Markets

TV Networks Get Higher Prices for Smaller Audiences, and Advertisers Don't Care

By Jim Edwards

Updated on: June 30, 2010 / 1:22 PM EDT / MoneyWatch

The broadcast TV networks have once again achieved an amazing feat: even though viewing audiences are expected to decline this year, they've managed to extract price increases from advertisers for their airtime. The development adds more evidence to my semi-serious theory that ABC, NBC, CBS, Fox and The CW act as a cartel to keep prices high when the supply and demand of the free market suggests they should be going down.

The networks achieve this by tacitly cooperating to offering their wares to buyers in limited timeframes (during the spring "upfront" bidding season), by holding back inventory if they don't get the prices they want (the so-called "scatter" market), and by refusing to disclose the prices paid by different advertisers for different spots.

This year, that strategy has once again produced the desired result for the networks at the cost of their advertising clients. Media analyst Jack Myers believes the TV business is already back to its pre-recession levels:

Total broadcast and cable sales in this year's Upfront market, which covers the 2010/2011 TV season that begins in September, were $16.1 billion, which is exactly the total achieved by combined broadcast plus cable sales in the 2008 Upfront. Sales last year totaled $13.5 billion, a decline of nearly 20%.

It's like the recession never happened! But Ad Age notes that some of TV's biggest shows --- such as ABC's Dancing With the Stars -- are expected to see declines in audience of three or more ratings points (each point is about 1.15 million households). At the same time, the networks are moving to restrict alternative supplies of their product, free over-the-air TV:

The industry's lobby group, the National Association of Broadcasters, opposes a government plan that would free up unused broadband spectrum currently held by the networks for companies that actually want to put it to economic use.
And those same nets recently agreed to start charging for Hulu, the popular web site where their wares were until recently free to view.

In sum, networks have gotten rising prices from lower deliverables, and they're resistant to giving up competing resources. If these guys were Italian-American trucking companies who owned the only toll-free highways in and out of New York, and they started charging more for delivering lighter loads, and they opposed the government's plan to build new, alternative roads, people would be demanding a federal investigation. That's not the way ad industry insiders see it. Myers said:

... the growth and vitality of this year's [broadcast TV] market reinforces perceptions that the medium has regained its position as the advertisers' -â€" and agencies' -- best friend.

How, exactly, charging more for less makes TV an advertiser's best friend was not explained.

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