[10/06/09 - 11:31 PM]
The 10 Things You Need to Know About the New Season: #7 - Ads Pay the Bills
By Brian Ford Sullivan (TFC)

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Welcome once again to "The 10 Things You Need to Know About the New Season," our annual feature about, well... the 10 things you need to know about the new season. The goal of this venture is to address not only common questions people have about television but to also demystify (or potentially reaffirm) stigmas out there about certain networks, time periods, genres and so forth. So with that in mind let us put on our journalistic caps and give you the cold hard truth about what's potentially ahead for some of your favorite new and returning shows...

7. Traditional advertising still matters the most.

It's estimated that the broadcast and cable networks made a collective $67.92 billion off of advertising revenue in 2008. Want to guess how much of that was online advertising? 20%? Nope. 10%? Try again. 5%? Wrong. The correct answer: 2.4% ($1.63 billion). That's right, for all the hubbub over streaming sites like Hulu and Fancast, the fact is they only bring in a small fraction of the revenue generated by traditional 30-second spots. What about DVDs? Rentals and sales of TV shows on DVD are pegged at $450 million for 2008. And iTunes? Digital downloads accounted for just $180 million in revenue in 2008. Here's a visual representation of those numbers*:

traditional advertising - $66.29 billion
online advertising - $1.63 billion
dvd - $450 million
iTunes - $180 million

In other words, no matter how well a show is doing on iTunes, Hulu and DVD, it's not even in the same ballpark as what it earns from traditional commercial advertising. This is why so much focus is still placed on those pesky Nielsen numbers. It's the only barometer to determine who's being exposed to those ads.

Now, I'm sure you'll say, what about DVRs? 33% of all households in the U.S. have them. The answer: Nielsen already accounts for that. In the fall of 2007, Nielsen rolled out what's known as C3 ratings. These numbers look at the average viewership of the commercials themselves viewed within three days of their initial broadcast. The end result: there's not much difference between the C3 numbers and the ratings you're exposed to here on the site every day.

That, coupled with the fact that 30-second spots are sold with a certain C3 guarantee, and you have the primary reason why shows get canceled. If a show is falling short of its promised C3 audience, networks have to give out refunds or make goods (a.k.a. free ads). It doesn't matter if there's still episodes in the can or the show's story is incomplete, once a show is making a network give money and/or time back to the advertisers it's a major liability.

So what's the lesson here? When the sting of cancellation strikes some of your favorite shows in the coming weeks, it's important to keep in mind it's just business. And for now that business is ad dollars made via commercials, not iTunes, Hulu or DVD.

TOMORROW: Who is the average TV viewer?

* All numbers are taken from "The Battle for the American Couch Potato: New Challenges & Opportunities in the Content Market" by the Convergence Consulting Group.

  [october 2009]  

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