The New Economics of TV are Leading to Fewer Advertising Dollars

Netflix, Amazon Prime, and HULU – all streaming TV services – are some of the leading sources of the decline in advertising dollars spent by broadcast and cable networks.  According to the Wall Street Journal, brands are weighing how much money should be spent on digital media as fewer viewers tune in to regularly programmed shows. TV networks are waiting to buy commercials later on in the year rather than paying for advertising upfront.  Upfront, in terms of the television industry, is defined as a group gathering of television network executives, at the beginning of important advertising sales periods.

Broadcast networks ABC, CBS, and Fox collectively booked $600 million fewer upfront advertisements this summer than during last year’s market.  However, NBC was able to increase its ad rates 8% during the upfront market mainly because of the two major sporting events that were viewed, Sochi Winter Olympics and the FIFA World Cup in Brazil. These two events alone took in more than $1.5 billion of advertising dollars this year, leaving NBC within fewer dollars in the upfront market.

An image containing the logos of ABC, NBC, The CW, FOX, and CBS.
Five of the largest broadcast networks that are experiencing a decline in viewership. Source: Hollywood Reporter.

Based on recent statistics found by Broadcasting & Cable, there are fewer must see and must buy shows on TV. Both media buyers and sellers expect to see as much as a 10% drop in sales as companies are not rushing to do deals with advertising agencies. The reason for the declining sales is not only because the programming is not as popular or highly rated but also because there is plenty of available commercial time. Ad buyers are more willing to hold money back for the “scatter market” (buying ad time closer to the air date). In the past, upfront ads sold for a premium. However, there has not been a significant price increase in the past several years for purchasing ads closer to their air date.

Although streaming viewership is still less than traditional TV it is gaining momentum. Media consumption habits are changing. Broadcast and cable TV used to be the best way to reach a mass audience but due to the decline in viewers, marketers now have begun to alter the ways in which they reach viewers. Companies are shifting their advertising dollars from TV to more online content, such as buying ads on Facebook or YouTube.  Consumers have migrated to streaming TV services primarily due to the amount of advertisements found on traditional TV. Many of the streaming services have few to no advertisements.

Two of the largest advertisers in the TV industry, General Motors and Procter & Gamble, committed tens of millions of dollars less in this year’s market, according to the LA Times.  There is recent speculation that the decline in TV networks will cause a surge in advertising for internet companies. Facebook is a prime example of the increase in advertising revenue for internet companies. During the second quarter, Facebook reported $2.68 billion in advertising revenue, which is a 67% increase from 2013. Digital platforms are expected to see a continual increase in their advertising dollars. In 2014, $43 billion was captured. This year, digital platforms are expected to capture $50 billion for advertising, and in 2016, $66.5 billion is expected to be spent on advertising.

From a marketing management perspective, here are some questions to consider:

  • Based on the above trends, do you think broadcast and cable networks will ever become obsolete?
  • Cable and broadcast networks are waiting longer to pay for advertisements; these networks are not purchasing as many advertisements during the upfront market. What strategy do you think advertisement agencies should take to combat this?
  • How do you think internet companies will respond to the surge in advertising revenue?