Is the TV Networks' Upfront an Antitrust Violation?

(MoneyWatch)  CBS* chief Leslie Moonves gave an interview to Mediaweek in which he said that despite the recession and declining adspend he expects to get higher rates for his shows at the upfront. This notion -- that as demand declines network prices will go up -- is an interesting one because usually, when demand declines, suppliers have to lower their prices. (Demand is declining, BTW, see here.)

What is it about network TV that allows it to defy the laws of supply and demand? One potential answer is the extremely unusual way in which the networks have organized the market and restricted the deal-making window into a few days in spring.

This, of course, is the so-called "upfront," an event where the networks display their fall shows in New York (often in an unfinished state) and then ask ad media buyers to lock in deals for fall and winter.

That tight window for deals forces a decision from advertisers: buy inventory now, and hope that the shows are a success, in which case the buy will have been relatively cheap. Or wait until fall, when the good spots have been taken, and pick up some cheaper last minute deals. Naturally, if the shows turn out to be successful, those last-minute deals will be even more expensive.

The result of this forced decision is higher prices for declining audiences. The NY Times noticed it recently:

For years the major networks raised their ad rates, despite the shrinking audience, because they still offered advertisers a larger audience than anyone else.

This graphic illustrates dramatically how low network TV audiences have become. Share of audience has declined by two thirds even for the biggest shows.

What's interesting is the way major advertisers have meekly gone along with what is essentially a trick. There is no reason for network TV buying to be squeezed into a few days in spring. (There is no "upfront" for billboards or radio or cinema or the internet, for instance.)

And yet that artificial decision window, accompanied with the notion that the networks' "supply" of airtime will be limited afterwards, has produced a utopia of ever-rising prices for the networks. The TV business has also actively resisted attempts to reform the upfront, such as when Walmart and Microsoft attempted to get an online airtime exchange going.

The trick is so successful that even the folks whose job it is to chisel down the nets on prices often take the networks' point of view:

"More dollars are chasing fewer eyeballs," said Gary Carr, director of broadcast services at TargetCast tcm, a media and marketing company.

"More dollars chasing fewer eyeballs." That kind of says it all. Here's how bizarre that statement is: If it had been said about the newspaper industry or the terrestial radio business nobody would expect "more dollars" for those industries, although they have fewer eyeballs (or ears) than ever before.

So here's an experiment. Imagine any other industry other than TV. Pork bellies or airline tickets, for instance. Imagine that industry required its customers to make bulk buying decisions over just a few days in spring, and those customers who declined to participate would be left the scraps in fall. And then imagine that the same industry actively resisted an online, exchange-traded system for its goods, so buyers and sellers could see prices rising and falling in real time. And imagine that all the biggest competitors cooperated with such a scheme, by turning up at the same event, in the same place, at the same time, to sell their stuff.

Wouldn't that attract the attention of antitrust lawyers? Just a thought.

My colleague Catharine P. Taylor at BNET Media has a different -- although not inconsistent -- take on this issue.

* Disclosure: CBS is BNET's parent company.

• See BNET's previous coverage of lack of transparency in media buying:
• Levi's Asks for Transparency and Media Buyers Balk