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Discovery-P&G deal leads robust upfront

Jun 17, 2002  •  Post A Comment

Discovery Communications and Procter & Gamble are on the verge of concluding a major multi-network upfront partnership deal that could be the largest single buy in the cable upfront that is now under way.
The deal, which would involve virtually all the Discovery networks, is potentially worth between $50 million and $75 million, though its final parameters are still being negotiated.
Finalization is “very, very close,” said Bill McGowan, executive VP and general manager, U.S. ad sales and global integrated partnerships, Discovery Communications. He declined to address the deal’s specifics.
The Discovery-P&G deal is just the latest twist in this year’s upfront drama. In fact, if the 2002 cable upfront is ever made into a movie, it would have to be called “To Have and Have Not.”
That’s because the movie, auto, telecommunications, health-and-beauty, quick-service-restaurant and other generally youth-oriented money that has flooded into the marketplace, unexpectedly buoying up first the broadcast networks and then top-tier syndication, is now pouring into cable, where it is creating winners and losers and dictating strategies for several cable networks.
Cable, which is expected to finish the majority of its upfront business by the end of this week, is on track for a solidly up-turning upfront overall, with estimates ranging from up 10 percent to up 20 percent over last year-which would put this year’s take at between $4.4 billion and $4.8 billion. The latter total would bring cable all the way back to its 2000 upfront high-water mark.
Syndication looks to close out at about $2 billion, up a full $300 million over last year’s disaster when that sector plunged to $1.7 billion from its upfront record of $2.5 billion in 2000. The total broadcast-network upfront take was about $8 billion, up from last year’s dismal performance by between $1.2 billion and $1.5 billion.
The cable industry, tracking the torrent of youth-oriented upfront money through broadcast and syndication, came early to the important realization that while budgets would be up generally for cable too, the increased money wasn’t going to be passed pro rata to every network in the industry. In other words, this was one rising tide that would not lift all boats equally.
Generally speaking, networks with youth appeal, such as MTV, are looking at healthy increases. So are many specialty networks that can offer advertisers targetability and coherent audience profiles-foodies, females, sports fans, kids, drama lovers or comedy fans and the like. General entertainment networks without either youth appeal or other quantifiably desirable audiences are discounting.
“The large networks, USA and Lifetime, went out [early] and tried to lay a strong base. Turner is waiting,” said Bob Flood, senior VP and director of national broadcast at Optimedia, summarizing a prevailing industry view. “The more niche networks are in a different position [and are] more aggressive on holding the line on [costs-per-thousand].”
The deepest discounter of all, according to both buyers and competitors, is Universal Television and its USA Network. The network acknowledges discounts of 10 percent; other sources say the discount is much deeper than that.
The strategy of making deals early to increase share has paid off with increased volume, say both buyers and competitors. But there is a cost that may be exacted down the road.
“[USA] did not evaluate the marketplace,” one senior competitor said. “They executed a sales tactic, which had nothing to do with their programming, which had nothing to do with the value of what they deliver.”
More than one competitor called the tactic a “commoditization” of the network’s inventory. “Did it work?” a competitor asked. “If their goal was to maximize revenue, I don’t believe it will work at the end. This is not a sprint, this is a full year that has an upfront market and a scatter market. If they sold a lot of inventory really cheap and have nothing of quality available in the scatter market, then ultimately … their end-of-year results will not be as robust as they might have been.”
“We’ve acknowledged that we’ve gone to discounts for increased volume and enhanced commitments, and the strategy is working,” a USA Network spokesman said.
Another network that discounted initially for share, according to buyers and competitors, is Lifetime Television. Some early deals were done for a 5 percent to 7 percent discount, according to buyers.
There was a range of deals, many of them done for positive costs per thousand, said Lynn Picard, Lifetime’s executive VP for ad sales. Lifetime has essentially finished its upfront, she added.
The network moved early to lock in share, Ms. Picard said, because, “From my vantage point, once I started analyzing where the growth and the money was, and it wasn’t all my categories, then I reacted to that.” Categories Ms. Picard cited include video games, consumer electronics and young-skewing movies.
Another current widespread perception in the cable world is that the Turner cable networks are taking the opposite tack, holding the line when it comes to CPMs and holding back inventory from the marketplace, executing what might be called the Viacom strategy of waiting out the buyers. “They’re digging their heels in on price,” said a competitor. “They’re not able to close business.”
That perception is simply wrong, said Mark Lazarus, who heads advertising sales for the Turner entertainment networks, which are expected to take at least 25 cents of every advertising dollar spent in the cable upfront. “We have written a lot of deals,” Mr. Lazarus said. “We are definitely open for business.”
Turner is having “intelligent price and value discussions,” he said, and is “able to come to terms with a large majority of clients.” Every deal done to date, Mr. Lazarus said, had increased volume and CPM levels.
One question about this upfront, Mr. Lazarus said, is, “Is the money [really] there or not? Are people going to cancel before it goes to order?” To address the issue of cancellations, he said, Turner has written business with “terms and conditions that make dollars firmer than ever before.”
Beyond the upfront looms scatter and yet another possible sea change: “The broadcast networks will be sold out next year, and thus there will be virtually no inventory available for scatter,” said Discovery’s Mr. McGowan. “That’s going to bode well for cable.”