January 25, 2023
Commentary
Is Brian Wieser's Past Prologue For This Year's Upfront?
- by Joe Mandese @mp_joemandese, April 21, 2023
Long-time Madison Avenue and Wall Street analyst Brian Wieser this morning published what might the most comprehensive view ever explaining the supply-and-demand dynamics of the upfront advertising marketplace, a 42-year pricing vs. demand (ie, upfront sales volume) history that answers a question I've personally had covering that marketplace for about the same amount of time: Why does the cost of upfront ad inventory continue to go up when the supply of audience impressions, and more recently reach, continues to go down?
I always thought it was simply a scarcity market principle -- or at least, a perceived scarcity market belief -- that as demand grew from an expansion in the number of brands buying network ad inventory over time, prices had to go up for an increasingly scarce supply of it.
But based on Wieser's analysis, it's not quite that simple, and there are market dynamics that are inherent to the upfront, mainly that the "lead" network -- the one driving the marketplace in any particular year -- plays a disproportionate role in driving prices up.
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Wieser even delineates that phenomenon with a nifty eye chart (below) showing what has happened over the past 42 years among upfront market leaders.
Each data point in the chart below "represents one price change for a 'leader' with changes in volume for all of prime-time," Wieser explains in today's edition of his Madis on and Wall newsletter, noting: "Essentially what this model shows is that if there was no change in volume in the upfront, we would expect a roughly 7% CPM increase (incidentally, the average annual CPM price increase over the 42 years for which I have data has been 9%, while reported volumes negotiated increased by a CAGR of under 5%). Alternately, it takes a 16% decline in volume to produce flat pricing."
To spare you from straining your eyes, I summed those observations up in the chart above, which shows the relative market elasticity based on upfront sales volume changes over the four-plus decades.
Importantly, Wieser raises the obvious question you and I might have about whether those market dynamics still continue amid other underlying
changes in the upfront marketplace, including the data and currencies used to plan, negotiate and buy it, as well as shifts in the competitive nature of the marketplace (ie. digital alternatives
including CTV/streaming), but he also answer them, concluding:
"All things considered, I think the model still generally works, and should once again for this year at least."
Joe Mandese is the Editor in Chief of MediaPost. You can reach Joe at joe@mediapost.com.
Interesting, Joe. But the major sellers also control the amount of ad dollar volume available to upfront buyers based on their appreciation of future scatter pricing which usually is much higher than the upfront norm. It's not purely a function of buyer demand relative to GRP availability. If a major seller---and they all think alike on this subject----believes that the next few upfronts will be sell outs at 50% higher CPMs than the upfront's volume discount buys they simply don't offer as much time in the upfront and hope their assumptions pan out for scatter. Sometimes they are right, sometimes they are wrong and on several of the latter situations heads have rolled as a result.
The inclusion of streaming AVODs and FASTs in the upfront is an additional complication but here, too, both buyers and sellers will make decisions, in part, based on anticipated demand and upfront and sactter CPMs. While it's true that the number of GRPs available via linear TV is slowly shrinking, these are increasingly being repalced by streaming GRPs---currently at relatively high CPMs. But this is likely to change with many AVODs and FASTs forced to lower their CPMs relative to linear while adding ad clutter to make up the ad revenue losses that becoming more competitive in pricing entails.