The average American spends almost five hours each day watching television, which means it is still the most important medium for advertisers. Yet the increasing number of cable channels and the introduction of DVRs and other forms of media distribution have made television a much more uncertain advertising environment. After examining 10,000 hours of network prime-time television from 2005 to 2007, the authors found that, on average, a 10 percent increase in the amount of advertising caused a 15 percent loss in audience. Interestingly, the authors also discovered that viewers had clear preferences for specific advertising categories. Computer ads, participatory sports ads (such as 1-800-SKYDIVE) and beer ads were typically well received and, more importantly, watched. Ads for prescription medications and wireless technology, however, led to considerable audience drop-off. The results suggest that television networks should consider charging a premium for ads that result in decreased viewership to offset revenue lost from the potential drop in ratings.
Consumers have clear preferences for the types of ads they like — and don’t like. Television networks can use this data to limit the number of times they air unpopular ads, and they can develop such pricing strategies as charging premiums for ads that increase the risk of audience flight.