Why TV Advertising Isn't Dead Yet
The economy remains in tatters. The big broadcast networks' aggregate TV ratings are dropping, again. (Or, still.) Total U.S. ad spending is expected to be down this year, anywhere from around 6% to over 10%, depending on whom you believe.
Such is the backdrop to this year's upfronts, the peculiar social and business rite every May, at which deals are struck for the overwhelming majority of the 11-figure sum that will be spent on TV ads in the coming year. You may reasonably expect, given current realities and consumers' ongoing fascination with everything digital, that this will be the year the roof caves in on network TV spending as well; at first, I did.
Now I've been persuaded otherwise. "I am not necessarily bullish on the network model, but I don't think it is going away," argues Wachovia Securities (WFC) analyst Marci Ryvicker. "It may be a lot more resilient than people expect." Actually, let me take Ryvicker's thought one step further: I bet the broadcast network upfronts will do better than virtually everyone expects. And the big broadcast networks—plus or minusCBS, ABC, Fox, and NBC, for which I contribute to cable network CNBC—will end up owning a greater share of the overall ad market in '09 than they did last year.
The current moment's uncertainty is producing wildly diverging estimates for this year's upfronts. (In the 2008 upfronts, networks and advertisers struck deals for around $9.2 billion worth of ads, a 5% uptick from 2007.) A quick survey of Wall Street analysts who follow such things reveals one prediction that the networks' upfronts spending will decline 25% and one that forecasts it might only drop around 5%. (I'm not including cable networks here, which are expected to fare better than the big broadcasters.)
I'm not saying the big networks will be rolling in rose petals after this year's upfronts. But if total U.S. ad spending declines by around 10% and the networks' dollars decline around 6%, they grab market share. It's not that advertisers want to boost spending on network TV. It's that they are pulling away from other media much faster, and will continue to. Why? The three F's: finitude, familiarity, and fear.
There is great opacity in the upfronts. The haggling happens in the proverbial smoke-filled back rooms, none of which have peepholes for a curious outsider. (There's something a little Cosa Nostra about how the upfront deals get done: Only the made men and women in the trade really know.) The networks maintain enormous built-in advantages. They still own their airwaves and still tightly control limited airtime. Network TV remains the cornerstone of most companies' ad plans. "I can't think of any other negotiation where the seller has that kind of control over the pricing, except the airlines," says one veteran observer of the process. "It's all about finite inventory."
While virtually every advertiser talks of trying novel means to get messages to consumers, these companies can handle only so much of the new. A study of top companies' chief marketing officers conducted by an industry trade group found that in '09 they're planning to spend only 10% of their ad budgets on digital media, not much of a change from '08. Proprietary data from ad tracker TNS Media Intelligence reveal remarkable steadiness in the list of the top TV advertisers for 2007 and 2008; virtually no big company will rip up the rule book to spend ad dollars in radical ways. (And one obvious candidate for cutting back—the battered Chrysler—already slashed its formerly top-tier TV spending in '08.)
And who in charge of ad budgets will try radical moves today, when everyone knows a failure will cost them their jobs? This is a comfort-food environment, and no ad form is more familiar to a chief marketing officer than the good old 30-second spot. (Old maxim: No one was ever fired for buying a prime-time TV ad.) Multiply a rush to the familiar throughout a marketplace, and the result is higher prices.
Which brings us to fear. Fear of trying a new approach in a difficult time. Fear of missing out on getting your ads on the hottest shows and losing out to your top competitor because they stepped up at the upfronts and you didn't. The factors that will drive a better-than-expected network upfront could hardly be considered ennobling, but in times like these I suspect TV executives are more concerned with results than with the reasons for them.