Upfront a Record $9.3 Bil

May 26, 2003  •  Post A Comment

A buyers’ feeding frenzy has fueled a record-setting broadcast prime-time upfront market, with early estimates from network and advertising executives alike pointing to a total take that will exceed $9 billion, perhaps reaching $9.3 billion or even higher.
NBC, the upfront volume leader, is poised to become the first $3 billion prime-time upfront network, according to Randy Falco, NBC TV Network Group president. CBS is expected to follow with approximately $2.2 billion, according to JoAnn Ross, president of network sales, CBS.
ABC will take in $1.7 billion to $1.8 billion, according to Mike Shaw, the network’s president of sales and marketing.
Fox should tally “north of $1.6 billion,” according to Jon Nesvig, president, advertising sales, Fox Broadcasting Co.
The WB total will be approximately $710 million, according to Jed Petrick, the network’s president and chief operating officer.
UPN is expected to add as much as $250 million to $260 million to its coffers, according to knowledgeable sources.
Add up all these numbers and you’re talking more than $9.4 billion, but most observers say that figure is too high.
Nine billion is more like it, according to Ray Warren, managing director of media agency OMD. One major factor in getting to the lower number is that not all orders placed on hold actually get done. The question about upfront estimates, Mr. Warren said, is, “How much of it is real … how much of it makes it all the way through the process of negotiating a deal, presenting it to a client, having the client approve it, then going back to the network and getting it all done the way it was originally said at 3 in the morning last night or the night before?”
Measuring increases in costs per thousand, The WB led the way with increases in the 20 percent to 22 percent range, buyers said. CBS checked in with increases generally between 16 percent and 18 percent, according to the buying side. NBC, while the volume leader, opened the market in the 13 percent range and quickly raised its CPMs as it realized the strength of the upfront, closing later business in the 15 percent to 16 percent range.
While network executives sniped privately at each other’s tallies-for example, competitors accused two networks of inflating their numbers with nonupfront sporting events-the numbers they proffered for their competitors’ totals often accorded with the numbers each network offered for itself.
The consensus is that this upfront will see at least a $1 billion revenue increase over upfront 2002. That flood of new upfront money, mostly from consumer-goods advertisers, represents a vote of confidence in the general economy’s prospects. It also is a recognition that Olympics and election-year money will join the competition for inventory next season. It also represents a determination not to repeat last year’s scenario, when many advertisers held back in upfront only to see scatter pricing spike up to 25 percent and more above upfront rates.
Ad categories that are up at most networks include pharmaceuticals, retail, entertainment, quick service restaurants and packaged goods. In addition to robust Hollywood theatrical-feature advertising, DVD and home-video advertising will be so strong in the new season, according to several executives, as to constitute a second major Hollywood category.
One significant category that is flat to down, according to several network executives, is automobiles, particularly domestic nameplates.
One deal that was not made last week was the renewal of the largest single deal ever, last year’s one-year, $1 billion-plus cross-platform agreement between mega-agency OMD and the Walt Disney Co. ABC’s Mr. Shaw confirmed that the deal was not renewed, though he declined to offer specific reasons.
The deal was not renewed because of changing “marketplace dynamics,” according to OMD’s Mr. Warren. “There’s going to be business with Disney, [but] we’re not doing a deal on the same scale that we did it on last year.”
One of those “dynamics” is ABC’s reluctance in this effervescent upfront to discount its costs per thousand in return for the volume of business that OMD’s aggregated clients, which include Nissan, PepsiCo and Visa, represent. That was a significant factor in the original record-setting deal.
Another big OMD cross-platform deal that has yet to be made is with Viacom Plus, Mr. Warren confirmed. The elements of that mega-deal could include CBS Sports, CBS prime time and the MTV Networks. That also is likely to be a one-year deal, with options for renewal. Because of all the “moving parts” in the proposed deal, Mr. Warren declined to “put a number against it,” saying, “We’ll see if the rest of it falls into place in the next 30 days.”The biggest single deal this upfront season, according to some buyers, was one between Magna Global and NBC for about $800 million. However, neither Magna nor NBC could be reached to confirm this deal.
While most buyers and sellers were certainly expecting a bullish upfront, the amount of money in the marketplace took almost everyone by surprise.
