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Tug-of-War on Upfront Prices

Will Economy Favor Buyers or Sellers?

Media buyers are still calling for price rollbacks going into television’s annual upfront advertising market this week, but network executives say demands for price cuts have softened since the stock market bounced higher.

This week, the broadcast networks—plus cable networks Turner Broadcasting System and ESPN—will be unveiling schedules and wooing advertisers in New York at presentations mostly downsized from the glitzy bashes they staged only a couple of years ago.

For TVWeek's comprehensive coverage of the upfront presentations, visit the Upfront Navigator page.

Last year, advertisers spent $9 billion in the upfront. Analysts forecast that spending at this year’s upfront, where commitments for about 75% of TV ads are sold, could be down as much as 20%.

The economic storms that have battered U.S. businesses since last year are leading marketers to expect to pay less for ads, particularly on the broadcast networks, where ratings continue to erode. An exception is CBS, which is enjoying a comparatively easy ride.

“As cloudy as my crystal ball is, I don’t think people on my side of the table have any options left at this point. If we don’t hammer, hammer, hammer, you’re going to lose clients,” said Larry Novenstern, executive VP and director of national broadcast at media agency Optimedia. “Everyone is sick and tired of saying, ‘I’m getting less for more.’”

Naturally the networks, which by and large have not had to cut prices in the scatter market as the economy and stock market dropped, are resisting price cuts. Some of that is posturing, but as the Dow Jones average rises, so does the networks’ leverage.

One top broadcast sales executive said that two months ago, the agencies were insisting strongly that there was going to be a harsh downward adjustment in pricing. Now, the executive said, the conversations are very different.

That may be because of improvements in the economy and financial markets, or because buyers are starting to get budgets from their clients and they’re finding that spending won’t decline as much as they expected, the executive added.

On the cable side, Jon Steinlauf, senior VP for ad sales at Scripps Networks, said the tide turned March 6, when the stock market began to rally.

Before that, buyers were saying they weren’t interested in talking about the upfront unless it involved a significant price rollback.

“Today, the psychology has changed. The consumer is less fearful. And the ad market to some degree follows the stock market,” Mr. Steinlauf said.

Value for Money

Andy Donchin, head of national broadcast at media buyer Carat, said his clients are looking to get greater value for their dollars in this year’s upfront.

Ultimately, the outcome will be decided by supply and demand.

“I think overall the money will be down,” said Mr. Donchin, adding that budgets from clients are expected to come in very late.

Clients dealing with the uncertainty of the economy also are seeking as much flexibility as they can get when making long-term commitments, Mr. Donchin said.

“This year the networks were true partners to the extent that they worked with us and gave us shorter notification dates [for canceling commercials reserved in last year’s upfront],” Mr. Donchin said. “It’s not like what we have doesn’t work.”

But Mr. Donchin said he expects both the networks and marketers to come up with new ideas designed to protect clients on pricing while giving the networks the ability to estimate what their revenues will be.

If sellers resist cutting prices, it could be a long summer for buyers.

“I’m like everybody else … I don’t want this thing to drag out that long,” Mr. Donchin said.

But Mr. Novenstern said that if total spending at the upfront market really is down 20%, prices will drop.

“When you’re in a buyers’ marketplace like we think this is going to turn out to be, it’s tougher to find the bottom,” Mr. Novenstern said. “You find the bottom of a sellers’ marketplace real fast. They say, ‘No, we’re not going any lower than that.’ You either do the deal or walk away.”

And a buyers’ market could get done in a rush.

“You’re going to see [networks] going for volume, and it will happen real fast,” Mr. Novenstern said. “Once one volume play comes in, then everyone’s going to run in to get the money.”

Higher Price Points

Mr. Novenstern said most clients will be negotiating off of base prices with the broadcast networks that were set a bit higher than they should have been during last year’s upfront—another year when buyers were hoping for flat pricing at worst.

“The industry probably paid 4% more than they should have last year because all of the networks saw the money coming in from scatter,” he said. “We didn’t know it was coming in from scatter. We just said, ‘You’ve got to be kidding me. There’s that much money out there. We’re in a recession … no way.’”

Mr. Steinlauf takes a different lesson from last year’s market.

“Wouldn’t you think that this would have been a year where the scatter pricing would have tumbled from the broadcast upfront with such a change in the economic climate? And it’s not happening,” he said. “So I think that sends a signal now to the advertisers going into this broadcast upfront process that they did pretty well last year, even though they complained: ‘Why did we pay 7%, 8%, 9% CPM increases right before the economy tanked?’ It still turns out that those deals held up.”

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