Should Advertisers Keep Paying the Rising Prices for Broadcast TV Commercials?

Should Advertisers Keep Paying the Rising Prices for Broadcast TV Commercials?

In this segment from the Market Foolery  podcast, host Chris Hill and Million Dollar Portfolio ‘s Jason Moser discuss the questions about media Anthony Crupi raised in his Ad Age article titled ” Seinfeld , Shrinkage, and the Rising Cost of TV Viewers.” To sum up, those advertisers aren’t just paying more for their 30-second spots on the broadcast network’s most popular shows — they’re paying a lot more per viewer, because even the top shows draw far smaller audiences than they used to. So what does it mean for the media industry?

A full transcript follows the video.

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This video was recorded on Oct. 9, 2017.

Chris Hill: Let’s move over to television, then. You pointed out an article in Ad Age . Parenthetically, I have to add, Ad Age is one of those, from time to time, particularly when we’re talking about restaurants, we will talk about QSR , which is a trade publication for the quick-service restaurant industry. Ad Age is one of those trade publications where, as an investor, you can find some really good information and some good insights beyond what are hit television shows, and that sort of thing. Anthony Crupi, who’s really great when it comes to breaking down numbers in the television industry, had a pretty interesting article about advertising and how, on the surface, you can look at television advertising and say, “It’s getting more expensive.” But Crupi broke it down in such a way that you can look at it and think, “If you’re an advertiser and you’re advertising on broadcast television, you might want to rethink the way you’re spending your money.”

Jason Moser: Yeah. Why is it getting more expensive? Is it because they’re able to command more dollars? Or is it because the audience is shrinking? In this case, it’s pretty clear that the audience is shrinking. They were making a comparison of Seinfeld to Sunday Night Football . The average audience for Seinfeld at that point in time was somewhere around 22 [million]-23 million viewers, versus Sunday Night Football , which is a little bit under 10 million.

Hill: Again, this is apples to apples in that, what’s the No. 1 show 20 years ago, what’s the No. 1 show now.

Moser: What are people tuning in to?

Hill: On broadcast television.

Moser: Exactly. It was very interesting. The Seinfeld comparison was apropos for a number of reasons, I thought, in that the mention of shrinkage in the article was just classic. [laughs] But it reminded me, a few weeks back, Jerry Seinfeld was on The Howard Stern Show . Great interview. Always love listening to him. And they were talking about Seinfeld , they were talking about Comedians in Cars Getting Coffee , and how that all came about. And Jerry made this point that the medium is the message. And I think he was spot-on there. It’s basically looking at how people are consuming things today versus how they were consuming them yesterday. Broadcast TV, obviously, was much more important, played a much more important role in our lives, back then than it does today.

He told a story about how with Comedians in Cars Getting Coffee, he was trying to come up with a show and an idea that would cater to this generation’s internet audience. He wanted to make them short episodes, make them really just about a couple of people, because he figured people would be watching them on their phones. Somehow or another, Crackle was the only one that really gave him a shot. Initially, Netflix  turned him down. So now you have this behemoth that’s doing really well.

But I think that’s the key there — the medium is the message. So the way that we’re consuming our content today, broadcast TV, I think, is in a really difficult spot, because when you look at the numbers and see how much money advertisers are having to pay for those viewers today, and the lack of data that they get from those viewers on broadcast TV, it’s really hard to justify that kind of spending.

So then, where is the spending going? Well, it’s going to places like Hulu, places where we’re seeing options as far as the way you’re going to get this content. Yes, I can watch Hulu on my TV at home; I can also watch it on my phone. Hulu has a pretty neat situation there in that they’re getting advertising dollars and they’re getting subscription dollars. So for a while, they were a bit of a laughingstock, but they’re building up their content arsenal now, and they’ve got some powerful ownership.

I think you’re going to see, as time goes on, this disparity continues. And if you’re in that space, if you’re in ad spending, I don’t understand why you would keep on spending money investing in that space, particularly when you see the way the viewership for these sporting events is going. The median age for sports viewership, for example, is getting older by a considerable factor, with the exception, perhaps, of the NBA. And I think that it could be argued that the NBA has been very forward-thinking in their investments and the way that they’re distributing their content and embracing social and that interactive dynamic.

Hill: Yeah. I think if you’re a Walt Disney shareholder, you can take some small solace in this article, because it shows it’s not just ESPN that’s losing subscribers. It’s cable sports across the board, and it’s broadcast television that’s losing subscribers. And again, the No. 1 show on broadcast television right now has an audience that is less than half the size of the No. 1 show just 20 years ago.

Moser: Yeah. And if you look at the evolution, the way that content has been distributed, for a long time, you went to the game. America’s favorite pastime, you go to the baseball game, it was a great time-waster. But then, broadcast TV came along, and it opened up that audience, so we could watch those games on TV. The economics eventually weren’t working out so well for broadcast TV, because cable came along. Then cable was seen as another distribution channel, and it was working out pretty well.

Unfortunately, now, people are starting to cut the cord or just rethink how they’re going to get their content. So we’ve gone from a bundling to an unbundling, back to a semibundling. It’s really interesting to see how the economics are working out. I think with sports in particular, I just don’t think we’re going to see these same sorts of massive contracts years from now. I think the leads would be very wise to try to figure out new distribution in such a way that allows people to personalize and get what they want when they want.

Chris Hill owns shares of Walt Disney. Jason Moser owns shares of Walt Disney. The Motley Fool owns shares of and recommends Netflix and Walt Disney. The Motley Fool has a disclosure policy .

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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