In Depth

Are Advertisers In Love With TV Again? 2011 Upfront Totals $8.8 Billion to $9.3 Billion, but Doesn't Beat 2004 Benchmark

By Brian Steinberg
Advertising Age

Big TV is heading back to a better position -- but it's not quite there yet.

The nation's five broadcast networks have just secured ad commitments totaling between $8.8 billion and $9.3 billion in this year's upfront marketplace, depending on whose fuzzy math you subscribe to, a good-sized leap from last year's projected upfront take of $8.1 billion to $8.7 billion. That seems to signal that advertisers are continuing their return to the medium that attracts the biggest crowd after they stomped the brakes during the recent recession, perhaps losing market share in the process.

Yet this year's upfront, where TV outlets sold the bulk of their ad inventory for the coming season, won't put to rest the nagging question about advertisers and their fickle devotion to the TV set. After all, this year's projected commitment tally still doesn't match the broadcast networks' 2004 hallmark of $9.5 billion.

Whether that suggest marketers have permanently shifted a chunk of their ad outlays to digital devices, social media outlets and other emerging media -- or are just continuing to hold back in a stutter-step economy -- remains to be determined.

Heightened demand

To be certain, interest in TV ad time was robust at the broadcast upfront that wrapped up on Thursday. The networks saw strong activity from automakers, retailers, movie studios and restaurants, an executive familiar with the negotiations said. Financial-services players appear to be back in a way that they have not in recent seasons. And some categories believed to be potential trouble spots heading into the upfront -- namely pharmaceutical marketers and the big producers of consumer packaged goods like Procter & Gamble, Unilever and Kimberly-Clark -- weren't increasing their budgets, but turned out to be in better shape than expected.

Advertisers are certainly moving quickly to secure ad time in TV's biggest events. NBC's sales of next year's Summer Olympics and Super Bowl are said to be strong, with NBC having already sold 65% to 75% of its Super Bowl ad time. And Fox's "X Factor" helped the News Corp. network wrap its upfront negotiations earlier than its rivals, securing General Motors' Chevrolet as a major sponsor.

More telling, perhaps, is that cable's upfront market did not seem to really get going while the broadcast networks were still haggling. That's an indication that marketers felt pressure to lock in ad time that reached the biggest audiences first and planned to back it up with cable advertising focused on smaller and more discrete audiences in the aftermath.

Price increases

CBS was able to secure 13% to 15% hikes in the cost of reaching 1,000 viewers, also known as a CPM, a common measure in these annual talks. The network tucked in at CPM hikes of 10% or a little lower in last year's fray. CBS secured total commitments ranging from $2.5 billion to $2.75 billion this year, compared with projected ad volume of $2.4 billion to $2.6 billion in 2010.

Fox secured price increases ranging from 9.5% to 12% in this year's upfront session, compared with around 10% last year. The network secured between $1.98 billion and $1.99 billion in commitments this year, up from $1.8 billion to $1.9 billion in 2010.

ABC secured price increases ranging from 10% to 12% in this year's haggling, compared to CPM hikes of between 8% and 9% last year. ABC secured an estimated $2.3 billion to $2.4 billion in commitments, compared to approximately $2.2 billion last year.

The smaller CW chugged along with its larger competitors, notching CPM increases between 10% and 12%, compared with last year's hikes of about 7.5%. The network, owned jointly by CBS Corp. and Time Warner, secured between $400 million and $420 million in upfront commitments, compared to $370 million and $404 million in 2010.

Even NBC, the long-suffering broadcast network that has seen ratings fall and executive churn, eked out a better position for itself this year. The network secured CPM increases of about 9% in this year's palaver, compared to around 7% last year. Ad commitments totaled around $1.7 billion, compared to $1.6 billion in 2010.

The numbers represent promises, not payments. Ad volume figures that emerge in the upfronts can change radically as TV schedules shift or as marketers choose to exercise options that allow them to recapture a portion of the dollars they earmarked for TV ads. Rarely do upfront totals match the year-end ad-spending figures measuring overall TV advertising, and the upfront is best used as a general barometer of advertiser interest in good ol' boob-tube outreach.

Falling short

By that measure, demand for commercial time on TV has grown again but still has not recaptured its high mark. For all of the networks' ability to demand -- and receive -- double-digit percentage increases in the cost of reaching viewers, their overall take remains below their previous watershed.

The upfront market has long shown fairly reliable growth, but it has gotten much choppier in recent years amid turbulence in the economy and technological disruption to the media sector.

In 2001, the economy and the so-called dot-com bust were seen as the culprits for an upfront decline. In 2005, however, a decline was pegged to a new wave digital media's disruptions, from consumer interest in DVR playback to video-on-demand sessions. In 2009, the economy undercut the upfront -- even as technological change continued.

Increases in the price to reach 1,000 viewers also don't translate directly into increased upfront hauls when it's getting harder to assemble 1,000 viewers. With ratings slowly ebbing from year to year, partly owing to a proliferation of video-streaming media devices that are not counted in the Nielsen ratings, most commercials don't quite capture as many viewers as they would have in seasons past. Diminished supply plus rising demand equals a higher cost per viewer, but not always more volume.

New habits

Competition for consumers' attention -- from streaming video, "snacking" on mobile devices and social networking, to name a few factors -- is only increasing.

Nielsen recently determined that the rising generation will be even more difficult to summon before TV sets. The average American watched 34 hours 39 minutes of TV per week in the fourth quarter of 2010, marking a year-over-year increase of two minutes. But teens between 12 and 17 watched the least amount of TV on average, just 23 hours and 41 minutes per week. In the meantime, they are increasing their use of mobile video and texting.

Will advertisers continue sinking billions into TV as their most desirable consumers demonstrate new habits that don't make the living-room TV the center of their entertainment plans? Let's see if the networks, with their various "X Factors," "NCISs" and Super Bowls, can get back to that $9.5 billion figure in 2012.