The document discusses television advertising pricing in the United States. It covers several topics: - Advertisers spend over 40% of their budgets on television advertising, which is sold primarily through upfront negotiations between advertisers/agencies and networks in May for the upcoming season. - Inventory left after the upfront is sold in the scatter market at fluctuating prices depending on remaining supply. - Pricing is determined based on expected audience sizes and negotiations between parties. Guarantees and options are used to mitigate risks for advertisers and networks. - Alternative inventory like direct response and video on demand are also sold, while optimal ad placement aims to schedule ads effectively. - The future of pricing

1. TELEVISION ADVERTISING
PRICING IN THE UNITED
STATES
Chapter II

2. American commercial broadcast networks obtain the vast
majority of their revenue from advertising and most of it, its
sold in a hetic two-week period known as the upfront market.
The rest is sold durign the rest of the year in the so called
scatter market.

3. Advertisers spend more money in Television than any other
medium.
Television advertising represents
40-45%
of national advertising media spend.

4. There are three major groups of players in the market of
television advertising:
Advertisers
Advertising agencies
Television Network
Control

5. The advertisers are major corporations whom have multimillion
budgets on advertising.
In the 2008 the 5 major advertisers where:
P&G
AT&T
General Motors
Verizon Communication
Toyota

6. Advertising agencies the enterprises that works with the
advertisers to develop advertising campaings
Some of the biggest transnational advertisign agencies are:
BBDO
Ogilvy & Mather
McCann-Ericson
JWT

7. The television networks are one or more chanels of
distribution for national broadcasting.
There are two types:
! Broadcast networks
Which consist currently of ABC,CBS,NBC and Fox who
provide a diverse variety of content for a broad audience.
! Cable networks
Who deliver their products throug cable of satellite. In
terms of total audience, the bigger ones are:
Nickelodeon
Nick at Nite
Disney
Fox News Channel
USA

8. The reach of a comercial is the number on unique viewers who
saw a comercial.
The frequency is the average number of times that each viewer
saw the comercial.
There are rating agencies which keep track of this data in terms
of media and comercial impressions.
The stardard measure of price or cost in television industry is the
CPM (Cost per thounsand impressions).

9. Pricing in the
Upfront Market

10. Structure of the Market
The television season of the US runs from
September or October of one year through May of the following year.
Advertising for a season is sold in two markets.

11. The Upfront Market: Take place late in May shortly after the networks
announce their new programming for the upcoming season.
The Scatter Market: is the inventory of sales after the upfront has
occurred. Is used by smaller advrtisers who wish to purchase additional
advertising time on top of what they purchase in the upfront .

12. Pricing in the Upfront Market
Program scheduling and formatting.- The firs step in the planning
process is the development of the programming schedule for the
upcoming season. Each season is a mix of continuing programming.
Estimating the audience.- Once the scheduling is complete the network
estimate the audience of each show. History can be used to generate
accurate estimates for programs with consistent audiences.

13. Establishing the upfront rate card.- After a network has estimated the
audience for its shows, it calculates a target CPM for each daypart.
Final Pricing in the Upfront Market.- Once the advertising agency and
network have agreed on a proposed programming mix, they will negotiate
over the price. If demand by the agencies is higer than anticipated, then
the CPMs will be higher than the network anticipated, If demand is lower,
then CPMs will be lower.

14. Scatter Market Pricing

15. The networks an initial develop skater market rate card at
the same time they develop the upfront rate card.
The network updates the scatter market to reflect the
anticipated inventory position after the upfront sales.
If a networks exceeds its targeted upfront volume, less
inventory than anticipated will be available for the scatter
market.

16. In a very difficult upfront, the network may elect to reduce the
number of units offered for sale.
Higher than anticipated demand will increase scatter rates while
lower demand will reduce scatter rates.

17. Audience guarantees and
option cutbacks
There is considerable risk that the promised impressions will
not materialize as planned.
Guaranteed CPMs turned out to benefit both advertisers and
networks.
They benefited advertisers by taking the risk out of buying.

18. Audience guarantees and
option cutbacks
By selling CPMs instead of slots, the networks could bundle
and sell all their inventory.
A unit removed from the scatter market in order to support a
deficiency from the upfront market is called Audience
Deficiency Unit (ADU).

19. Alternative Inventory
The networks also sell other types of advertising inventory
and services:
Direct Response (DR). Advertisements exhort the viewer to
call a toll free number to recive a special offer. They are
priced significantly below the rate card.
Per Inquiry (PI). Is an offshoot of direct response advertising
that is priced according to the number of inquires recived by
the advertiser´s number.

20. Alternative Inventory
• Video on Demand. Is offered by many cable providers. The
pricing model for a video on demand is still in its infancy
because issues are being resolved.
• Web TV. Television programming is increasingly distributed
via internet both directly from the networks own sites. One
advantage is that using cookies it is easy to identify the
viewer.

21. Optimal Placement
Is the process of scheduling
advertisements into slots.
The advertiser provides broad guidance, which include total
budget, flighting, atc.
This task needs to be performed during the highly intense
upfront market when the network is simultaneously
negotiating with all of its customers.

22. The future of advertisement
pricing

23. From de the mid-50s through the 70s , the industry was a
static oligopoly dominated by the “Big Three”:
Since the mid-70s, two events have disrupted that triopoly:
1. The expansion of nationwide cable (and later satellite)
service.
2. Internet

24. The broadcast networks still retain a high level of dominance
But the fact that the market for television advertiseing has
not fundamentally changed in more than 50 years does not
mean that it won´t change in the future.

25. The internet may well be the force that finally disrupt the
fundamental television business model
It has 2 clear advantages for advertiser over traditional television:
1.
Enables advertisements to be targeted to individual customers
much more selectively than television.
2.
Enables far more accurate realtime measurement of response to
advertising via click rate measurements.

26. In response to the challenge of the internet, there are many
different initiatices underway to shape the “television of the future”
There is one area in wish television currently holds the advantage
over the internet:
For dramas, to comedies, to reality TV , network and cable TV have
demosnstrated an ability to consistently develop, produce, and deliver
dramatic content that millions of people want to watch.

27. CONCLUSION
There observers believe that the upfront market creates an atmosphere in
which advertisers will pay more than they otherwise would for inventory for
fear of being shut out of popular shows and/or paying much higher rates
on the spot market.
There are many pricing and revenue management decisions faced by
advertisers, agencies, and broadcasters that could be improved through
the use of better analytics and decision support

28. AZTECA VS IBOPE
The collapse of the pay per rating method in México
The Scandal
http://www.milenio.com/cdb/doc/noticias2011/
a48d3e9d95aadaf7fced12b885314d00
This days…
Televisa still works with IBOPE and they still set the prices based on the
cost per rating points, but Azteca cut all the business relations with IBOPE
and now charge based in fixed prices for every product (spots and
integrated product) depending on the Tv Schedule:
Mañana
7 -14 hrs
Tarde
14-18 hrs
Premium 18-00 hrs