Networks’ big advertising gamble on economic recovery may not pay off

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As my colleague Meg James reported today, the upfront market where the majority of television commercials for the fall season are sold, is finally winding down.

Normally done in a fury over a weekend in May, this year’s bad economy caused the deal making to move slower than the 405 on a Friday afternoon. The networks didn’t want to lower their prices and media buyers knew they couldn’t go back to their clients without substantial cuts in ad rates.

In the end, the networks blinked. The five broadcast networks will end up selling about $7.5 billion in commercials for primetime shows, compared to $9.2 billion last year. However, an apples-to-apples comparison is difficult because, unlike previous upfronts where the networks would sell as much as 85% of their commercial inventory, this time they sold between 65% and 70%.

The networks are betting that the economy will improve in the fourth quarter and early next year, at which point they wil be able to hike ad rates again.

One problem. If they all held back, then even if the economy does improve, it will still be a buyer’s market because there will be so much inventory available for sale. One of the ironclad rules of economics is that an abundance of supply drives down prices.

Sorry to ruin their weekend.

-- Joe Flint