Upfront market: Billion $$ bummer

Aug 13, 2001  •  Post A Comment

Cable’s 2001 upfront odyssey is essentially over, and according to sources on both sides of the negotiating table, the industry will tally around $4 billion, down approximately $700 million, or 15 percent, from last year’s record-setting upfront ad take.
In terms of percentage drop in this molasses-soft, seller-beware upfront marketplace, that puts ad-supported cable in the same corner of the ballpark as the six broadcast networks, which were down approximately 15 percent in their own upfront, from around $7.8 billion in 2000 to approximately $7 billion this year.
Now both the broadcast and cable networks-and the agencies and advertisers-are facing the same classic dilemma: Is the glass half-full or half-empty?
To anyone who has lost a job in the advertising or media sectors as a result of the advertising marketplace downturn, the answer is obvious. But senior figures on both sides of the upfront table argue that these upfront dollar drops are inevitable marketplace “corrections” and that 2001 will go down as probably the second-biggest year in TV advertising history-bigger and better than 1999. They also argue that 2000-distinguished by massive election-year spending and the dot-com bubble-should be regarded as a once-in-a-millennium anomaly.
In fact, even as some cry “collapse,” other influential advertising figures predict that the bottom has been reached, that recovery will be under way as early as the fourth quarter-and when all is said and done, the TV advertising market overall may even equal that of 2000. In this view, upfront is just one component of the larger picture.
“Our most recent forecast is projecting that total television-broadcast, cable, syndication and spot television-is going to be either flat or just marginally lower vs. 2000 and up 8 percent or 9 percent vs. 1999,” said Rich Hamilton, CEO, Zenith Media Services.
Syndication, which traditionally depends the least on the upfront in relation to the later scatter market, is the TV advertising arena that’s been hardest hit thus far.
Typically by now, syndicators would have sold approximately 50 percent to 60 percent of their inventory, but this year’s total is an anemic 30 percent to 35 percent, according to one close observer of the syndication business.
Part of syndication’s problem, which is shared this year by the so-called second-tier cable networks, is what might be called the trickle-down effect: “Syndication has always been a terrific [broadcast] network surrogate,” said one senior advertising executive, expressing the logic that applies equally well to second-tier cable, “but if networks become a major buyers’ market, the need for that surrogate is less than it is in a sellers’ market.”
The buyers’ market has been a factor all year at the local station level as well. The local TV ad market saw an average decline of around 15 percent in the 100 top markets in the first quarter of 2001, the most recent period for which data are available, to $3.5 billion from $4.2 billion in the first quarter of 2000, according to New York-based research firm CMR.
In addition to the market forces currently pressing down on them, syndicators have brought some of the hardship upon themselves, said another longtime industry observer: “It’s the thinnest first-run development season in the history of syndication,” this observer said. “Projects didn’t come together. … Syndicators are writing off 2001. Look at their trade advertising: There’s so much attention being paid to 2002 that no one is really caring about 2001.”
What everyone in syndication is looking for but has been unable to find this year is not even necessarily a breakout hit, another “Wheel” or “Jeopardy!” according to this observer. “It’s just something that’s found a niche and continues to chug along and throw off money”; in other words, something like Columbia TriStar’s “Ricki Lake,” which is “throwing off $35 million a year. That’s what everybody aspires to.”
What advertisers are looking for, particularly when making their cable buys, are targeted demos and the “extra value” that comes from cross-platform deals, said the senior advertising executive. Cable networks that fared best in the upfront, the executive said, were those that could offer advertisers hard-to-reach young males (ESPN), African Americans (BET), teens (MTV), kids (Nickelodeon) or upscale demos (Discovery, Court and E!).
The broad-based, general-interest networks, such as TNT, TBS and USA, offered the deepest cost-per-thousand discounts, according to this view, in an attempt to maintain share, which is the same strategy that NBC and ABC followed during the network upfront.
That apparently was the strategy at the Turner cable entertainment networks too. By the end of July, approximately 96 percent of all upfront deals were complete, said Joe Uva, president, Turner Entertainment Group sales and marketing. CPMs are down, Mr. Uva said, but advertising volume will be “approximately even” with last year.
Like many of his largest competitors, Mr. Uva reported that the automotive category was “soft” this year and that both packaged goods and computers and other high-tech gear were “mixed.”
The CNN news and information networks, which will not complete their own upfront until this fall, are also part of the Turner cable unit inside AOL Time Warner. The Turner cable networks, both news and entertainment, together accounted for between 23 cents and 25 cents of every advertising dollar spent last year in ad-supported cable, Mr. Uva said. This year, they expect to match that percentage.
At Discovery, “Our dollar volume will be equal to last year’s,” said Bill McGowan, executive vice president for sales, Discovery Communications. “We were willing to be reasonable on price in order to drive more revenue,” he added, using a formulation that can be translated as lower CPMs.
Before this year’s upfront got under way, Mr. McGowan offered the widely noticed public prediction that the broadcast networks would be down by an aggregate $500 million in the upfront, a sum that would flow to ad-supported cable. With the upfront essentially over, he cited two reasons why this prediction did not come to pass: First, the writers strike, which was supposed to paralyze Hollywood’s new-season production, did not happen.
Second, two of the Big 3 broadcast networks responded to the downturning economy with something completely unexpected: flexibility. “The broadcast networks had always held the line on their CPMs; they were always inflexible,” Mr. McGowan said, “but all of a sudden ABC and NBC started rolling back their CPMs from last year’s levels.”
A number of observers said that when all is said and done, cable would actually see a 25 percent shortfall in this year’s upfront campared with last year.
Over the past decade, cable has consistently increased its share of the upfront advertising dollar, from 18 percent in the 1991-92 season to 37 percent last year, according to data from the Cabletelevision Advertising Bureau.
“This year that did not happen,” Mr. McGowan said. “This year the broadcast nets and the cable nets got hit equally.”
How unusual is that “hit”? At Zenith Media, Mr. Hamilton said, one young staff person came to him and asked, “What is a `rollback’?” That’s not surprising, given that many advertising executives are part of the same youthful demos they so ardently court and that the last such rollback occurred in 1991.
Chris Pursell contributed to this report.