Fox, a Poster Boy for Network TV's Irrational Exuberance in the Upfront Market

TV's upfront ad sales market -- in which the networks sell as much as 80 percent of their inventory for the coming TV season -- is moving at lightning speed compared to last year, when it dragged on late into the summer, well after programming for the season was in place. So, is this apparently robust market a sign of the soundness of the economy, or a sign of how irrational the upfront market is?

Here are two facts to help you answer the question:

Last year, with the economy in the tank, and somewhat more than 12 million adults aged 18-49 watching American Idol on average, Fox (NWS) saw decreases in ad rates in the low single digits, in a market in which the networks decided to sell only about 65 percent of their total inventory hoping to get better rates later in the season. (They did.)
This year, with the economy only slightly less in the tank, and only 10.8 million adults aged 18-49 watching the American Idol finale, Fox is said to have pretty much wrapped its upfront business only a few weeks after negotiating began, seeing increases in ad rates in the high single digits. The particulars may differ, but other networks are expecting to see similar rate increases in this swift-moving market. In fact, CBS' Les Moonves hinted at a conference yesterday that his network (and our corporate overlord) may be seeing the double-digit increases he'd predicted earlier this year.

After synthesizing these facts, you're probably thinking that the correct answer to my question is that this year's upfront is a sign of how irrational this particular marketplace is. But (sigh), I was really asking a trick question. The way that TV networks and media buyers rationalize spending more money for less audience is this: the main metric they're using to buy time is the gross rating point, with each rating point representing one percent of TV households.

Therefore, the math starts to take on an Alice in Wonderland quality. If an advertiser wants its media agency to buy it 50 GRPs, it takes many, many more airings of a commercial to reach that number since the size of network audiences keeps declining. Since the number of hours in a day (and perceived quality inventory in a day) is fixed, the pursuit of enough GRPs eats up more ad inventory and tightens supply.

You could ask whether the media marketplace could move to more sophisticated ways of looking at media consumption overall -- from Hulu to HGTV to How I Met Your Mother -- and allocate its GRPs accordingly. After all, wouldn't it seem that the amount of inventory expands every time a new cable channel gets traction? Well, yeah. But, don't overthink this -- because no one in the network TV business ever does.

Previous coverage of this year's upfront at BNET Media:

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