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.
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.
"All things considered, I think the model still generally works, and should once again for this year at least."