What Factors Affect TV Advertising Revenue?

Alex Tree

The amount of time a potential consumer spends watching TV, the number of people watching a particular show, and the demographics of the audience affect TV advertising revenue. Time spent watching TV gives companies more time to sell products, which influences revenue gain. If fewer people are watching TV than Internet videos, the price of advertising goes down, as well as the revenue an advertising company gets by advertising. In addition, the demographic of the audience plays a role in whether the audience will respond positively to an ad. Lastly, advertising companies calculate the cost of ads into their budget.

Time spent watching TV, as well as the number of people watching a particular program, both impact ad revenue for the broadcaster or cable network.
Time spent watching TV, as well as the number of people watching a particular program, both impact ad revenue for the broadcaster or cable network.

Time spent watching television affects TV advertising revenue, because more time gives advertisers more chances to sell potential consumers on a product. Some studies show that people are spending more of their time online rather than watching TV. In this case, companies still have a chance to advertise; for example, they could put video ads before Internet videos.

An ad targeting middle-aged women may not be very effective if shown during a prime-time sports event not popular with women of that age.
An ad targeting middle-aged women may not be very effective if shown during a prime-time sports event not popular with women of that age.

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The number of consumers watching a show impacts TV advertising revenue. This is because the number of consumers exposed to advertisements is the maximum number of consumers who can purchase a product or service because of that advertisement. Even if a TV advertisement is very convincing, TV advertising revenue will be limited unless enough people are exposed to it. While the quality of programming has an impact on how many people watch TV, timing is also very key. If enough people are not awake and interested in watching television, it does not matter how good the programming is.

Time spent watching TV, as well as the size of audiences, impact television ad revenue.
Time spent watching TV, as well as the size of audiences, impact television ad revenue.

The demographics of people watching television impacts TV advertising revenue. For example, an advertisement targeting middle-aged women may not be very effective if it is shown to people who are watching a prime-time sports event that is not popular among women of that age. Revenue resulting from advertising increases when the people being shown those advertisements are interested in them. Television advertising is most profitable when a large percentage of people watching it decides to purchase a product or service because of it.

To advertise on TV, a company must purchase time on a channel, and the price of an advertising slot often goes up rather than down over time. The popularity of the channel, the time slot of the ad, and the overall demand for that slot are factors that influence the cost. Sometimes the cost of an ad is so great that it is not worth buying because the advertiser cannot afford the cost upfront or does not believe the ad will profit more than the cost of the ad.

Viewer demographics impact TV ad revenue.
Viewer demographics impact TV ad revenue.

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Discussion Comments

StarJo

I’ve heard that people sometimes have to bid on the best television ad slots. So, I guess the price of running an ad depends on what other people will pay for it.

If you have to bid on a spot in order to get it, then you know that it will likely generate revenue for you. Of course, the station will also make plenty of revenue.

I have heard that the most popular spots can cost hundreds of thousands of dollars. So, only the biggest businesses with the most money in their advertising budgets can afford these. Daytime ads and late night ads are way cheaper, but you have to consider the fact that not many people will see them, so you could see little to no revenue from these.

wavy58

I’ve often wondered how much TV stations make off of those late night infomercials. They run for about thirty minutes each, but they run at a time when most people are asleep.

I would think that taking up so much airtime would come with a high price, but I think maybe the undesirable time of the slot might lower the cost a little. This is probably how people doing infomercials can afford to buy up so much time.

Maybe a thirty-minute infomercial in the wee hours of the morning costs as much as a short ad during prime time. So, the TV station could still make a good bit of money off of long ads during weird time slots

cloudel

@shell4life - I know that I would be upset if I bought a costly TV ad and saw no results from it. However, TV stations may be hurting a bit financially because of the increasing popularity of the internet, so the high costs of advertising may be their way of making up for lost dollars.

I work at a newspaper, and every year, the rates for ads would go up. During a recession, they would go up even more, which I thought was counterproductive. They were charging the faithful clients more to advertise just so that they could make up for a loss in advertising revenue.

It backfired on them, and they lost even more advertisers. Television stations will have to listen closely to what their advertisers need, or they could end up making the same mistake. Raising ad rates does not always equal increased ad revenue.

shell4life

I have heard that online advertising is fairly cheap compared to what a television ad costs. Considering that more people are watching shows online now, television stations may have to come down on the prices of their ads significantly to keep customers interested.

Many of my friends only use their televisions for playing video games. They watch all their favorite shows online, so ads on websites are the only commercials they see anymore.

Surely TV stations will catch on to the fact that they need to reduce their rates. After all, the effectiveness of the ads goes down with the number of viewers, so if they charge a lot, they may be unable to provide the client with the results they need.

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