Television Commercial Market
OK, let’s make sure we understand something right away. One thing you should never forget while you are watching television is the overall goal of TV: the television industry is a business. That’s it. Television networks sell their audiences to advertisers. Advertisers spend a lot of money buying specific commercial time because they are interested in one thing…buying you—your time and attention. In other words, the advertisers are basically using you because the costs of the TV commercial are essentially passed onto you at the store, such as when you feel somehow persuaded to buy brand name coffee rather than the store brand because you remember that cute commercial between the husband and wife making coffee together. So, going back to the title of the chapter in our textbook, “Do We Watch TV for Free?” No, we don’t. We actually pay a lot.Advertisements comprise about 25% of television time. In addition to commercials for products and services, TV time is also made up of three other types of non-program material: The first is promotional announcements (promos) designed to attract viewers to watch a particular program; the second is the ID, or the identification of the local station or national network; the last is the PSA, or the public service announcement. These are usually run for free or at very low cost to promote a charitable cause, such as fighting hunger in Africa or illiteracy in the US. These types of non-program material are convenient for the TV industry because they fill the leftover 15 and 30-second commercial slots.
Speaking of buying, let’s get to the main purpose of this lecture—the different categories of TV advertising and how they affect the costs. Advertisers can purchase time in five different segments of TV. Today I’m going to give you some information about these five different categories so that you can see how the costs are assessed and why companies believe it’s worth putting aside much of their budgets for these expenses.
The first and largest category of the TV industry is the networks. Therefore, you can probably guess that network ads make up the largest component and these are, you know the major networks: CBS, NBC, ABC, Fox, WB, and UPN. If an advertiser puts an ad on network TV, they’re going to hit the most people because more people will see them at the same time. That’s the big advantage.
The cost varies, of course depending on the length of the commercials. TV ads are generally sold in 30-second blocks. Tell me, how many commercials usually take place during one commercial break? Yup, and within a single commercial break, you’ll see commercials from several different companies for several different products or services: shampoo, cat food, new car, restaurant, upcoming TV show, etc. This is what we call “magazine format” because it’s kind of similar to the way that different ads are scattered throughout a magazine.
The costs of these 30-second blocks are usually negotiated between advertisers and networks based on the popularity or potential popularity of a program. Let’s look at a more specific example of these costs. For a popular show like Friends, a 30-second ad during its last season averaged $473,500. This is the most expensive. The average for 30-second commercials in 2002 was about $115,799. Obviously, the costs depend on the type and size of the audience. Networks charge the most for TV shows that appeal to the 18-34 year old audience. This is most the demographically desirable audience because this is the group of people with the highest purchasing power, or disposable income, for cosmetics, cars, clothing, etc. Also, Thursday nights, when Friends aired, has long been the highest-rated TV night of the week.
The second type of TV commercial advertising is much less broad than a network. These are called spot ads. This is when an advertiser purchases time from a specific station or a group of stations in a specific geographic area where they want a product ad to have more impact. Does anyone remember what DMA stands for from your textbook? Designated market area. You can imagine that the larger markets are more expensive than the smaller ones. Advertisers look at these markets to gauge where they should advertise a product—not just the size of the market, but also the demographics of each one.
Let’s move on to the third category--syndicated advertising. You’ve probably heard of TV programs such as Seinfeld, Friends, and Cheers that were very popular in the past. These are syndicated programs—the older episodes of these programs are sold on a station-by-station, market-by-market basis. This is called syndication. Can anyone give me the more familiar word? That’s right. These programs used to belong to a particular network, but now they are “syndicated” and shown on other networks. So that means that with this type of advertising, commercial time is purchased for specific syndicated shows on different stations all over the country. Advertisers feel that they can often reach as large of audiences as network programs do, but the commercial slots during these syndicated programs are usually cheaper.
Although network advertising remains the most popular, cable channel advertising, our fourth category, now attracts about 30% of the TV audience , according to some experts, and the audiences continue to increase. There is an important advantage to cable TV advertising. Advertisers can choose very demographically narrow audiences. Can you all name a few cable channels that target a specific audience? The advertiser can target a specific group and not spend money with viewers who are probably not going to buy their product. For example, it makes sense that golf ball manufacturers can spend more money on the Golf Channel rather than waste money on a regular network.
The last type, local advertising, is based on the city or community. This includes commercial time bought on either local stations or cable stations by local businesses. Local advertisers usually cannot afford the costs of prime time television, so they often have to use fringe time, which is the time just before and after prime time. However, a national company might help pay for the commercial time of local dealers if they sell their products. This is called cooperative advertising.
As you can see, television does not really serve its viewers. It serves its advertisers first. You are just the middle person. How does TV makes its money? From you!
