Excuse me while I go out on a limb and declare that the upfront advertising market is becoming a shrine to a way of doing business that is changing as we speak.
That’s not to say that the fine art of negotiating the sale of prime-time broadcast network advertising for the fall television season is going to be abandoned any time soon. It is a ritual that forces advertisers, their agencies and broadcasters to focus on what they can accomplish with access to a mass audience-and then place a value on it.
But simply reaching the masses to inform or entertain isn’t enough anymore. In an interactive world, communications and transactions are just as important. This will be reflected in the advertising and marketing sales process as television and other competing media become more interactive.
The broadcast networks’ ability to secure $8 billion in new season advertising commitments in robust year 2000 speaks to a generally healthy industry. Despite all the moaning and groaning, broadcast networks will continue to generate the lion’s share-about 9 percent-of overall advertising revenues, compared with nearly 6 percent for cable television.
Depending on whom you believe, the broadcast networks’ upfront, which is expected to gradually roll out after new fall schedules are announced next week, could decline 15 percent from last year’s levels, with prices flat to up to 5 percent and volume units down 20 percent.
The four broadcast networks suffered a 21 percent decline in their upfront business during the 1991 recession, when there was far less siphoning off of revenues by competing media such as cable, satellite, DSL and the Internet.
The advertiser slowdown, spurred by economic weakness and uncertainty, are the primary culprits of expected upfront declines this year. And like the threat of writers and actors strikes, these negative forces are cyclical. But other change factors are reshaping the broadcast network business that also will impact this year’s upfront.
Take, for instance, the growing appeal of cross-media platform deals that provide more comprehensive advertising and marketing approaches for companies in media ranging from broadcast and cable television to radio, print, outdoor billboards and the Internet.
CBS, ABC and NBC are negotiating pre-upfront deals with blue chip advertisers that are hinged on such integrated plans that will serve as more thoughtful, strategic jump-starts to what otherwise is a frenzied flood of buying and selling.
Efficiently designing, planning and executing an advertiser’s branded products and services across a set of targeted multimedia platforms-bundling radio, broadcast and cable television, outdoor billboards, print and the Internet-makes all the sense in the world. Such integrated selling provides a hedge to the uniform slowdown in advertising growth across all major U.S. media this year.
While such cross-media deals make up less than 5 percent of all advertising deals, many leading ad agencies believe they will constitute 40 percent of their overall billings within five years. All the leading ad agencies have units that handle nothing else. For now, these cross-media buys are a deal catalyst in an otherwise difficult advertising year.
CBS’s aggressive assault on NBC’s longtime Thursday dominance has rendered such popular tactics as advertiser product placement in series such as “Survivor,” series sponsorship and related Web involvement.
But just as important, CBS has dislodged advertisers from their longtime Thursday night buying habits, giving them a new alternative for demographics that skew much younger than CBS historically does. The redistribution of ad dollars on Thursday night, which has totaled close to $24 million for NBC alone, will impact the economics and dynamics of the week’s most pivotal night and, indeed, the entire industry over time.
That surely will be reflected in upfront ad buying.
The increased frequency in the past year of advertisers exercising their quarterly upfront cancellation options and preferring a shorter scatter window in which to buy television time could speak to more than just an uncertain economy. It could signal a long-called-for movement to more consistent 52-week, calendar-year ad buying.
Indeed, Viacom President Mel Karmazin may have unwittingly advanced that effort by threatening to sell only 55 percent to 65 percent of his company’s upfront inventory, compared with the usual 75 percent to 85 percent sellout, if it means waiting for a more robust scatter market for increased pricing and demand.
With experts pushing back their forecasts for an economic recovery well into 2002, that strategy is looking more tenuous. A record number of U.S. corporations are expected to post lower than anticipated second-quarter earnings. The depressed profit picture of the 50 top broadcast and cable television advertisers means, theoretically, that companies won’t be aggressively spending in the upfront or scatter markets any time soon.
During an Upfront Summit sponsored by Electronic Media and Advertising Age, there was a call by media buyers and media sellers for faster, more flexible national advertising business models, such as ones that exist in international media circles and on domestic commodities floors.
All about marketing
Additionally, an industry leader such as AOL Time Warner is forcing the redefinition of advertising and marketing. The hybrid media company already has made marketing an equal and not just an adjunct to more conventional ad spending and incorporated the notion of informing and transacting with customers into the more widely held aim of grabbing and pitching to them. Only about 24 percent of AOL Time Warner’s revenues are tied to advertising, and most of that comes from marketing budgets.
That’s not a bad place to be, considering that U.S. spending on marketing services is expected to hit $270 billion this year, far outweighing an estimated $147 billion in ad spending, according to a recent Lehman Brothers report.
AOL Time Warner itself is a reminder that as media industry business models change, there is no way a convention as important as the upfront ad market is going to escape unscathed. The same is true of the consolidating agency, advertiser and media players who participate.
Additionally, the increasing fragmentation of advertising dollars and viewers, the realignment of advertising budgets and the competitive realignment of the broadcast networks, and the continuing use of the Internet as a branded marketing and service extension makes this year’s upfront market all the more daunting. There is a de facto reshaping of the advertising buying process already under way.
The key questions: How do the broadcast networks make enough money in this upfront to make their year-end financial targets? And how do advertisers, who are under the same earnings pressure, get the efficient buys and reach they need?
It would be easy to resort to the traditional rules of thumb in this year’s upfront. The edge will be held by the networks with the strongest ratings (CBS, NBC and The WB), the most returning shows (most likely Fox, CBS and The WB) and the most improved younger demographics (Fox, CBS, The WB and UPN).
Industry sources generally speculate that NBC could seek to lock in as much business as it can in the upfront; Viacom’s CBS could be more prone to holding off some business to scatter markets; Fox and AOL Time Warner could cut prices and go for volume; and Disney’s ABC will be glad to get what it can any way it can.
Change is already here
Advertisers, agencies and media companies have no choice but to deal with the challenges of an advertising recession and a limping economy.
Broadcast networks collectively still will take in more upfront ad dollars than all other electronic media combined, so they are in a position to lead the change.
The upfront still comes down to pricing and volume. But even the networks will be more noticeably impacted by the need for speed, timing, bundling and the redefinition of goals to include things like interactivity.
Word is that AOL Ti
me Warner will shift a majority of its marketing dollars to its own media platforms, removing a considerable stream of potential income from the market. And Viacom will spend its $1 billion in annual advertising wherever it makes the most sense.
This could turn out to be anything but an ordinary upfront.