Summer Slog Expected for TV Upfront -- Bullish Sellers Mixed With Weak Economy Will Probably Produce Slight Increase
By Brian Steinberg
Don't book an early vacation this summer.
As this year's annual talks for the sale of TV ad time start in earnest, at least one network is expected to make the case for another year of price increases of 10% or more (Hello, CBS). At the same time, buyers are betting that economic factors crimping marketing budgets will force sellers to keep TV price hikes to a minimum. Dig below the rhetoric, and you're left with both sides acknowledging that dollar volume committed to the medium this year is likely to increase slightly -- but only after a lot of haggling.
"This year, there are no conversations about it being a flat or down market," said one broadcast-network executive familiar with upfront discussions. "The question remains how strong the market will be."
The sentiment marks something of a cooling-off for the upfront, the time of year when Big TV tries to sell the bulk of its ad inventory for the fall season. For two years, advertisers have shoveled more money into TV, partly out of a desire to lock in lower prices before the economy improved, and partly out of feeling more confidence after a decimating recession.
As such, ad commitments for last year's upfront were between $8.8 billion and $9.3 billion. That was a marked increase from the recession-plagued upfront of 2009, when the five English-language broadcast networks took in $7.8 billion to $8.1 billion (but not enough to surpass the record-setting $9.5 billion they snared in 2004).
Buyers maintain that the economy is clouding optimism. They point to slow activity for so-called scatter advertising, or ads purchased closer to air date. A slow scatter period typically indicates a weaker upfront. Despite that, CBS President-CEO Les Moonves and several Wall Street analysts maintain high expectations for the market.
If the two sides can't find common ground, bargaining could drag on for weeks.
"We are looking at GDP expectations and other economic indicators that are roughly half of what they were last year, and we've got media-spend expectations that are less than half of what we were looking at last year when we negotiated the upfront," said Kris Magel, exec VP-director of national broadcast at Interpublic Group's Initiative. "Those kinds of changes have a dramatic impact on the amount of volume that might come into this year's upfront and the prices that might need to be paid. We expect growth, but not much -- there is no legitimate rationale for a market similar to last."
The bulls are running on Wall Street, however. In a recent research note, Barclays Capital analyst Anthony J. DiClemente said that CBS might win price increases (couched as "CPMs," or the cost of reaching 1,000 viewers) of 10%; Fox, 9%; ABC, 8%; and NBC, 7%; buyers privately said that a network that can get CPM hikes of anywhere near 5% to 6% will consider itself lucky.
Ad buyers and marketers have offered similar cautions in the past, only to capitulate in the rush to buy ad time in big-ticket shows. Last year, media-buying execs cited everything from a shaky economy to the aftermath of a nuclear disaster in Japan as reasons advertisers wouldn't stand for severe price hikes. In the end, CBS, Fox, CW and ABC were able to notch double-digit price increases.
This year, however, the TV networks may have a greater abundance of big-ticket TV programming to sell in the fourth quarter, including an extra NFL game on Thanksgiving night and a second season of "The X Factor." Additionally, there's no threat of an NFL work stoppage to send advertisers scrambling. When ratings points are in greater supply, it's harder to push for higher costs.
Meanwhile, automotive ad spending, which helped drive prices in the last few upfronts, could be tamped down, according to a recent report from Interpublic's Magna Global.
"In 2010 and yet again in 2011, a double-digit recovery in car sales was matched by a double-digit growth in automotive ad spend, from the very low levels reached in 2009, despite high unemployment and credit squeeze," the report said. "Going into 2012, new-car sales are still up in the first quarter, but now that many households have replaced their old cars in the last two years, protracted unemployment and steep gasoline inflation are likely to hamper further growth."
One common sentiment on both buy and sell sides? No one is predicting a wrap-up by early June.
"Without the threat of the NFL lockout, along with less robust scatter activity, the early psychology of this year's upfront marketplace portends less of a sense of urgency than a year ago," said Mike Rosen, president-chief activation officer of Publicis Groupe's Starcom USA.