In Depth

Broadcast Networks Holding Firm on Upfront Ad Pricing

Forecast Spending Declines Indicate Sales Volume May Drop

With the television industry slogging through the worst economy in decades, the broadcast networks put their best foot forward at the upfront, then braced for long negotiations with media buyers and advertisers.

“I’m surprised by how normal everything felt,” said one veteran buyer, noting the presentations were solid and that program development for the upcoming season appeared to be more active than average.

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But no matter how slickly produced the new dramas appear or how funny the sitcoms are, the recession will be felt over the next few weeks—and possibly months—because, as the buyer put it, his clients expect the state of the economy to be reflected in the rates they pay for commercials.

Sales executives at the broadcast networks said they aren’t in a mood to cave on price. The networks all stressed their ability to make cash resisters ring above and beyond what cable and other alternatives offer.

With senior management at the broadcast networks seeing signs of recovery, they are willing to wait until better times before rushing into deals at lower prices. And in most years, scatter prices are significantly higher than upfront prices, which also offer rating guarantees and options to cancel purchases.

“We won’t do deals if they don’t make sense,” said Jon Nesvig, president for sales at Fox.

Asked when he expects the market to start moving this year, Rob Tuck, executive VP for ad sales at The CW said, “It depends on the market. They want a price. We want a price.”

Mr. Tuck noted the scatter market, where ads are purchased closer to airtime, has been strong for The CW. He said he is willing to sell his inventory there rather than accept low prices in the upfront. Then again, “We only have 10 hours to sell,” he said of his network’s primetime schedule.

In a report released at the start of upfront week, Credit Suisse said marketers are seeing 10% cuts in prices, while networks are aiming to keep them flat. Analyst Spencer Wang said he expects the networks to sell fewer ads in the upfront to maintain pricing.

That will leave upfront spending down 15% to $7.9 billion from last year, he predicted.

Credit Suisse expects CBS’ upfront take to fall just 8.6% to $2.285 billion, but forecast that the other networks will see double-digit declines.

Those predictions call for ABC to be down 14.9% to $2.127 billion; Fox to fall 15.2% to $1.556 billion; NBC to decline $18.1% to $1.556 billion and The CW to drop 29.8% to $256 million.
(The CW has returned Sunday night to its affiliates, which is a factor in its decline.)

Mr. Wang forecasts that upfront spending for cable will fall 0.6% to $7.8 billion, with average prices down about 2.5%.

With upfront week terminating just before Memorial Day weekend, there was little chance serious negotiations would take place before May 26. The CW, which held the final presentation on May 21 at midday, had to arrange for a tent to store the luggage of clients and buyers looking to make an early getaway from New York.

For the last few years, Fox has held a party following its presentation on Thursday afternoon, marking the end of upfront week. This year, with NBC opting to present its programming earlier, Fox moved its presentation and party to Monday.

NBC did offer buyers and clients a night of comedy on Tuesday night, but at most of the other presentations, the joke was on the peacock network, which is replacing expensive scripted dramas at 10 p.m. with a cheaper hour starring Jay Leno.

“There’s a difference between the business model being broken and not being able to find any hit shows for years,” CBS CEO Les Moonves said during CBS’ presentation.

The five-day-a-week CW seemed to enjoy pointing out that by adding three new dramas, it had as much scripted programming on its schedule as NBC does.

Even cable’s Turner Broadcasting took time on Wednesday to contrast its star-studded programs with the reality shows such as “Momma’s Boys” that dot the NBC lineup.

Of course, NBC will get the last laugh if advertisers embrace Mr. Leno’s new show (Jeff Immelt, CEO of NBC Universal parent company General Electric, told an investment conference that early signs indicate NBC will get good support from advertisers at 10 p.m.).

The biggest laughs, however, came from Jimmy Kimmel, who in normal years makes fun of the schedule at his network, ABC, as well as television executives and the upfront overall. But in this tough year, his comments seem to have hit harder than normal.

“Everything you’re going to hear this week is bullshit,” Mr. Kimmel said. “These new fall shows? We’re going to cancel about 90% of them.”

Mr. Kimmel went on: “Every year we lie to you and every year you come back for more. You don’t need an upfront. You need therapy.”

That said, buyers noted that this year’s crop of new series look strong, particularly after last year’s Writers Guild of America strike disrupted development.

“The development is far better this year,” said Shari Anne Brill, senior VP/director of strategic audience analysis at media buyer Carat. “Last year the strike impacted 2007-08 programming but also wreaked havoc with 2008-09 development. I think the networks decided to instead channel all their efforts into 2009-10.”

Ultimately, advertising sales at the upfront come down to supply and demand, and media buyers are waiting for some of their clients to complete their spending plans.

“We aren’t seeing many ups in terms of budgets,” said Chris Neel, senior VP/director of broadcast for media buyer Initiative in Los Angeles.

While some predict a long summer, Marc Goldstein, president and CEO of GroupM North America, reflected, “Every upfront is different. Eventually we’ll all get it done.”