I wondered earlier (somewhat tongue in cheek) about how ads would be sold in the current TV upfront advertising season. Now that negotiations seem to be substantially complete for most of the broadcast networks, and in light of the glowing, upbeat, uncritical coverage of the upfront selling results I thought I’d shed a bit of light on all the claims in the television trade media. Understand that I have no inside information, and even worse, am relying entirely on published accounts of results that may be somewhat or entirely wrong.

Here’s what has been reported:

The industry as a whole booked about $9.2 billion in upfront ad sales, an increase over the $9.1 billion last year.

• CW secured CPM [cost per thousand viewers] increases of 6-8%.
• NBC secured CPM increases of 6-7.5%, or 5-7%, 5%, or mid to high single digit increases.
• ABC secured CPM increases of 8.5-9%, 9% or “about 9%”.
• Fox secured CPM increases of 8-9%, “about 9%”, “bigger CPM increases than ABC”.
• CBS secured CPM increases of 7-8%, “a tick under [Fox and ABC]“, “tucked behind ABC“.

Sounds pretty good doesn’t it? Increases of 5-9% on anything in the current economy? But let’s look at some basic facts.

1. An increase in ad sales dollars during the upfront period doesn’t equal an increase in overall ad sales or revenue. It could just be advertisers shifting their buying from the later “scatter” market (buying available inventory later in the year). That won’t be known till much later, and the fawning trade press will have moved on.
2. An increase in CPM doesn’t equal an increase in revenue. The TV networks saying “Our CPMs increased by 8%” is like GM saying “We’ve increased our car prices by 8%” not “We’ve increased the number of cars sold by 8%” or “We’ve increased our revenue by 8%”. And unlike most markets, the sellers [TV networks] of the product [advertising availability] do not control the supply, TV viewers do.
3. Unless viewership bounces back substantially from the strike plagued 2007-8 season the broadcast networks will suffer revenue declines, not increases, compared to previous years. If we assume that advertising availability is tied to the adults 18-49 viewership of the different networks [which is the best guessing we can do given our limited data], then CBS and CW lost 20%+ of their advertising availability between 2006-7 and 2007-8, ABC lost 16%, and NBC lost 10.5%. Only Fox saw an increase [of 3.9%] much of that attributable to the Super Bowl, which NBC will have next year. The conventional wisdom is that viewership will increase next season compared to 2007-8. I think that’s reasonable, but I don’t think it will increase enough to increase the revenue of most of the networks. If your prices increase by 8%, but your “production” falls by 10%, that’s a revenue decline of 2%. Long term broadcast network viewership is in decline. That trend accelerated substantially in 2007-8 because of the strike. I think it’s reasonable that it returns to it’s long term trend, but that still would argue for a decline in both viewership and advertising revenue.