The mystery of the upfront

It's all relativeTelevision’s “upfront” season is approaching, which brings about stories from observers that link the health of the industry to the kinds of deals the industry makes during this period. Every one I’ve seen predicts this will be a big upfront for TV, because ad prices will be going up. Cable rates will grow much more than rates for the broadcast networks, according to the Wall St. Journal’s Demand Builds for TV Ad Time:

Last week Barclays Capital projected 7% to 8% growth in dollars for broadcast networks during the coming upfront, and 15% in upfront growth for cable networks. Rates per 1,000 viewers on some broadcast networks could grow by 10% or slightly more, the bank said.

As audiences shrink for the broadcast nets, prices for ads go up in order to balance the old budget (or grow it?). Madison Avenue decides whether it will play this game, and the answer has always been “yes.” New digital advertising solutions and advertisers spending money on their own forms of “media” put tremendous pressure on the whole system that Madison Avenue controls, however, which begs the question “how long can it last?”

Here’s the justification for ad price increases as presented by The Journal. You’ll have to read it a couple of times to fully appreciate the insanity strange logic of the rationale.

Higher prices for TV commercials are, paradoxically, partly the result of shrinking audiences for big broadcast networks, as viewers scatter across the dial. Amid that fragmentation, marketers have a harder time reaching consumers, and still view TV ads as an efficient way to reach large audiences. That has kept demand high, even as lower ratings make viewers scarce, driving up ad rates.

If the industry was delivering bigger audiences, the rate hikes make sense, but this justification is the same kind of economic spin that has gotten us into trouble before. Still viewing TV ads “as an efficient way to reach large audiences” can’t qualify for increasing rates for long. Basing price increases on “TV’s relative strength among ad-supported media” is a bit like saying that Aunt Ginny’s corn puddin’ (“that stuff’ll sink ya like a stone) is edible, because it sucks less than anything else at the table.

The auto industry is in a boom right now, although the experts that I talk to don’t really know why. Americans are still deeply concerned about the economy, as was revealed last week in a new New York Times/CBS News poll:

Capturing what appears to be an abrupt change in attitude, the survey shows that the number of Americans who think the economy is getting worse has jumped 13 percentage points in just one month. Though there have been encouraging signs of renewed growth since last fall, many economists are having second thoughts, warning that the pace of expansion might not be fast enough to create significant numbers of new jobs.

Will the automobile buying spree continue, or will we drift back to clutching every dime we have in our pockets? It’s in this environment that the upfront challenges common sense about ad price increases.

Meanwhile, ad spending via digital and interactive channels continues its explosive growth, despite its own challenges (Internet Users View Ads As Distraction) and mobile is hanging there with a world of incredible possibilities. There’s so much money at stake that things won’t change completely overnight, but those who bet the ranch on the entitlement of upfront increases are one day going to run into a Madison Avenue that’s had enough.

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