The World: Insider's view - US

TV networks need to deal with fragmented and time-shifted audiences and putting a price on digital options. Tom Sassos looks at the future of the upfront season.

For many years, the TV networks have been able to increase their rates while effectively delivering a smaller audience, resulting in higher cost per millions for advertisers.

Despite these rising CPMs, ad-vertisers have participated in this marketplace to lock in prices, gain access to prime inventory, achieve guaranteed audience delivery and negotiate flexibility over cancellation rights.

If an advertiser chooses not to participate in this upfront, they must hope they can achieve their desired national TV needs in the scatter marketplace. Most years, prices in this marketplace have been higher, and much of the prime inventory is no longer available. Given these risks, most major advertisers stick with the devil they know.

But audience fragmentation has caused average network ratings to decrease to a point where the three networks may not be perceived as a "must buy". While cable audiences have grown substantially, the networks have always been the only way to achieve the kind of reach impact that many advertisers need. This fragmentation of the network audience is getting to a point where it is impossible to achieve massive reach using network TV alone. This year, at least one major advertiser declined to participate in the upfront. It's only a matter of time until others follow suit.

They are all looking elsewhere for viewers. Some have challenged their agencies to find better ways to invest their marketing funds and not to rely on the 30-second TV ad. Online media is a growing option, and the networks have responded by including some digital elements in their upfront packages. While a welcome idea, this has complicated the pricing equation with the networks believing it is worth one number and the buyers another.

Finally, there is the growing issue of time-shifted audiences from personal video recorders. PVR penetration has reached the point where it is beginning to further impact on the ability of network TV to deliver huge audiences. The question is what is this audience worth? To some time-sensitive advertising, it is worth much less than if the audience was exposed to the ad live.

To other advertisers, delayed viewers might be worth the same as live viewers. In this year's upfront, the pricing of these audiences was a major issue with some networks. And the audience figures are worthless if viewers are fast-forwarding through the ads.

The most recent event that will impact next year's upfront is the fact that Nielsen will now report audiences for the actual ads as opposed to the breaks. Already we see posturing from both sides as to how this will affect pricing. These trends will only increase. In five years, the network upfront market will look nothing like it does now.

- Tom Sassos is a managing partner of Hawk Audits.