What Will Burst The TV Advertising Bubble?

Why does TV advertising continue to do well in the face of declining viewership and transcendent online video? Here are some examples of the typically contradictory reports that make it so difficult to get a handle on what’s really going on (bold is mine):

The major U.S. TV networks, after a slow start to the annual advertising negotiating season, have completed most of the prime-time commercial deals at prices above a year ago, executives said on Wednesday.

Although volume was down in some cases, prices were up across the board by an average of between 5 percent and 9 percent based on cost per thousand viewers, media executives said. (via Reuters)

Broadcast television’s annual springtime sales bazaar drew to a close Friday with the five networks surpassing their estimates by ringing up a combined $9.3 billion in commitments for prime-time commercial spots for the coming TV season.

The so-called upfront ad market was surprisingly strong this year, with broadcasters increasing their take by about 5% compared with last year despite generally lower ratings. Networks were also swamped with orders for spots in national evening and morning newscasts. (via LA Times)

[Robert J. Coen, senior VP-director of forecasting at Universal McCann] said large companies have been cutting expenses wherever they can as they focus on productivity and profit growth. Online advertising and search marketing have “violently” impacted established media as the appeal for marketing tactics closely tied to transactions grows.

In terms of national advertising by medium, Internet and direct mail were the biggest gainers in the first quarter, growing 16.7% and 4.5%, respectively, ovwer the same period last year. Spending on TV, spot TV, syndicated TV, spot radio and newspapers decreased in the first quarter. (via BtoB)

[Joseph Rizzo, U.S. Advisory Technology Sector Leader for PwC] said Internet advertising was being helped by a decline in television viewing by key audiences for whom “the Internet has become an integral hub of their daily experience”. (via Reuters)

It’s pretty clear that TV advertising is now in a bubble, with advertisers bidding up prices on a medium that no one ever got fired for using and that many ad agencies have deeply vested interests in propping up. But given the intense competition from online media — both in terms of the shift in consumer media habits and the greater measurability of online ads — it seems unlikely that this overinflated condition can last.

One factor preventing the bursting of the bubble is a lack certainty around online video formats, e.g. pre-roll, mid-roll, post-roll. The conventional wisdom is that consumers are used to advertising on TV shows, and even though most advertisers know that consumers channel surf, get up from the couch, and zap commercials with DVRs, they have been doing TV advertising so long that they can still pretend that it’s reliable and effective. Nielsen also contributed to propping up the TV advertising market by creating new TV ad ratings, which have now become industry standard:

Media executives said that the majority of deals for this year’s upfront — the period when networks sell about 80 percent of their prime-time advertising inventory — were based on the Nielsen commercial ratings known as live plus three.

That measurement takes into account how many viewers watched commercials that ran during the program when it first aired, plus the next three days on DVR playback.

The game with video advertising, whether traditional TV or online video, is more about perceptions than reality, and more about industry standard metrics than actual ROI. The only way online video providers will succeed in bursting the TV advertising bubble, so that they can soak up the flood of ad dollars, is to create industry standards that will help big brand advertisers find their comfort zone.

Of course, when the bubble does burst, a lot of the money, which is based on old monopoly pricing, will simply evaporate, as it has with newspaper advertising. The question for TV networks is whether their transition to digital will be as ugly and painful as it has been for newspapers.