Price Pressure In Advertising

This post was also published on Sounding Board, a blog from The Radio Agency where I serve as a Marketing Consultant.
Over the last two weeks, there has been a lot of conversation in the advertising community about statements made by Proctor & Gamble CEO Robert McDonald and CFO Jon Moeller on the company’s quarterly earnings call. McDonald and Moeller announced they would lay off 1,600 employees, including some in the marketing department, and that they would rely on digital marketing to help contain media spending long-term. With a $10 billion annual advertising budget, the traditional media folks have been doing a lot of hand wringing while the teams leading the “hot” digital properties have been twitching in anticipation.
It’s not news that digital is becoming a larger and larger part of every brand’s advertising strategy. What made this call grab everyone’s attention was McDonald’s expectation that digital will allow P&G to moderate advertising costs because of the massive number of options (read: unlimited inventory) and free distribution (read: social and viral sharing). But that’s a long-term goal for the company and for at least the next 9 months, everyone is likely to remain happy: heavy spending on the 2012 U.S. elections will drive up the cost of broadcast TV, which in turn will push more clients to broadcast and network radio (thus driving up costs there), which will then push even more clients into more affordable digital vehicles. P&G even acknowledged spending on TV and radio will tick up this year as a result of the elections.
So, it’s a win-win-win, right? The answer is complicated. Certainly, 2012 will be a good year for major traditional media outlets operating TV and radio stations. As we move closer to November, rates will be driven up while inventory will become more scarce. After all, a TV or radio station has a limited number of minutes that they can sell every day. Price pressure is upward. But on the digital front, more websites come online every day, and more people access existing sites. It’s a trend that has been speeding up and is not likely to change anytime soon. This means inventory is virtually unlimited – and still growing – even while demand is increasing. Price pressure is downward.
If you happen to run a digital property, you need to be wary. While you may get a pop in revenue this year, and even next year or the one after that, eventually the trend is going to catch up to you and your CPMs are going to drop. Average CPMs across the industry have already started falling over the last half-decade. You need to be wary of commoditizing your inventory and make sure you sell based on your unique value or the niche audience you are able to reach. Not every website is right for every client. Conversely, if you’re managing a brand or work for an agency representing a brand, you have an opportunity to be highly selective and still easily hit your ROI goals. The power to negotiate is squarely in the hands of the buyer.
Follow me on Twitter @Kondylas for research and reports about buying and selling digital media.