One factor fueling this upfront was fear of dizzying scatter cost-per-thousand increases, rampant among advertisers who were burned last season. This fear certainly ballooned upfront budgets well beyond most expectations. It also created a fluid upfront: Rather than the segmented upfront of recent years, with cable, syndication and Hispanic-network deals all being made separately after each segment closed, this year a number of agencies made buys concurrently with the broadcast networks. “Agencies are moving their Turner budgets concurrent with their broadcast budgets,” said David Levy, head of ad sales at the Turner Networks. “Volume is up across multiple categories, [by] at least 10 percent,” he added, noting that on the verge of the Memorial Day Weekend he had already sold approximately 40 percent of the Turner inventory earmarked for the upfront.
Buyers said Turner CPMs were up in the low double-digit range for any monies spent over and above last year. Lifetime, buyers added, were holding out for mid-double digit increases and MTV even higher. Even USA, which had incurred the wrath of its fellow cable networks last year for folding on the CPM front, was holding for double digit increases. “The broad-based cable guys are doing well, and the niche players, like your E!’s and Comedy Centrals, are doing even better,” one buyer said.
On the syndication side, buyers said there appeared to be four tiers. “The highest tier, your `Seinfelds’ and `Friends’ and `Dr. Phil’ are getting CPM increases in the high-teens to mid-20s,” said another buyer. “The second tier, your `Oprahs’ and `ET’s’ are getting 13 percent to 16 percent bumps. Your mid-tier is next at 10 percent to 13 percent. Even the daytime stuff that gets fairly low ratings is commanding up to 8 percent increases.”
With upfront money at high tide, picking winners is easier than finding losers. “Everybody’s going to claim they won,” said Joe Abruzzese, head of ad sales for Discovery Networks, who last year headed ad sales at CBS. “[Everyone will say] `I got the highest price,’ `I got the highest CPM,’ `I got the most money,’ `I got the biggest value,”’ said, illustrating the claims that could, and would, be made.
There are other dangers ahead. First, once new-series shakeout begins in the fall season, and if the general economy contracts, look for heavily invested upfront advertisers to think carefully about exercising their contractual cancellation options, which were at record low levels in 2002. Second, high sell-out levels at the broadcast networks may mean that cable and syndication will benefit disproportionately in the scatter market.
“Everybody’s well over 90 percent soldout,” Discovery’s Mr. Abruzzese said of his broadcast competitors. “There’s no other place [except cable] for the [scatter] money to go.”
That view is disputed, of course, at the broadcast networks, almost all of which claim sell-out levels in the low to mid 80s and to have held back enough inventory to be scatter player
s, come what may. But the word on the Madison Avenue side of the negotiating table is that many advertisers are “overcommitting” to upfront and “hedging their bets” against scatter, said one senior ad executive. “Logic dictates” that cancellation-option levels will spike upward, this executive said.
On Broadcast Row, however, the opposite belief holds sway. “I have no reason to expect overbuying,” said The WB’s Mr. Petrick, expressing a widely held network view. “You talk to the agency folks and every one of them tells you emphatically that their budgets are real,” he added.
Of course, The WB’s youth-appealing inventory is in heavy demand. “We definitely want to participate in scatter,” Mr. Petrick added. “We’ve never had a scatter market that’s been under upfront.”
For the executives writing the business, there was a toll to be paid in the brief and frantic upfront-two suits and three shirts, in Mr. Abruzzese’s memorable phrase-and that was the cost in sleep lost, junk food gobbled on the run and hotel rooms held in reserve.
“Between the pizza parlors and the Chinese food and the barbecue, some of these late-night emporiums in New York would be hurt if there wasn’t an upfront,” joked Fox’s Mr. Nesvig. Whatever the other debatable merits of upfront, he added, it does at least support New York’s “greasy food economy.”
After each long day of negotiating last week, many execs on Broadcast Row and Madison Avenue repaired to midtown hotels for cat naps and quick showers before resuming the nearly non-stop upfront marathon.
Optimedia International’s Kris Magel, VP and associate national director of national television, for example, had been getting by on three hours sleep a night since the upfront broke early last week, but expected the ordeal, which more than one executive likened to finals week in college, to be over by the weekend.
So for executives at four of the six broadcast networks at least, finals week was over and the long Memorial Day Weekend could be spent on the links.
Chuck Ross contributed to this report.