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Wait-and-See at Upfront

Economic Turmoil Has Players Seeking Flexible, Creative Deals

When the upfront advertising market collides with an economic recession, anything can happen.

“Every upfront is unique, and this one’s just going to be a little more unique,” said Andy Donchin, head of national broadcast at media agency Carat.

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“If I wasn’t in the middle of this, I’d be looking in from the outside and saying [upfront dollars] probably will be down. But I’m not really ready to say that,” said Mike Pilot, president of ad sales for NBC Universal.

Buyers are being pressured by clients to secure lower prices for media. Clients also are looking for more flexibility in order to react to a possible deterioration in the economic climate.

One senior cable ad sales executive predicts cable prices will decline by 1% to 3%. As for the broadcasters: If buyers don’t get a price cut this year, they never will.

But media companies are determined to try to maintain their pricing, and are willing to sell less in the upfront market and take their chances later during the season.

“Everybody always wants a lower price. Who doesn’t?” said Mike Shaw, president of advertising sales and marketing for ABC. “If the budgets don’t show up the way we’d like them, we’ll sell less.”

Reacting to the economy, advertisers canceled between 10% and 15% of their upfront buys during the second quarter, but Mr. Shaw said he was able to resell that inventory at prices at or above last year’s upfront and now is almost sold out for the second quarter.

“If you bought ABC last year in the upfront, you still have a lower price than you would have if you’d been buying scatter since October,” Mr. Shaw said. “That validates the upfront decision a lot of advertisers made this past year, even despite the market conditions.”

That won’t stop media buyers from pushing the pricing issue.

“There’s pressure to have the market be reflective of the economic situation we’re all in,” said Jackie Kulesza, senior VP and broadcast activation director at Starcom USA. “We’ll tell our clients to take their money out if the [upfront] marketplace isn’t the right number.”

Where will the money go instead?

Ms. Kulesza said that with consumers consuming so much media these days, supply goes beyond the ratings points available at the broadcast networks.

“We know by now that there are other places to go, and if the market is too bullish, marketers will actively seek those places out—whether it’s cable, syndication, online, broadband or beyond,” Ms. Kulesza said.

Steve Lanzano, chief operating officer for media agency MPG, said managing client expectations of a significant drop in media prices versus the reality of the market has become a difficult part of his job.

“On the face of it, it defies logic,” Mr. Lanzano said. “It is confounding to a lot of people, including a lot of clients who have a very different perception and expectations than the way the marketplace is playing out.”

Reading the market right now requires a crystal ball, he said.

“There was a lot of money taken out of the marketplace [in the second quarter], and what everybody’s trying to understand and get a hold on is how much money is being put back in the marketplace and where,” Mr. Lanzano said. “I don’t think any of us have the data points that we need right now to really understand that.”

“I’ve been pleasantly surprised by the level of the volume that’s out there,” said NBCU’s Mr. Pilot. “It’s been pretty good and it’s been good across broadcast, across cable and digital and Hispanic. I would characterize it as reasonably healthy, healthier than I might have thought it would be.”

Still, with the shakiness of the economy, clients will be seeking more flexible terms from the networks, including options to cancel buys closer to the beginning of each quarter.

“One thing that’s really important to our clients with this economic question is flexibility,” Ms. Kulesza said.

But will flexibility come at a cost?

“Flexibility in return for what? A higher CPM? Maybe we’ll have the conversation,” said ABC’s Mr. Shaw. “You give me a CPM kicker and I give you more flexibility—maybe we’ll consider that.”

Mr. Pilot believes an important part of this year’s market will be coordinated sales of television and digital.

“We’ve learned a lot about what integrated advertising on-air and online and following television shows can do for brand metrics, recall, favorability, likability, engagement,” he said. “I think that has really sunk into the ad community, so there will be continued strong demand for that kind of a buy.”

But details may take some time to sort out.

“I think both sides kind of need the upfront,” Mr. Donchin said, adding that the uncertainty may slow down the process.

“I don’t think anybody is rushing into the market unless it really behooves them to do it.”

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