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TV 101: How Linear TV Inventory Is Typically Priced and Sold

Posted by Ashley J. Swartz on Jan 26, 2021 10:00:00 AM

TV 101_ How Linear TV Inventory Is Typically Priced and Sold
TV has long been viewed as a cost-effective vehicle for delivering reach, which still holds true today. According to one estimate that backed into pricing on a CPM basis, the average price across all national TV advertising in the U.S. is under $2.50, though TV CPMs are usually perceived to be at least 10 times higher. (The author, Simulmedia’s Dave Morgan, attributes this disconnect to the fact that TV CPMs are usually expressed in terms of primetime programming and against the coveted demo of 18- to 49-year-olds, ignoring the totality of TV’s massive reach.)

To be clear, high-value programming can be expensive. The average CPM for primetime broadcast ads bought in the upfronts for the 2019–2020 TV season was $36.19, up 13.2% over the previous year, according to eMarketer. Then there’s scarce inventory that fetches astronomical prices: The average cost of a Super Bowl ad in 2020 was $5.6 million, up from $5.25 million in 2019. 

Here’s a quick primer on how TV is priced and sold.

How do national and local broadcasters sell?

National and local broadcast typically sell on a spot or cost per point (CPP) basis. Spot is a flat rate not tied to any measurement, though Nielsen guarantees can be put in place to specify how many households must be reached. There’s significant variance in spot prices based on programming type and ratings; $100,000 could get you one spot or 50. Meanwhile, CPPs can help advertisers get a sense of what percentage of the market they’re actually reaching. Once buyers have agreed to a cost per point for a daypart or program, they pay for the ratings points that are actually delivered.

How do operators sell?

Operators typically sell on a spot basis, which can be equivalized (i.e., converted into a CPM) based on the number of households reached. This is possible because operators know exactly how big their footprint is based on the number of set-top boxes in subscribers’ homes. So, if a TV show that’s available to 100,000 households has a 2.0 rating, the operator can infer it was seen by 2,000 households and back into a CPM. This enables benchmarking against digital media, which buyers like.

What are GRPs?

GRPs (pronounced “grips”), or gross rating points, are the dominant currency for measuring TV advertising reach and impact. They’re tallied by taking the total number of spots a buyer has running in a specific daypart and multiplying that by the daypart’s rating. For example, if an agency bought four spots with a 4.0 rating, it would have 16 GRPs. 

Although the efficiency of GRPs has been called into question in the digital era, they’re still the main way that media agencies and large advertisers understand the reach of their TV buys.

How prevalent is audience-based buying and selling?

CPM-based selling, native to digital media like display and video ads, is still limited when it comes to TV advertising, with addressable TV accounting for less than 4% of overall TV media spend. Linear addressable inventory is constrained because of infrastructure; cable and satellite operators that have the data and technology to enable household-level targeting are only allotted two minutes of ad time per hour per channel to sell any type of inventory, which can then only reach their own subscribers. Although national addressable TV has been on the agenda for years, it’s a difficult challenge to address.

Are there typically different rate cards for each demo (e.g., millennial women in the South)?

Demo targeting, such as women from 25 to 54, isn’t factored into rate cards. Instead, demos are applied as multipliers or handled in a packaging tool. For example, a seller might create a package of programs or networks to help advertisers reach their target demo and then offer a blended rate based on the allocation of spots across that programming.

To learn more about why pricing management is uniquely challenging in the TV industry and how to start automating your rate cards, download our playbook, “How Automating Rate Cards and Pricing Helps Linear TV Sellers Increase Revenue,” here.

Pricing Playbook

Topics: Advertising Pricing & Planning, TV Advertising Sales