Mastering Basic Economic Concpets 101: Supply and Demand

The headline’s attempt at being ominous is a bit over done, but it seems the average CPM for online media has dropped for three consecutive months. The economy is blamed (yawn), but here are a couple of other things to consider.

Simply blaming the economic slowdown seems a bit too easy. Outside of granting the fact that this tracking company doesn’t have any benchmark to compare against, I’m a bit surprised there isn’t some analysis on total Internet audience and page view trends considered. We’re talking supply and demand here – pricing going down probably has a bit to do with the number of users and their usage of the web going up and the fact that the CPMs that were negotiated were based on planned traffic levels that were exceeded. Fascinating – a growing medium that becomes more efficient as it grows (vs. a declining medium that becomes less efficient as it declines).

For example, the fact that news sites took a huge hit in terms of price decrease seems to say to me that there were some big stories that drove a lot of traffic (I hear there were some primaries and caucasuses going on and some movie stars having babies and getting divorced and stuff). The inventory that had been sold was based on assumptions of past traffic trends. The stories drove more traffic than predicted, so the advertisers on those pages enjoyed incremental audience, i.e. incremental value, and, thus, ended up paying a lower CPM than negotiated.

Now, as has been stated here before, figuring out how to correctly monetize this dynamic, growing medium is a huge challenge, especially for those who started their property in a “traditional” medium – and especially as pretty much all media moves to digital distribution. Misleading headlines and subsequent stories that don’t explore the real reasons behind decreased pricing don’t do a lot to help solve this problem. More than anything, they seem to allay fears and stall the issue.

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1 Comment

Filed under bad media, media on media, monetizing media

One response to “Mastering Basic Economic Concpets 101: Supply and Demand

  1. Pingback: Mastering Basic Economic Concepts 201: Commoditization vs. Value Proposition « Jerry Courtney's Blog

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