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Broadcast TV networks used to sell 75% of their prime time commercial inventory in the upfront. This year they won't sell half that.

In May, 2007, our article "New Challenges for Old Media – Part 1: TV" predicted that 2008's upfront might be the last one.

We were mostly right.

There was an upfront this May. But instead of all the avails being snapped up at ever-escalating prices by the end of June, most of the broadcast networks' inventory is still unsold at the end of July. Even after some unprecedented discounting.

What happened?

TV is still the 500-pound gorilla of media. Adults 18+ watch an average of 309 minutes of non-time-shifted TV a day, according to a study from Ball State University's Center for Media Design. And total TV viewing time increased by 1.2%.

If the audience is still there, why aren't the advertisers? Nine main reasons:

1. TV is fragmented. Nielsen reports that U.S. households receive an average of 118.6 channels and watch an average of 17.8 of them. So even if advertisers kept spending at normal levels, their buys would be spread over many more channels. The days when three networks divided up the pie – and there was more demand for air time than commercial slots available – are long gone.

2. Advertisers have less to spend. Most companies' ad budgets have been cut. The bailed-out car companies budgets have been reduced by their government overseers. Financial services advertising has shrunk dramatically. Airlines are cutting back. Casual dining, leisure travel, retail and a lot of other categories have cut – or even eliminated – spending. Media behemoth Carat projects U.S. media spending will be down 9.8% this year. Zenith Optimedia is more optimistic. They're projecting a decline of just 8.3%.

3. Ratings are down. Although the total TV audience isn't shrinking, individual shows' ratings are down. The top-rated show in the second week of July – America's Got Talent – got a 5.1 Nielsen rating. Even the NBA finals – the best-rated show in June – only got a 6.0. A far cry from the days when "I Love Lucy" could get a 60.

4. There are other options. Digital's share of media spending is growing. Search, display, mobile, social and the other online advertising options are projected to grow to $25.7 billion this year. That's money that used to be spent in traditional media like TV.

5. TV is no longer perceived as essential. Procter & Gamble built a marketing juggernaut on heavy network TV spending. When a BrainPosse principal worked on P&G brands, 30-second TV spots were written, rewritten, tested, refined and meticulously produced over as much as 18 months. When the TV was set, executions in other media were developed as an afterthought. But this year P&G slashed its network TV spending by 44%.

6. Advertisers are afraid of TiVO. The networks' insistence on using live-plus-3 ratings is counterproductive, because advertisers believe that the "plus-3" part of the equation is worthless. They're probably overreacting, but as all agencies tell their clients, perception is reality.

According to Nielsen's most recent three-screen study, only 27.9% of viewers ever watch time-shifted TV, and just 4.7% of total TV viewing is time-shifted. TiVO and other DVR viewing is most prevalent for very popular scripted shows. "Grey's Anatomy" is the most time-shifted show of all, with 23.3% of the audience watching on their DVRs.

Nielsen also reports that only about one-third of commercials are skipped when shows are watched "plus-3." So advertisers aren't losing all that much of their audiences. The worst case would be about a 7.77% loss (33% of 23.3%) for spots on "Grey's Anatomy." But advertisers have a strong visceral reaction to their commercials being skipped.

7. There are fewer buyers. Every bank that was taken over, every retailer that went bankrupt, every casual dining chain that closed its doors meant one less national advertiser. Now the pharmaceutical companies may be about to go off the air for good. We don't have a definitive total, but billions of dollars of TV commercial buys have simply evaporated.

8. Chickens are coming home to roost. The networks have been high-handed since the times when three of them owned the nation's eyeballs. As a result CPMs – the cost of reaching a thousand viewers – have crept steadily upward to $30 and more. Even in this wretched economy, the nets began the upfront demanding CPM increases of up to 8%. Media planning/buying agencies and advertisers are getting a bit of their own back by simply not buying even after the nets backtracked to CPM reductions of 1-3% (openly announced) to 10% (reported by some gleeful buyers).

9. No one is afraid of scatter price increases. When networks sold three-quarters of their inventory during the upfront, the avails they reserved were used for make-goods (additional spots they gave advertisers to make up for any shortfall in promised audience delivery of an upfront buy) and to sell at higher prices in the scatter market (spots bought after the upfront). The mantra was "Buy now, because it will cost more later." And it almost always did cost more later.

The nets are chanting that same mantra today, but with a twist. They say they're intentionally selling fewer spots now because the economy is going to turn around in the second half of the year and greater demand will drive prices up in the scatter market.

Advertisers aren't persuaded. First, only about 20-25% of spot inventory used to be available in the scatter market, and some of those spots were needed for make-goods. This year more than 50% of spot inventory will be available in scatter. And because sales were so much lower in the upfront, there's much less network exposure to the possibility of audience shortfalls and therefore less need to reserve spots for make-goods. Many advertisers and media mavens are betting that prices will fall even lower in the scatter market.

TV's not going away. It's certainly not going to be done in by online advertising. (Remember, almost two-thirds of search is initiated by a stimulus from traditional media, predominantly TV.) Commercial ratings will change the way spots are conceived, produced and priced. The convergence of broadcast and online will continue and probably accelerate. Advertisers, networks and ratings services will eventually settle on a rating everyone can live with. And the Balkanization of the TV audience will probably reach equilibrium. The price of reaching TV audiences is going to come down and probably stay down. That will cause some angst at the networks, but it's a pretty good thing for advertisers.

Agree? Disagree? Have something to add? Please comment below.

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