To start every month, quarter, and year, publishers see ad rates decline and even see ad rates drop as these periods end. January sees the worst drop, while quarters are next and then months are typically less volatile but still decline. But why? We’ll cover those reasons here.
Supply & Demand
To begin, it’s important to understand that ad rates are determined by the basic economic principle of supply and demand. As there are more advertisers spending in the ecosystem, the higher the ad rates. If enough advertisers stop advertising than ad rates will decline and that is exactly what happens at the end of the year, quarter or month.
Advertiser Media Planning
The most important thing to understand is how advertisers and media agencies plan their advertising campaigns, which is usually monthly, quarterly or annually. This is called flighting, which refers to the period when advertising campaigns are being run, while the periods of no advertising is known as a hiatus or simply paused. Flighting isn’t always by these periods but the majority of advertising is planned this way. It’s how humans and legacy media and billing systems work, whether it makes sense or not.
Additionally, many campaigns are booked monthly, quarterly and yearly, but with every intention to resume the immediate next period. However, there are often delays that prevent an immediate start to the next period. Here are a few reasons why:
Campaign Planning & Budget Approval: New flights, often require new campaign planning and budget approval. This process can be timely and slow, especially as internal departments and media agencies coordinate with each other throughout the process. This can often times causes a delay towards an immediate start to the next period.
Creative/Strategy/Budget Changes: A new flight often calls for new creative or strategy, which may not be ready in time or may arrive prior to the start of the period, but not in time for campaign setup.
Slow Communication/Time Off/Errors: People and corporations are involved here so there are always reasons for delays to get campaigns started. The person approving the budget is on vacation, follow-up questions on the strategy, bureaucratic tape, no available time on a calendar for everybody to meet etc. There are always reasons, not on every campaign, but it adds up across advertisers.
Weekends/Holidays: Weekends and holidays create a confluence of events when a period ends on these days. For the reasons mentioned above, campaigns don’t always start (or re-start) on time. Thus, if a campaign is not ready to go on a Friday and Saturday starts the next period, that campaign won’t go live until at least the next week. It’s worse if there is a three-day weekend in there as well. Again, this isn’t every campaign, but it’s enough to impact ad rates.
Conversely, holidays may help ad rates as advertisers will almost always make sure they are live during important events. Black Friday would be a great example, as it’s a 4-5 day weekend but advertisers will make certain their campaigns are live and ad rates are actually higher.
The January Effect
So we covered the many reasons why ad rates drops but why is January so drastic? Well, simply put it’s all of the above happening at once, plus ad seasonality. The obvious issue is ad seasonality, where many advertisers spend big in the fourth quarter and January budgets are significantly lower. This is definitely a contributor, but it’s not the only one.
First as we mentioned campaigns typically end at the end of year, quarter and month. Thus, in December all three of these types of flights end on December 31st.
Another thing to understand is how the ad agency world works. Most advertising agencies take Christmas through New Years day off. Advertisers are also taking time off. Thus, little to no planning for the coming month is taking place. Typically, what happens is that everybody returns from vacation after the New Year and starts planning for January in January, causing even further ad rate declines.
The only campaigns starting on time are the ones deemed important ,so you can guarantee a health club chain or education company will start their campaigns on time, but not most of the rest.
There is also the Chinese New Year to consider where millions of people take weeks off in January and leaves a small window for Westerners to get campaigns live before the Chinese New Year begins. If it wasn’t for the Super Bowl and Valentine’s Day perhaps it would take advertisers even longer to ramp up ad spend.
End of Month Ad Rate Drops
As advertising campaigns come to a close, advertising budgets reach their limit. A good campaign manager will pace the budget evenly for the entire month but this process is more art than science and there are also valid reasons a budget would cap early. This causes some budgets to cap before the end of month is over, so in the last few days industry ad rates often dip a bit, especially on the last day.
We’re not ignoring ad seasonality here and it certainly causes ad rates to fluctuate but these are more predictable, explainable events. Within the advertising industry, it’s easy to visibly see and predict spikes and dips that repeat at given intervals.
This isn’t particularly relevant to end of period ad rates but we thought we would cover it here. When major or catastrophic events happen advertisers will often pause all advertising campaigns. Typically for two reasons, first the media performance may decline as people are focused on the event. Second, out of respect for what is occurring.
A good example is when the Queen of England died. Immediately following her death, many advertisers in England paused spending out of respect for her death and ad rates in England dropped by more than 50%.