The Ad Market As It Is
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?