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LPTV Economics
Let's set the tone. Super Bowl spots
sell for $5,500,000.00 for a 30 seconds spot. A lot? 96,400.000 people watch so that comers to $0.057
per person. And they are 100% guaranteed those people are watching. If they had 1% of the viewers like
most small station programming, that would drop to $.0006 per person.
According to the U.S. Small Business Administration, “A small
businesses with revenues less than $5 million should allocate 7-8 percent of their revenues to
marketing.” This percentage is based on companies that have margins in the 10-12 percent range
(after expenses).
That means for every dollar spent, the advertiser expects
$1.00 / 7.5% = $13.33 new business. If they buy one spot from you for $30.00, can you promise them
$30.00 x $13.30 = $399.00 in new business?
So $30.00 per spot is not realistic. The normal rate when a network
leases an SD channel is $2,000 per million in the 80 dBu contour, minimum of $500 because less
than 250,000, means a good chance of cable coverage. That comes to $0.002 per person.
As an example, a station covers 226,056 people in its 80 dBu. Since it is less than
250,000, we use $500 per stream x 8 streams = $4,000.00 @ 100% sales per month. So if a Real Estate
Company, Auto Dealership, or Agency wants to do all of the work to program a channel,
and hand you a check for $500. each month, make a deal. But what about the folks that want to buy just
30 second commercials?
You could use a network and get 2 breaks an hour. But if the network cannot give you more than
1% viewership and you have to have a server to run your spots anyway, why not do your own local channels
and get double or 4 breaks an hour x 24 hours x 30.4 days (365 /12) a month = 2,918 breaks a month.
Plus no satellite dishes or wide band internet feeds to hassel with. Just a computer in a rack.
An advertiser, at max, could run two spots per break, one at the beginning and one at
the end of a break. Normally there are 4 spots per break, 2/4 = 50% of your total spot inventory.
You deserve double the 24/7 lease rate to come up with programming and schedule everything. $500.
x double rate x 50% of the avails = $500. for 5,836 spots or $0.09 per spot.
(Geez, they should have bought the network 24/7 and sold off the other 50% spot inventory to friends.)
If an advertiser only wants one spot per break, that's 50% of the above. But you are going
to charge 25% more (1/.75=1.33) because it is more work for you and your time is worth money.
So $500 / 2 * 1.33 = $332.50 for 2,918 spots or $0.11 each. Next are the Run-On-Schedule
or ROS spots that fill in the holes the other spots do not fill. $0.11 x 1.33 = $0.15,
so your minimum package of $50.00 gives the hole fillers 333 spots. Next are the non-primetime daysparts,
like mornings and afternoons. $0.15 x 1.33 = $0.20 per spot. Primetime = $0.20 x 1.33 = $0.27. And
finally, for those folks that "I want the first break in the 7PM hour" $0.27 x 1.33 = $0.36
This is based on the normal LPTV programming that brings in less than 1% viewership. But what
if you do local news 24/7. Probably everyone will tune in at least once a day and you will average, 10% or more
of the viewers. That means those spots are worth 10 times the money, so your 7PM first spot is now
worth $3.60.
Start with these figures and when you hit 80% of avails sold, you raise your prices 10%.
When it drops below 80% sold out, you drop 10%. This allows you to adjust for the market. I look forward to hearing
your thoughts at rickg@rlmediasystems.com.
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