How do we know this? Because the network chiefs said so. Fox boss Rupert Murdoch said:
We would rather keep availability for scatter than to lower our rates.CBS* chief Leslie Moonves said in a conference call with investors Thursday that he had sold only "65-ish" percent of his upfront inventory:
The good news for us is that despite slight pricing declines, our audience has grown. As a result, we've been able to achieve flat revenues for the percentage of inventory we've sold so far.
Total volume is down this year. We have retained more inventory to sell in the scatter and we like our position as the economy continues to improve and we maintain our standing as America's most watched network.
... scatter [ads bought at the last minute in the fall] pricing is up over last year's up-front, which again bodes well for us going forward. And our third quarter scatter dollars are up 30% from third quarter scatter last year.BNET argued in March that the TV upfront market -- in which clients are expected to make massive buys in a window that only lasts a few days -- looks a lot like an antitrust violation. All four networks have a tacit agreement to operate the market in the same way, restricting inventory to the upfront window and forcing clients to make decisions months in advance of when they actually need the airtime. The networks have also actively opposed the creation of an online TV airtime exchange, which would have allowed networks to trade airtime like any other commodity.
The networks ran into a problem this year, however: The recession reduced demand, and clients declined to cooperate with the nets' prices.
Normally in such a market, reduced demand leads to lower prices. But that didn't quite happen -- as you can see from Murdoch and Moonves' quotes, they didn't simply sell their inventory at a reduced price. Instead, they took inventory off the market -- restricting supply even further -- until the fall, and kept their prices distortedly high.
What else would we expect to find if we were looking for pricing collusion? Two things: All the major players doing the exact same thing; and all doing it in secret. That, in fact, is exactly what happened. The WSJ:
In an effort to limit the scope of the rate cuts, each of the four biggest U.S. networks -- CBS, NBC, ABC and Fox -- this time around has opted to sell less advertising in advance and lean more on the scatter market. They are hanging on to about 30% or more of the ad time they expect to sell next season, compared to about 15% to 20% last year, some ad buyers and network executives say.Mediaweek:
"Because of the marketplace dynamics, there has been a high degree of secrecy," said one network executive, who did not want to speak for attribution. In fact, none of the networks would comment on the record or on background on the numbers, which were gleaned from conversations with media buying agency executives and other sources familiar with the negotiations.What an amazing coincidence! All the nets held back inventory, all of them refused to talk about what they're doing, and all of them expect the strategy will lead to higher prices later in the year, despite reduced demand. Here's Moonves again:
... we have some experience with this strategy. The last time we managed inventory like this was in 2002 and we ended up making a lot more money in scatter than if we had sold the inventory in the up-front. I am confident that when it is all said and done, our content will allow us to take in the most volume at the most attractive prices.On the client side, there are some signs that advertisers are beginning to wake up to the fact that TV prices don't behave the same way as prices for stocks or cans of beans. The WSJ:
"If scatter prices go to a premium, we have no problem taking our money elsewhere," says Rob Master, Unilever's director of media for North America. "Look at all the options we have."That's tough talk, but traditionally advertisers cave and go back to TV anyway. Perhaps this year they will shed their Stockholm syndrome and walk away.
*Disclosure: CBS owns BNET.