why not?
Cable pricing is generally flatter throughout the year, it doesn't have big CPM swings. But this year the market was very strong in third quarter. They run their originals then, they get decent ratings, and the money chases after it. They have the same dynamic, it's supply and demand. Cable also has a lot more inventory to sell--broadcast fills up very quickly so the overflow of dollars from broadcast goes to cable.
But cable is no longer just an afterthought. People put a lot of money in cable. People know the efficiencies can be much better than broadcast, so the money flows there. Cable doesn't soften in third quarter because the ratings don't drop as much as broadcast.
What are the top networks in terms of pricing on cable and why?
Frankly the only people who really know are the individual networks themselves, and they don't tell us. But in second quarter, based on net cost, ESPN had the highest cost at $27,000, then TNT. After that was USA then TBS, and those all make sense, they're the highest-rated networks.
In third quarter, ESPN was No. 1, followed by USA, because they put out a ton of originals. Then TNT, TBS and Adult Swim.
Why are ratings for the top 15 networks among 25-54s sliding? Do you think this will continue into the fall and winter and beyond?
It's the same reason broadcast networks are sliding. There's just more options. There was always a lot of [bad shows] on TV and a handful of good shows, just like today. But when cable started becoming mainstream in the late '80s and early '90s, most of our viewing was done on three networks.
There are 70 [major] cable networks and distribution grows every year. Most are in 70 million-plus homes, it's just more and more. People sit back with their remotes and flip around the dial. There's so much on that most people aren't very loyal to anything.
And now people watch on their computer or a smartphone, so yes, the fragmentation of audience is the biggest problem advertisers face today.
How much have broadcast prices dipped over recent years? Do you foresee them going back up significantly any time soon?
Talking about unit costs, in second quarter '08 the average cost was $139,000. And this second quarter it was $123,881. So in just two years it has gone down 12 percent. And that's versus just two years ago.
For full-year 2007 broadcast network TV was a little less than $24 billion, cable was $19 billion. In '08 network was around the same and cable was up to $20 billion. The point is cable is closing the gap. The more dollars that go to cable, it's just going to take dollars from broadcast.
I don't think they'll go back up. It just isn't going to happen. The economics of the business, there's only so many good shows that can be made that attract an audience. There's only so much great creative talent in existence. And the cable guys are bidding for the same studios and showrunners as the broadcast networks are.
Broadcast isn't dead, don't get me wrong. But if you've got 70 cable networks and an impatient viewer, it's going to continue to make ratings lower, and therefore unit pricing will be lower. That doesn't mean an individual network can't see unit prices go up in an individual quarter, but as a whole I don't see it happening.
Based on what you've seen for fourth quarter, do you think broadcast pricing will be up or down versus last year?
I'll probably start looking at it in the first few weeks in the New Year. But if I was pushed to a wall now I'd say this fourth quarter is higher than last. A lot of money came into the upfront and then you've seen the scatter market, which has been anywhere between 15 and 50 percent above upfront, depending on the network. So my guess will be that fourth quarter will be higher than fourth quarter '09.
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