THE BOTTOM LINE: COMMERCIALS COME CHEAP, VIEWERS EXPENSIVE

In the popular imagination, advertising campaigns run into big budgets because of the whopping salaries of the stars who appear in them or the exotic locations that always seem to be needed.

In fact the production of TV adverts costs but a tiny proportion of the money needed for the whole campaign because the airtime it uses is very expensive and getting more so.

It is difficult to say exactly how much a 30-second ad costs because advertising agencies do not buy individual spots, they buy viewers by the thousand. But an average-sized advertising campaign that runs for two months will usually cost in the region of pounds 2m-pounds 3m with only around pounds 250,000 going towards making the ad.

The market in these thousands of viewers, as traded between advertising agencies and TV companies, is one of the purest markets in the UK. The price of a thousand viewers depends totally on the number of viewers actually watching a channel and the amount of money being offered to buy them. In short: on supply and demand.

For the past three years advertisers have been making increasingly loud noises about the cost of their advertising. Since the depths of the recession five years ago, the cost of advertising on TV has risen by 47 per cent, this compares with a retail price inflation rate of just 14 per cent.

However advertisers do not usually buy campaigns targeting the whole TV audience. They usually want smaller demographic groups such as ABC1 men or young adults aged 16-34. For these groups inflation has risen even higher - 60 per cent in the case of the latter. If you are unlucky enough to be targeting young people in high demand regions like London the inflation rate is 77 per cent.

The reason for the rising costs is due to an increase in demand for advertising as the economy comes out of recession and advertisers increase their budgets. This has been combined with a period when viewers - especially young and affluent ones the advertisers want to reach - have been turning off or tuning into subscription services on satellite and cable.

This squeeze on the supply of audiences - especially for ITV - has led to advertisers demanding that ITV raise the number of minutes of ads it runs between programmes. ITV has been resisting these calls because it fears that more advertising would scare viewers away. It also claims extra ads would dilute the impact of ads so even if cheaper they would be less effective.

But ITV's unspoken fear is that extra minutes of commercials - more supply - would simply mean advertisers will then spend less money.

The argument about more minutes on terrestrial channels is largely in the hands of the regulator, the Independent Television Commission, but advertisers wanted ITV support in lobbying for more minutes of ads.

However with Channel 5 about to come on line and supply 61,000 more minutes of advertising airtime - admittedly not hitting ITV's kind of audiences - it is doubtful that the ITC will look sympathetically on any push to put even more ads on our screens.

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