Sponsored by Channel Factory  •  December 11, 2024  •

In this debate, as in many others in the advertising industry, the truth typically lies somewhere in between. However, even more nuanced discussions of TV advertising’s relevance often put forth flawed arguments because of a common problem: industry watchers conflating the concepts of effectiveness and efficiency. 

This confusion isn’t a simple matter of semantics. It’s a legitimate challenge when it comes to advancing the dialogue within the industry and helping advertisers understand the role that specific channels should play in their media mixes, both today and in the future.

Does TV have an effectiveness or efficiency problem?

Most marketers understand the inherent difference between effectiveness and efficiency. However, the two concepts are used in the same breath so often that it’s worth separating them. 

At its core, effectiveness is how well a creative message and presentation resonate with the target audience and deliver the desired outcome. On the other hand, efficiency focuses on how well the resources spent (in this case, on TV advertising) are used to achieve that outcome. Media buyers use targeting and segmentation to ensure their budgets are wisely spent and their ads are aligned with the right content and reach the right audiences. 

The main challenge with TV advertising lies not in effectiveness but in efficiency.

High CPMs are widely considered the biggest detractor of ROI. Further, CPMs conceal significant waste because they measure cost against how many people were exposed to an ad, not whether they were the right people. When correcting for that waste and the effective CPM, costs rise even higher.

Meanwhile, significant demand from key verticals has pushed inventory prices higher. That’s not even mentioning the broader macroeconomic trends, like inflation, supply chain disruptions and shifting consumer spending patterns. All of these elements can influence CPMs. All of this further exacerbates the now herculean task of TV buyers running an efficient campaign.

Consequently, many advertisers are shifting those traditional buys to TV-like inventory, available on CTV and digital video channels.

Why TV is becoming inefficient

There are several reasons that TV advertising prices remain strong while traditional viewing audiences fragment and decline. In the U.S., in particular, some unexpected players are responsible for driving up TV CPMs.

Big Tech and other tech businesses are under tremendous pressure to achieve growth among new audiences and expand their existing customer bases. While they excel at advertising via digital media due to their expertise and owned inventory, they are still developing their expertise in buying and measuring TV’s impact. 

This trend has caused significant media inflation on TV despite the channel’s declining viewership. As a result, some traditional advertisers, particularly CPG companies, have turned to digital channels. Facing pressure from shareholders to drive growth and reduce costs, CPGs and other traditional advertisers need more resources and margins to compete with tech giants on TV and must find alternatives that provide the same level of reach and attention. 

Another category clinging to TV advertising is the highly regulated pharmaceutical industry, where a doctor’s prescription is required, and regulations limit direct-to-consumer sales. Other companies with business models restricting DTC sales, such as insurance companies, rely heavily on TV to reach potential category buyers and drive demand. With limited choices, these companies continue to spend heavily on TV.

Industry imbalances are at the root of TV’s efficiency problems

If it seems like something peculiar is happening in the TV space right now, that’s because it is — but it’s not an effectiveness problem. It’s an efficiency problem, and there are very specific drivers perpetuating what, from the outside, can seem like an inexplicable imbalance. 

While the state of TV today could be inefficient for some brands, it remains efficient for certain categories — particularly those dependent on broad awareness where regulations limit digital options and those that need to expand their consumer base to audiences that cannot be reached with digital channels. 

When addressing challenges and imbalances, the advertising industry needs to dig deeper into root causes to understand what’s happening and how market forces will impact different brands. TV must be viewed as a strategic tool for specific brands and industries, rather than as a legacy medium on its last legs. Only with true understanding can the industry work toward true solutions.

Sponsored by Channel Factory

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