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Advertising Supply/ Demand

Kelly and I headed to Napa to meet up with her brother and his wife, for a weekend of good food, bad golf and great wine. All three missions accomplished. In any event, while out to dinner on Saturday night, Kelly scored the only celebrity sighting of the weekend, spotting Alyson Hannigan (the "this one time in band camp" girl from American Pie and various sequels).

Anyway, my sister-in-law reminded us that in addition to American Pie fame, Ms. Hannigan is also on a current TV show, which got me thinking about TV advertising. TV is expensive. Not from a consumer's standpoint, even the price of plasma's has droppped pretty significantly. But if you are a network and you are producing and airing TV shows (or even buying and airing them), it is enormously expensive. Just the labor costs alone (the actors, the writers, the producers, the directors, the editors, the production people, etc.) are huge. I read somewhere that Charlie Sheen makes $250k or so per episode for a show called Two and a Half Men, which I've never seen. And this is in the internet age, where hits are pretty much non-existent

So who pays for all this? Well, advertising of course. But why? I have to believe that in the world of ever-shrinking audiences, Tivo/ DVR and the remote control, even if a network can deliver a large audience for its show, the percentage who actually see one of the ads is going to be extremely low. So why do advertisers keep buying them? And why do they still pay enough for them that Charlie Sheen gets paid $250k/ episode?!

So two thoughts on this. First one, advertising is an industry - and industries, like bureaucracies and big companies, don't change directions quickly or easily. For years now, for most large corporations TV buys have been part of their budget and the industry is built around that. Ad agencies, media buyers, marketers, brand experts, and, yes, actors, writers, etc. are an industry stack which now is perpetuating. This type of thing doesn't disappear overnight.

Second, I imagine the original pitch of the TV ad sale was essentially "we're the only game in town." In other words, in 1965 where else were you going to be able to reach millions of people quickly and efficiently? Fast forward to 2007, add in the aforementioned bureaucracy, and you are where you are - lots of people paying for inefficient ads.

But for how long? Given that the internet and the ad networks has given marketers the ability to reach millions of people even more easily, TV is no longer the only game in town. In other words, the overall ad supply has increased exponentially. Doesn't Adam Smith tell us that when supply increases and demand stays the same, the price comes down?

We'll see how long the ad industry can keep the price of TV ads running high, but my guess is not for long.

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Comments (1)

Dave:

Somewhat shocking that you've never see Two and Half Men. I don't watch it a lot, but I must say it is quite funny. And very much your brand of humor.

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This page contains a single entry from the blog posted on July 8, 2007 6:45 PM.

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