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Supply and Demand for TV Ads: Past, Present and Future

June 13th, 2018   ||    by John R. Osborn   ||    No Comments

It’s Economics 101: the law of supply and demand. This law describes the relationship between how much of a commodity producers wish to sell and how much consumers wish to buy. Pricing is set at the equilibrium point between these two forces.

Over 60-plus years, increasingly strong demand for TV ad inventory has kept pricing from crashing even as supply has increased again and again. Today, these dynamics are in flux once more as internet-delivered video joins traditional television in the lineup of ad-buying options. Here’s a look at TV supply and demand throughout the decades.

1950s-1970s

The early days of TV were built on the radio model, where sponsors produced programs like “Lucky Strike Presents: Your Hit Parade.” But TV production was so expensive that full sponsorship gave way to multiple sponsors and, ultimately, in-program spots. This increased the supply of inventory and lowered the cost of entry, drawing new advertisers into the marketplace.

In this period, national TV networks created the upfront, the auction-like marketplace that locked in future business and put premiums on advertisers who were left buying scatter. That marketplace continues to function even today, as demand has consistently exceeded supply.

1980s-1990s

Ad supply increased in 1982, when the U.S. Justice Department won the removal of the NAB’s long-held limits on ad time, according to The Museum of Broadcast Communications. Like the earlier shift to multiple sponsors, this expansion of supply opened the door to new advertisers.

The early 1980s also saw the arrival of cable TV, a brand-new distribution system. Suddenly, instead of four broadcast TV networks, advertisers had 28 new sellers, such as MTV, A&E, ESPN, and Discovery. As happened before, TV supply increased, but was offset by demand from clients with small budgets who could now enter the TV arena. This demand benefited local broadcast stations, as small advertisers often needed to prioritize by geographic markets, and local cable-system operators weren’t ready to handle local buys.

2000-2018

Although the internet and digital advertising arrived in the 1990s, it wasn’t until the early 2000s that internet distribution through broadband and, eventually, Wi-Fi could finally deliver streaming video content. TV became “T/V” (Television/Video).

Online T/V ad supply also exploded through the likes of Google’s YouTube. Advertisers who used digital could now communicate through many personalized channels, expanding demand to go with supply.

Skinny-bundlers like Sling and even national networks like CBS and ESPN now offer streaming services, some with higher-priced ad-free options for subscribers. This has led to a massive musical-chairs game of cord-cutters, video subscribers, and legacy television viewers. As ad supply drops on cable and broadcast, it increases through streaming video, opening new demand sources and reducing others at a dizzying rate.

OK, I’m Dizzy: What Does a Local TV Buyer or Seller Do?

  • Stay on top of technology-driven innovation through industry publishers, conferences, webinars, suppliers, partners, and so on
  • Be open to—and embrace—change management attitudes, resources, and tools
  • Gain firsthand knowledge and experience of programmatic TV, addressable advertising, and automated TV buying/selling
  • Know that as automated buying and selling marketplaces become real-time, data analysis skills will be key
  • For sellers, add new data analytics tools to price ad buys where targets may not be obvious
  • For agencies and buyers, learn to compete on KPIs beyond CPM/CPP, as buying clout is no longer the only route to success

The T/V advertising business will likely expand as demand continues to grow alongside new supply sources. Success will come to those with the mindset and skills to manage daily swings in supply and demand—and adapt again and again.

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