Cable Television Advertising Expenditure

A myth of the open economy is that the absence of restrictive constraints shall lead to a frictionless economy in which the efficient operations shall be rewarded and inefficient practices shall be eliminated.  Of course, there are some additional assumptions being made (such as information being perfect and universally accessible as well as economic rationality on the part of the economic actors), since the ideal situation of total absence of restrictions is unlikely to materialize.  As the Latin America countries move ahead towards the opening ("apertura") of their economies, we will observe that efficiencies are not being effected evenly and instantaneously.

Consider the case of Argentina.  With more than 60% of households having cable television, Argentina has the highest level of cable television penetration in Latin America.  According to AAAP, the 1998 advertising expenditures on broadcast television (including stations in either Buenos Aires or the Interior) totaled $1,340 million.  By comparison, the 1998 advertising expenditures on cable television totaled only $104 million.  Therefore, cable television received 7% of all television advertising spending.

In the Los Medios y Mercados de Latinoamérica 1998 study, we found that among all persons between the ages of 12 and 64 in Argentina, cable television channels accounted for 57% of all television viewing time and broadcast television channels accounted for the other 43%.  Furthermore, according to the table below, the high cable TV share is consistent across age, sex and socioeconomic level.

Table 1.  % Share of Cable TV of Total Television Viewing Hours
by Persons 12-64 in Argentina

Demographic Group

    Level A
    Level B
    Level C
    Level D


Source: Los Medios y Mercados de Latinoamérica 1998

The discrepancy between the cable television's 57% share of television viewing and its 7% share of television advertising expenditures is too large not to be noticed.  Of course, some cable channels (such as the movie channels) do not accept advertising, but still this cannot account for a discrepancy of such a grand magnitude.

Of course, cable television channels are not just commodities that are interchangeable with broadcast television channels.  In Argentina, there are over 100 cable channels, which means that the average audiences are necessarily small.  But that in itself is not sufficient cause to dismiss the cable channels.  Cable channels tend to be niche channels that can be very efficient (in the sense of CPM (cost per thousand) as well as editorial environment) in targeting niche groups.  Just think about reaching frequent business travelers through the international news channels, children through the children entertainment networks, young people through the music channels, and so on. 

The key to the matter lies in institutional inertia.  Historically, media buyers have found it easy and convenient to deal with just a few broadcast networks (or even just one or two), where the planning (if any) and buying are straightforward.   In order to come up with an equivalent advertising schedule (say, in terms of reach and frequency) with cable television channels, it is necessary to invest more resources and effort.  But, at this time, this is imminently feasible. 

On the planning side, there are a number of television audience databases through which "optimal" television advertising schedules can be built and evaluated using state-of-the-art software, using any combination of broadcast and cable television networks as well as even print media.  There is no excuse for advertising agencies to claim that this is infeasible.  On the buying side, the cable networks are certainly more than anxious to earn more advertising income, and the present advertising rates are amazingly underpriced for cable networks.

In this rapidly developing economic sphere, as with anywhere else, we do not expect all the economic agents to act instantaneously with perfect information.   There will be early movers, who may gain an economic edge for seizing the opportunity before others.  However, according to economic game theory, a rational economic agent who has obtained an existing advantage should not publicize the situation since his advantage may be wiped out if more agents act similarly.  Therefore, the practice may not have received as much recognition as it should.

Insofar as cable television is concerned, the misallocation of advertising expenditure is an open secret.  To the extent that media buyers do not adapt becuase of  institutional inertia, they may be vulnerable to more streamlined media buying services, who can rely on the international experience of cable television.

(posted by Roland Soong on 4/21/99)

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