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TV Advertising Price Trends On Major European Networks Fueled by Uneven Viewing Habits

The following post comes from Kagan, a research group within S&P Global Market Intelligence. To learn more about our TMT (Technology, Media & Telecommunications) products and/or research, please request a demo

CPM (cost per mille or thousand viewers) inflation is typically driven by viewer ratings and ad sales demand. In most of the 10 Western European TV network markets covered by Kagan, an offering of S&P Global Market Intelligence, variations in viewing audiences were the chief driver of CPM rates in 2016, whereas in Spain, Italy, and the Netherlands it was cyclical demand fluctuations in ad sales that led CPM inflation in the last five years.

TV has become more prone to advertising price volatility due to viewing fragmentation and over-the-top competition, especially among young audiences. In some instances younger demographic audiences have recovered, as in ITV2's case in the U.K., with the growth in viewing last year contributing to lower CPM rates.

In the Nordics the outlook in 2016 was more mixed, according to our estimates, with key channels in Norway and Denmark experiencing audience-driven CPM deflation. Conversely, higher advertiser demand in Sweden has driven inflation for the largest local channels. Meanwhile in Finland, long-term stagnation in the TV advertising market has pushed prices down in the last few years, with a recovery only last year due to a drop-off in viewing.

TV advertising revenue in most of the 10 Kagan-covered Western European markets grew last year, despite an annual digital share increase in nine of those territories. Only Sweden, Denmark, and Finland experienced slight annual TV advertising declines.

Kagan covered Western European markets: TV advertising revenue growth in 2016

CPM inflation: impact on TV networks and their advertisers

While advertisers are clearly averse to sustained increases in the cost of advertising, CPM inflation is neither necessarily bad for advertisers nor good for networks. CPM inflation is a gauge for the cost-effectiveness of advertising, making it more than just a metric for annual price comparison. Therefore, much depends on whether the inflation is primarily supply (viewing audiences) or demand (ad sales)-led.

For instance, when falling viewing audiences constantly drives inflation, it is clearly a tough sell for networks to justify the increased cost to advertisers. On the other hand, demand-driven inflation suggests a healthy trading environment for a channel, with advertisers willing to spend, making it easier for networks to command a higher CPM.

Additionally, a CPM increase contributes to the monetary value of ad campaigns. Advertisers often buy TV inventory weeks before the transmission date, before its true value is apparent. Therefore they plan campaigns with estimated CPMs based on many dynamics, including historical CPM trends. If inflation makes CPMs costlier than initially planned, an advertiser, depending on its buying strategy, may welcome the extra value on a particular campaign as compensation for a value deficit in another campaign, for example.

Selected European network channels: Advertising sales and viewing audience dynamic CPM inflation in 2016

Sports events carry major influence on CPM inflation

On generalist entertainment networks the level of CPM inflation is heavily defined by the broadcasting of major sports events. Sports coverage is critical for this reason in that it tends to deliver both higher ad sales and stronger audiences, impacting the annual CPM inflation rate.

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Although Western Europe's advertising markets are recovering from the global downturn at contrasting speeds and viewing habits have fragmented, the Olympics, FIFA World Cup, and other prestigious events have consistently delivered strong audiences for networks across the region, giving more commercial and sponsorship opportunities to advertisers. Despite the threat of OTT and fragmented viewing, linear TV's "appointment-to-view" content remains a vital solution for advertisers to regularly reach mass audiences.

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Aug 22, 2017
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