The Ad Market As It Is

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This is a special time in the ad industry. What happens in the second quarter's upfronts will go a long way toward determining industry economics for the rest of the year.

Now is when we will see whether the cyclically down first quarter will be a memory or a portent of the future. Now is when we see who who controls pricing in the $70 billion annual U.S. TV ad market, and who will leverage the subsequent spot market.  Perhaps a preview can be seen in NBC’s asking almost $1 million for a 30-second spot in its new Thanksgiving-night NFL broadcast featuring the New England Patriots against Tim Tebow (er, I mean the New York Jets).

This week was the coming-out party for Google, Microsoft, Yahoo, AOL and Hulu and their Newfront to see if Web video can get a seat at the "adults table" within the context of the upfront market.

What will have happened when this week and quarter play out? To answer that, I will borrow a Jack Welchism and try to look "at the market as it is, not just as we would like it to be." To do that, I will call on the analysis of the smartest observer of the ad market I have encountered, Brian Wieser of Pivotal Research. In his recent "Madison and Wall" Report, Brian had a number of observations on the current state of the ad market. Here are those that struck me as both sobering and on-target:

TV will have a strong upfront. TV sellers will do well in this upfront, if for no other reason than the structure of the market continues to favor TV broadcast networks that can deliver large packages of audience reach. TV ad buyers and marketers are not yet ready to reduce this scarcity by better assessing the actual business outcomes they drive with these TV ad products.

Alternatives to big TV ad buys are some time away. As Wieser sees it, TV ad buyers won't have leverage in the pricing and packaging of the TV ad inventory they buy until they have a "credible ability to walk away." Today, no other medium, not even cable TV, has demonstrated the ability to deliver the same quantity and quality of audience reach as broadcast TV.

Web video not big enough -- or growing fast enough -- to matter. While the category of online video is fast-growing, it was only $1.8 billion last year, less than 2% of the TV ad spend. And, as Wieser notes, if you look past the numbers for the two largest players in video advertising sales, Google's YouTube and Hulu, there is very little growth. The rest of the market only grew 10% to 20% in total last year.

Online display in trouble. Wieser notes that when you look past search, video and mobile, the best thing you can say about the rest of the online ad market "is that it wasn't negative." The commoditization of display inventory, and the transparency that online ad buyers and marketers have into its actual value to drive business outcomes, has meant very little growth in display. You have to wonder how much that was a factor in super fast-growing Facebook's recent claim that its first quarter ad revenue (below its fourth quarter last year) was due to old-style cyclicality.

Many of us would like to believe that the ad market is approaching a digitally driven "tipping point" that will empty buckets of TV ad spend into digital alternatives, and that the upfront market will collapse. Wieser doesn't see these events happening anytime soon. Do you?

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2 comments on "The Ad Market As It Is ".

1. Augustine Fou from Marketing Science Consulting Group, Inc.
   

   commented on: April 26, 2012 at 5:11 p.m.
   "Web video not big enough." Correct. But does size matter any more? Web video and all online advertising is smaller because for every $1 you take out of TV advertising, you only need to put 10 - 20 cents back into digital because it is SO much more efficient and effective and measurable. So instead of the old ad man joke "I know I am wasting 50% of my ad dollars, I just don't know which 50%" now with digital you KNOW which 99% you are wasting and you can immediately optimize and stop wasting it. In fact, as more brand advertisers focus in on ROI and start asking questions like whether TV networks can even prove their ads are even seen (so that the desired branding can actually occur) they will shift dollars to digital -- again for every $1 taken out of TV they only need to put back less. That said, for all TV advertisers currently in transition, ask the following: - whether your TV ads were even seen; only pay for the ones that are seen - how TV ads compare on CPM basis to other tactics; and re-allocate dollars to the lower cost and more effective tactics - if there is a feedback mechanism, like click-throughs, to calculate effectiveness and impact; if there isn't then shift dollars to ones that do For a more in-depth analysis, have a look at Video Ads Destroy TV Ads by Augustine Fou http://slidesha.re/KeKjto Agree with me... or tell me I'm stupid .. @acfou
2. Dave Morgan from Simulmedia
   

   commented on: April 28, 2012 at 8:06 p.m.
   Good points Augustine. However, I don't think that the web video scale issue is question of relative effectiveness to TV advertising. Rather, web video can't be an alternative for mass awareness brand advertisers until it is available at real scale. Today, it is only 1/15th the size of TV, and the gap isn't closing much giving TV's own organic growth.

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