SPOTLIGHT ON: TELEVISION AIRTIME - Study suggests expansion of ad time will not cure inflation/Even with advertising on the BBC, prices would not fall far, Alasdair Reid says

Once a quarter, Martin Sorrell, the chief executive of WPP presents the group’s interim financial results. And, regular as clockwork, he uses the occasion to deliver his speech about the pernicious effects of inflation and the alarming costs of TV airtime. It’s so expensive, in fact, that advertisers are about to start leaving the medium in droves.

Once a quarter, Martin Sorrell, the chief executive of WPP presents

the group’s interim financial results. And, regular as clockwork, he

uses the occasion to deliver his speech about the pernicious effects of

inflation and the alarming costs of TV airtime. It’s so expensive, in

fact, that advertisers are about to start leaving the medium in

droves.



By tradition, some analysts and many practitioners in the airtime market

are allowed a wry smile at this point. They know, of course, that

Sorrell’s comments are not directed entirely at the UK market. But they

do know that the UK market, like other markets, complies now and then

with the laws of supply and demand.



They know, in short, that the greatest cause of media inflation is

advertiser demand. Or they thought they knew. Now they are more

convinced than ever - and it is perhaps ironic that the latest evidence

comes from one of Sorrell’s companies, MindShare.



A MindShare report, entitled, Media Inflation (Campaign, 7 May), takes

on several myths about the media market. Perhaps the most important of

these is the belief that increasing commercial minutage (by introducing

advertising to the BBC or letting ITV have more airtime) would affect

prices in the long term.



Not so. The report states: ’Extra minutes would have a negligible impact

on inflation. Because demand for TV airtime is so high, advertisers

would be prepared to buy any new capacity at more or less existing

prices. The market would absorb any new supply within about 18 months

and with next to no impact on media costs.’



Are its conclusions true? And if so, what are the implications? Bob

Wootton, the director of media and advertising services at the

Incorporated Society of British Advertisers, has been at the forefront

of calls for more minutage.



He agrees with much in the report.



He states: ’Yes, initially there would be a reduction in the rate of

inflation. This is a sophisticated and dynamic market, but budgets are

not sufficiently fleet of foot to take advantage right away. But all the

models we have looked at suggest that, after the initial effect,

increased supply would be absorbed by increased demand.’



In other words, there is currently demand that is being frustrated.

’Yes,’ Wootton says. ’Big advertisers have a huge range of brands. And

while the big ones can and will always find a way to use TV, that’s not

always the case with tertiary brands. Similarly, there are many smaller

advertisers not on TV at all. That would change.’



The price pattern of the market would change too, Wootton believes.

Although average prices across the market would return to previous

levels, all of the subsequent increases would take place at the top end

of the market - pricing at the bottom end would not rise to levels where

the new TV advertisers would be bumped out of the market again. Wootton

adds: ’What this work does is make clear something we’ve always

understood to be the case - that money does flow between media.’



And, you could add, price is as important as strategic communications

planning issues. In the past, for instance, ITV has had mixed feelings

about the ability of the market to absorb more minutage. But if the

report is right in its conclusions, it might have even wider

implications. One of the big economic arguments against introducing

advertising on to the BBC is that it would throw the market into chaos

and deprive ITV of up to half of its revenue overnight - with obviously

disastrous consequences.



ISBA isn’t calling for such a sudden shock to the system these days; but

it continues to call for the limited introduction of advertising on to

the BBC. Its critics say that this is just as alarming. ISBA, they say,

just wants to establish a bridgehead - it obviously envisages a gradual

ramping up of BBC minutage. But if the MindShare report is correct, we

now know that the market could cope.