Online Premium Content Edges Out Prime Time TV in Ad Space Pricing

June 30, 2009

simpsons

Every year for the past few years, television doomsayers have brought out their picket signs and have pointed to all the latest technology as proof that this year is finally going to be the year that television becomes obsolete. While this year is likely to be no different, a significant milestone has just been reached marking television’s continued descent from its once untouchable media superiority. Last week, Bloomberg reported that for the first time, popular television programs like “The Simpsons” and “CSI” are fetching higher advertising rates on streaming television websites “Hulu.com” and “TV.com” than they are during their native prime-time television slots. Specifically, marketers are now paying only $20-$40 per thousand views for prime-time television ad space, but are willing to pay up to $60 per thousand views, at times twice as much, on Hulu.com.

One reason that this type of online advertising was able to overtake network advertising is that television advertising is in decline, with one prominent analyst forecasting that “the major broadcast networks could be down as much as 15% […] for prime-time advertising sales for the fall season.”

The rising cost of online television advertising also reflects a particular potency that is due both to its current format as well as to the internet’s inherent interactivity. This current format consists of a few single ads dispersed throughout a streamed television program. Unlike traditional TV, the brevity of these intermissions almost ensures that the audience remains captive, virtually guaranteeing their attention. Additionally, this format’s lack of advertising clutter has been demonstrated to almost double the recall of any particular ad shown compared to prime-time television.

Importantly, these strengths of the current online television format are largely due to this limited supply of advertising space. While the typical prime-time television show will have about nine minutes of advertisements, premium online programming has a mere 37 seconds of advertisements. If these online distribution channels try to increase the amount of advertising in order to boost revenue, they will end up eroding its value, so they must do so carefully and with moderation, or else illegal downloaded content free of ads may seem like a more attractive alternative.

The advertising format aside, online streamed programming has certain inherent advantages over television. It primarily allows users to watch their favorite programs when they want and where they want (as long as they have internet access). Despite a growing number of people owning DVR’s who can watch their shows when they want, they still must watch them on their TV and pay a premium for this feature. On the downside, online viewing may not always have the same picture quality or continuous playback that TV does, but rising bandwidth will soon overcome this problem.

One last consideration is that the current audience for online television viewing is significantly smaller than that of traditional television networks, meaning that it cannot generate nearly the same ad revenue. So the sky is not falling for traditional television just yet. But this new media channel will continue to grow and while it does the networks must transition wisely to take advantage of it, staying wary of cannibalizing their traditional channels and of pushing consumers to piracy by overloading their streaming content with too many ads.

From Bloomberg.com