Are Commercials Necessary?

Okay, show of hands—how many of you have watched old TV shows from the 1960s on DVD? Did you find it amazing that back in the Stone Age of television broadcasting a 60-minute long shows ran for more than 52 minutes? Now a days hour long dramas on the “broadcast” networks run for at most 42 minutes out of every hour. One of the recurring themes on the commentaries on DVDs of The Simpsons’ early seasons is the lament that the program is now about two or three minutes shorter because of more commercials, making the inclusion of secondary plot threads problematic.

More commercials per hour creates all sorts of problems.  Channel surfing is impossible, or at least highly inefficient, as you now have more than a 25% chance of landing on another channel during a commercial. Committed storytellers like Matthew Weiner of Mad Men demand that their shows run overtime, commercials be damned.  Taut dramatic programs found on commercial free premium networks like Showtime and HBO consistently win Emmies over network shows that have to break every ten minutes to sell toilet paper.

Television consumers have fought back.  Many people DVR (or record; I still own a VCR) programs just to fast forward past the commercials (a tactic I find essential during election season).  According to MarketingCharts in December of 2013, 7 of 10 homes now have a DVR, subscribe to Netflix, or use Video on Demand.  Or, if they are patient, they may wait for programs to come out on DVDs.  It’s like an ever-escalating war; we zip through commercials on a DVR, and the ad people insert more product placement into programs.

I want to raise a question that I haven’t heard asked here in America—are commercials necessary?

After all, commercials were born in an era when “broadcasters” emitted radio waves and had no way to regulate who received them.  So, in exchange for free entertainment, Americans had to endure two or three minutes of informative playlets that told them what coffees were delicious down to the last drop and what cigarettes had full-bodied flavor.

Britain went a different direction, charging each household with a TV set and annual license, which then went to reimburse broadcasters.  That way Benny Hill was never interrupted by commercials.

Things have changed since the early days of network TV here in America.  The percentage of household enjoying television via the airwaves is somewhere between 7% (CEA, July 30, 2013) to 10% (Hollywood Reporter, September 3, 2013) of American households.  At least 90% of American homes pay to watch TV via cable, satellite, or some streaming system like U-verse. 

So, since watching television is no longer free, why are we still watching commercials?

Let’s do some math (all numbers were found on the internet, so they are naturally indisputable).  The Hollywood Reporter estimated that approximately 103 million out of 114 million US households subscribe to cable, satellite, or some streaming service. The ad group eMarketer puts the amount of ad revenue spent on TV in 2013 at $66.4 billion.  If we divvy that up, it comes to $644.66 per household.  If we wanted to eliminate 25% of commercials, that comes to $13.43 a month per subscriber.

However, that revenue number is for broadcast and cable TV ads; I’m just suggesting subsidizing broadcast providers. The total ad revenue for them is $40.1 billion (according to a website called The Verge), which would break down to $8.11 per month per household to eliminate one-quarter of all commercials.

Would you pay less than $9 a month for 25% fewer commercials eating into episodes of Modern Family or The Good Wife?  My cable bill is pretty high, but I’d be tempted.

Maybe a British system with a “license fee” tacked on to everyone’s cable bill isn't the answer.  I don’t know what the answer is, but I do know the current system is unsustainable.  The eMarketer source projects that TV ad revenue as a percentage of all ad revenue is expected to fall from 39.1% in 2012 to 35.7% in 2018.  An April 10, 2014 posting on The Verge noted that for the first time ever, in 2013 media spending on the internet exceeded ad spending on broadcast TV, by $42.8 billion to $40.1 billion (citing the Interactive Advertising Bureau).

Americans don’t want to watch commercials and so rely on DVR and streaming; that makes each ad minute worth less to advertisers, who pay less; broadcasters (and I use that term loosely) need more revenue, so fill each hour with more commercials, which pushes more people to find ways to avoid commercials.  It’s a vicious circle.

At first affiliates paid networks for content; now networks pay affiliates for access to an audience.  The economics of television have changed over time. Maybe they need to change some more.