Truly Gross Ratings Points, Or How the TV Networks' Justify Their Price Increases

Yesterday, my colleague Jim Edwards asked on the BNET Advertising blog whether the network upfront is an anti-trust violation. I’m going to use this post to respond to Jim and go through the explanation media buyers will tell you when you ask them why more ad dollars continue to get thrown at network TV when its market share is declining. It’s not just that the networks goose prices by giving advertisers an artificially small window in which to buy time, which was the thrust of Jim’s post.

He asked yesterday: “What is it about network TV that allows it to defy the laws of supply and demand?”

The answer is that it is not defying laws of supply and demand, exactly. The problem is that most of us think that what’s being measured in the supply and demand equation is viewers. But the media buying community and the networks measure supply and demand in terms of gross ratings points, and that’s a whole different deal. The simplest definition of a gross ratings point is this: “The sum of all ratings delivered by a medium.” Buyers add up these points to determine when they have bought enough exposure for a given commercial. I’ll resort to a description I wrote last year for the annual report of the Project for Excellence in Journalism:

Say an advertiser wants to buy 20 gross rating points. When network television audiences were larger, this might be accomplished by buying one 30-second spot. Today, buying those same 20 gross rating points might require buying multiple spots, which means the advertiser is using up more of a finite resource — the amount of airtime on the broadcast networks. Scarcity heightens demand, and heightened demand raises prices.

That’s how the marketplace justifies its price increases. Even if the logic is cock-eyed —there are plenty of other ways to reach people besides TV commercials, after all — it creates a rationale the marketplace can deal with.

And there’s an obvious follow-up question, even if one’s definition of “new media” is cable TV. Isn’t the amount of TV inventory effectively infinite, what with hundreds of channels on which to advertise?

Well, yeah, except that it isn’t perceived that way by the people who control the money. At a certain point in the long tail of TV content, media buyers effectively shun the inventory because they consider it to be “remnant.” Part of this is because it’s difficult, logistically, to buy the long tail, as opposed to pushing a big heap of money at a big network. in fact, cable TV still doesn’t get the dollars it should, based on the amount of people who watch it.

At some point, this skewed view of the TV ad marketplace will change; a deepening recession, and the emergence of players with better metrics and streamlined TV buying systems, such as those offered by Google TV, Microsoft’s Navic Networks and SpotRunner may help it along.

One major media executive, GroupM CEO Marc Goldstein, said this week at the media conference of the American Association of Advertising Agencies, that the changing definition of primetime — as evidenced by Jay Leno’s pending move into it — may hasten change.

Considering that $9 billion was spent in the prime time upfront last year, I would venture to say that if the definition of that market is changing, then it’s something we all better sit up and take notice of. And make sure we are prepared to deal with accordingly.”

I’ll say.