Media buyers face inflation
Talk of inflation is abundant in today’s financial markets. In the media industry, we are focusing on significant price increases of advertising rates across formats. In the legacy world of linear television, the recent upfront market, (whereby networks lock in advertisers for upcoming seasons of their shows), shocked the industry with soaring rates contracted for ad time. The ‘old guard’ broadcast players, including CBS, Fox, NBC, etc were able to secure year-over-year ad rate increases of close to 20%, despite steadily declining TV viewership and plunging ratings: e.g. down ~30% for Fox for key demographic of 18–49 years old. On the back of this season’s buoyant activity, today’s prices imply a ~25% increase relative to pre-COVID levels.
Meanwhile, digital advertising platforms such as Facebook/Instagram have also seen 20% increases in CPMs since pre-COVID, even though users and engagement have both grown. Shouldn’t the cost of capturing the attention of growing audiences increase at a faster rate than the cost to target a rapidly shrinking audience?
Two potential arguments emerge. The first contends that despite the declining trajectory inherent in the legacy TV market, the absolute reach that linear television provides is becoming a scarce commodity as the multitude of platforms and streaming services start to fragment audiences. While digital media theoretically offers unlimited reach over time, practically speaking, reaching ~5–7 million viewers within one primetime half-hour slot is no easy feat. The second relates to the type of advertisers seeking exposure on linear television. While Instagram ads are perfect for niche direct-to-consumer brands, a giant soft drinks company simply does not depend on algorithm-driven performance marketing to stay relevant and is thus forced to continue allocating budgets to mass-market channels regardless of immediate ROI.
We believe this logic can hold only as long as the ad-supported streaming TV substitute services remain relatively small and fragmented. As the Hulu’s, Tubi’s, Crackle’s, and Peacock’s of the world grow and consolidate, the pitch to advertisers will start to resemble the best of all worlds: absolute reach, audience growth, and performance analytics.
As we’ve written in the past, we remain constructive on ad-supported monetization opportunities for content of all shapes and sizes — from feature films to short-form audio — but do not believe the recent pricing power of the linear networks can be sustainable in the long term.
