Here’s How Much TV Networks Would Miss All Those Viagra Ads
Sick of watching those scary, sad drug ads during the the game? So is the American Medical Association.
The AMA's declaration that it would seek curbs on the ability of pharmaceutical companies to market prescription drugs like Eli Lilly's (LLY) - Get Report Cialis, Pfizer's (PFE) - Get Report Viagra and AstraZeneca's (AZN) - Get Report Crestor on television could be the onset of a cold war with pharmaceutical developers and network owners.
The Tuesday vote by the AMA, one of the world's largest medical trade groups, to lobby Congress as well as the Food and Drug Administration could all but eliminate a key source of ad revenue for network TV companies, including 21st Century Fox (FOXA) - Get Report , CBS (CBS) - Get Report and Disney (DIS) - Get Report , already pressured by the success of streaming services led by Netflix (NFLX) - Get Report , Amazon (AMZN) - Get Report Prime and Alphabet's (GOOG) - Get Report YouTube.
It could also force changes to the fundamental marketing model of Big Pharma, which commands its own immense lobby. While pharmaceutical companies have lines of lobbyists to call on, so does the American Medical Association.
"It's a large and powerful group," Ashtyn Evans, an analyst at Edward Jones, said in a phone interview. "A change like this would be a long process. Congress would likely get involved, and there would be freedom of speech issues, but it could certainly have an impact down the road."
Direct-to-consumer ads for drugs -- which are illegal in most Western countries -- are extremely popular in the U.S. Advertising dollars spent by pharmaceutical companies have increased 30% since 2013 to $4.5 billion domestically, the AMA said in a statement.
Pharmaceutical ads comprised 7% of the total U.S. advertising market at the end of October, according to the Standard Media Index, an advertising industry researcher. From 2012 to 2013, the pharmaceutical segment grew 23%, and 18% from 2013 to 2014. For the month of October, pharmaceutical-related ads sales were 50% above the same month a year earlier.
For media companies that have been losing advertising revenue as marketers move money to digital platforms, a ban on pharma ads could exacerbate their problems. Time Warner shares have fallen 12% this year compared to the S&P 500 Index that has gained 1.9%. CBS has slipped 6.5%.
The ubiquity of pharma ads on television speaks to the importance of advertising within biotech's business model -- a business model that differs from other product manufacturers.
"Direct-to-consumer marketing replaces a sales force," said John Boris, a managing director at SunTrust (STI) - Get Report in New York. A ban on pharmaceutical ads "would mean reallocating that sales force. Looking at ad sales is one of the easiest ways for a pharmaceutical CFO to determine return on investment."
The AMA said its decision to push for an advertising ban was motivated by the high price of drugs, which has already been a political talking-point of the election season. But observers of the pharmaceutical industry say the proposed ban is more about the pressure put on doctors by patients influenced by the advertisements than about the affordability of prescriptions.
"Patients come in and demand what drug they want, and if the doctor says no, they go to somebody else and get it anyway," Boris said. "How would you feel if you went to medical school for four years and had to deal with that?"
Getting a ban actually enacted, however, would be no easy task: The pharmaceutical lobby is one of the most feared in Washington, and direct-to-consumer advertising has been entrenched in law for decades, making it a mighty precedent to overturn.
They may get an assist from the media.