It’s the TV ad upfront season again and, like everybody else in the business, I have an opinion about how it’s going and how it will finish. My opinion: It’s going to be a sellers’ upfront.
TV media owners are going to get most of what they want this year, certainly in price, and most likely in volume too, and TV buyers aren’t going to be able to do much to stop them. Here’s some of the reasons why:
Demand exceeds supply. TV ad prices go up when more people are buying than selling, particularly when inventory is particularly scarce and precious, and prices go down when more people are selling than buying.
In TV today, more people want to buy TV ads than ever before, so demand is up. The majority of buyers want a good chunk of their money running in prime time and sports, the highest-rated and most-talked-about inventory (thus the most precious inventory). However, just as we saw over the past three years, overall ratings will be down, particularly in prime time (supply is down). Thus, when demand is up and supply down, TV ad prices will go up.
Supply is fundamentally underpriced compared to alternatives. TV ad garnered more than $72 billion in the U.S. in 2018. However, on a comparable basis, TV ads at the person/impression level are significantly underpriced in bulk relative to comparable digital units. When you look at TV versus premium video ads on a P2+ basis (all persons 2 and older), digital video typically commands $20-30+ CPMs, and TV is frequently under $10 CPMs.
How is that possible, you ask? Aren’t TV ads sold at CPMs more like $30 and $40? Yes, but those numbers are usually based on “demo” breakdowns like people 18-49 years old. When you add in all of the people watching who are 50 and over — the significant majority of viewership for many TV shows — the overall P2+ CPM comes down dramatically.
At some point this will find equilibrium, but as long as digital gets a premium for the theoretical targeting that it can deliver, whether or not the campaign is targeted, and TV gets a discount for the inherent lack of targeting it can deliver — even if it delivers a ton of the target audience — we will continue to see this irrational disparity in pricing between linear TV and premium digital video ads.
True alternatives to TV advertising still lacking. As we’ve seen, Google’s YouTube and Facebook are still challenged when attacking TV ad budgets, and Amazon’s burgeoning ad-supported video investments certainly represent an enormous threat in the mid and long term. However, the most substitutable digital video inventory — safe, top brand-name, ad-supported video content with ads at scale — is owned by the TV companies themselves, in their own streaming services. This is even more the case now since Viacom bought Pluto and Disney has taken full control of Hulu.
Those streaming service acquisitions by Viacom and Disney, though expensive, each removed critical “end-run” pathways for large TV buyers to “buy around” TV companies’ inventory, and are smart strategic moves by the two TV media owners.
Fast-emerging D2C buyers now at the TV trough. This fact is all over the business press and trades. Digitally born, direct-to-consumer brands like Dollar Shave Club, Chewy and Casper have learned that nothing helps them scale customer acquisition and sales like TV. In a few short years, those companies went from “pre-TV” ad buyers to very substantial TV buyers.
There are thousands of D2C companies in the wings. They analyze their buys on results and ROI, not just year-over-year CPM costs. If big TV buyers step back at this upfront and say “no” to the sellers, the sellers know that they have plenty of new D2C buyers waiting in the wings.
What do you think? Is this upfront going to be a sellers’ or buyers’ market?