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Despite pressure, TV networks boost ad rates

Despite a drop in ratings and competition from the Internet, the major TV networks are raising advertising rates across the board. By CNBC's Julia Boorstin.
/ Source: CNBC

Despite a drop in ratings and competition from the Internet, the major TV networks are raising advertising rates across the board.

In this year’s so-called upfront round of ad sales that's wrapping up, network advertising rates were up 5 to 10 percent, even though their viewership during the past year went down by 5 to 9 percent. Ad sales volume was down in some cases, network executives say, but overall "upfront" revenue is expected to hit $9.2 billion, up from last year.

The major networks sell about 80 percent of their prime-time advertising inventory upfront at the start of a new season, holding the rest for spot sales later in the year.

ABC made the most gains in this year’s upfront competition by raising its advertising rates as much as 10 percent and bringing in more than $2.4 billion. CBS brought in about the same amount. Fox's prime-time ad rates increased up to 9 percent, reaching a record of $1.9 billion. NBC's prime-time ad sales also are expected to bring in just under $2 billion, with rates up about 5 percent.

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Amid declining viewership and constant challenge from the Internet, networks’ performance topped the market’s expectations. What brought about the ad rate increase is a change in Nielsen Media Research’s measurement of TV ratings.

Besides live viewership, the new method includes DVR viewership, up to three days after a program first airs, of commercials. In the past, ad rates were based on the sheer number of viewers of programs, but the fact that about 17 percent of TV viewers use digital video recorders raised concern about how many people are actually watching ads, because viewers can fast-forward to skip them. So the new “live plus three” information makes ads more accurately valued than ever.

“Our role has been to provide more information so that both sides can negotiate with more clarity,” said Susan Whiting, Nielsen’s head of media research. “We know that's led to conversations about everything from the placement of the advertising in the program to all kind of thoughts about the pod positions.” Pod position refers to the placement of ads in commercial breaks.

Advertisers are relieved to know exactly what they're paying for, and to know that some people still watch commercials, even on DVR.

“For some very valuable properties on cable and network, there's a substantial amount of delayed viewing. To accurately assess the viewership, we had to include that within the analysis,” said Lyly Schwartz of Group M, a firm that brokered a billion-dollar deal for a chunk of NBC's inventory.

Whichever way to measure viewership, there’s little doubt that the networks are losing audience. But ad buyers and media agencies continue to pay more for fewer eyeballs.

“The real reason is just fragmentation of media. We don't have another alternative that we can point to,” said Anthony DiClemente, an advertising analyst with Lehman Bros. “If you look at media agencies, what is their alternative in terms of reaching a mass audience?”

Viewers are getting information from more different channels, but they're still watching TV, and even many commercials. Now advertisers are putting that Nielsen information to work to design their ad spots so they're not skipped.