Television Advertisement Pricing in the U.S.

Since the earliest days of television, American commercial broadcast networks have obtained the vast majority of their revenue from advertising. While this may not seem particularly remarkable, what is perhaps more interesting is that television advertisements in the United States are bought and sold in a highy idiosyncratic market whose structure appears to be unique. Specifically, 70–80 percent of broadcast network television advertising inventory is sold in a hectic two-week period known as the upfront market, while the remainder is sold during the balance of the year in the so-called scatter market. This chapter describes how television advertising is bought and sold in these markets, with an emphasis on pricing. We begin by presenting an overview of the American broadcast television industry, followed by a high level description of the upfront and scatter markets. We follow this with a more detailed description of how prices and products are developed and sold in both the upfront and the scatter markets. We discuss the use of automated pricing and revenue management systems by the networks. We conclude with a short discussion of the changes that the industry is undergoing. Our primary focus throughout is on the United States, although we mention practices in a number of other countries.