In Depth

General Motors, Broadcasters in Upfront Standoff -- Automaker Seeking Big Price Rollbacks in a Rising Market, But Networks Refuse

By Brian Steinberg
Advertising Age

General Motors and its media agency, Carat, have created a standoff in upfront negotiations by asking TV networks for significant pricing rollbacks, which the major broadcast networks have refused, according to media buyers and other executives familiar with the pace of talks.

The proposal from the automaker, which has recently stopped advertising on Facebook and in the next Super Bowl, appears to be onerous for the TV networks. One ad-buying executive said the automaker could be seeking cuts as large as 20% in the cost of reaching 1,000 people, a metric known as a CPM that is common in upfront discussions. The TV networks try to sell the bulk of their ad inventory for the coming fall season each year in this annual bargaining session.

GM's request "has not been well received" by the TV outlets, said one ad buyer. Spokesmen for General Motors did not immediately respond to queries.

Advertisers have typically asked TV networks for rollbacks during a major economic downturn, like the beginning of the recent recession, or when there has been a ratings shortfall. This year, both sides of the table agree pricing is on the rise. Instead of arguing over whether a price increase is warranted, most of the haggling is centered on the size of the increase.

GM's ask has the potential to cause ripples. General Motors is one of the biggest spenders on TV advertising, spending about $1.1 billion on TV ads in 2011, making it the third-largest U.S. TV advertiser last year after Procter & Gamble and AT&T.

Its demand for pricing cuts would likely cause significant recalculations in the amount of ad time the networks choose to sell this year. All the TV networks have refused to negotiate with GM so far, ad buyers said. A fear is now blossoming among media outlets that if one TV network deals with GM, the others will have to capitulate, one ad-buying executive said.

Some networks have begun to ponder what to do if there is no GM money in the upfront, several executives said. In that event, networks would probably sell less inventory than usual in the upfront and hold back more for the so-called "scatter" market, where ad time is purchased much closer to air date and typically costs more.

General Motors already enjoys significantly lower-than-market pricing, a benefit accorded to advertisers who have spent on networks for decades. Procter & Gamble is another marketer whose relatively low ad rates are more or less "grandfathered" in to negotiations. For GM to win rollbacks on rates that are already below market would mean the networks would see less volume in this market.

"They have a pretty low base to begin with," the ad-buying executive said. "They have been an advertiser since the dawn of time and they are a founding or incumbent sponsor on a lot of network, so they get a very low base."

To get a price cut on top of that "is just very, very detrimental," this executive added.

General Motors has made surprising public disclosures in recent weeks about its efforts to keep its marketing costs down. In mid-May, GM said it would stop advertising on Facebook, a decision that cut around $10 million from the social network. Days later, the company said it would not return to the Super Bowl in 2013, after buying four ads in the 2012 broadcast. The automaker has been under pressure: Global Chief Marketing Officer Joel Ewanick has been on a mission to wring $2 billion over five years out of marketing costs for the company's flagship Chevrolet brand.

GM wouldn't be the first big advertiser to sit out the upfront. In 2006, Johnson & Johnson indicated it would rather make ad commitments in tandem with the needs of its business operations, not months ahead of time as the upfront requires. Behind the scenes, however, the marketer quietly asked senior TV-sales executives at the networks to reserve some inventory for the fall of that year.

Even as the networks bicker with General Motors, many of them have been writing business. Fox has done deals with CPM increases in the high-single-digit percentage range, according to ad buyers, while ABC has written some business in the mid-single-digit percentage range, according to ad buyers and other executives. CBS and NBC have started to write some business, according to people familiar with the situation. CW has begun holding talks with advertisers, as has Time Warner's Turner. Ad buyers say Viacom has seen robust activity in the market's early days, and has been willing to take a smaller price increase in some cases in order to build volume and take some money that might have gone to NBC Universal's cable outlets or Turner.