Bell Rings for Upfront Reform

Jul 14, 2003  •  Post A Comment

The rising tide of dissatisfaction with the timing and frantic pace of the current annual upfront process, which buyers believe unduly favors sellers, has led senior executives from at least five of the Big 7 media agencies into discussions on how to revamp the process.
They have recently talked about whether and how to approach broadcast-network sellers with a proposal for fundamental changes to the upfront selling process, beginning in 2004. The proposal includes moving the selling period from May to August or even September and agreeing on a “closing bell” that would end nightly negotiations at a particular hour, say, 8 p.m., TelevisionWeek has learned.
Agency buyers believe that by moving the sales period closer to the actual start of the season, the process will be less about buying a commodity just to get gross rating points. Buying later, they believe, will provide a better sense of actual network schedules and the shows’ content than the present system gives them. Customarily, many of the new shows bought in May are gone from the schedules by November.
Creating a cutoff time each night for negotiations would put an end to the widely loathed practice of exhausted ad execs obligated to do multimillion-dollar deals at 3 a.m. at the end of a long day.
The plan for basic change in the way business is now done between broadcasters and advertisers is being spearheaded by David Verklin, CEO, Carat North America, long an outspoken critic of the entire upfront process. However, he told TelevisionWeek that because of his reputation as an upfront critic, he preferred that one of his senior colleagues take the lead in the effort to reform the process.
Mr. Verklin soon will become regional CEO of Aegis Media for North America and Latin America, when Aegis Group, Carat’s parent company, creates the new media services entity. Aegis Media will consist of Carat and Vizeum, a second large-media-services network that will be launched in North America in 2004.
Mr. Verklin said that during the upfront he pays “$5,000 a night to keep the air conditioning on [in the Park Avenue building where Carat has its offices], because you can’t air-condition [just] one floor,” Mr. Verklin said. “So I got air conditioning on in this building at $5,000 a night because I’ve got people here at 3 o’clock in the morning buying television time. … That we transact $1.5 billion worth of TV time at 3 o’clock in the morning over cold pizza is ridiculous, and I don’t think there’s a rationale for it. I can’t look my clients in the eye and tell them that’s a good American business practice.”
There is one major concern that could derail the reform effort before it even leaves the station. The concern among buyers is that they could put themselves into situations where they could be accused of collusion and antitrust law violations. That, too, is the charge that some senior network sales executives bring up when apprised of the buyers’ talks.
The Sellers’ Case
Though most network sellers declined to comment on an issue of such transcendent sensitivity-that would radically alter a system that’s been in place for nearly four decades-Jon Nesvig, president of advertising sales for Fox Broadcasting Co., stated the sellers’ case without hesitation.
“I think there would be restraint of trade issues,” he said of the possibility that buyers would jointly approach sellers with upfront changes. “It would handcuff the agencies and the clients. Then somebody can’t do an early deal if they want to?”
Constraining the upfront time period simply won’t work, because someone will always have an incentive to do an early deal, said Bill Cella, chairman, Magna Global, one of the biggest buyers, who nonetheless called reform necessary and the current effort “admirable. … The planning cycle’s out of whack,” he said.
But a senior antitrust lawyer at a major New York- and Washington-based law firm doesn’t believe that the buyers’ joint approach to the sellers will run afoul of the feds. “It’s probably not a problem,” said the lawyer, who requested anonymity. “If they were agreeing, for example, that none of them would pay more than $100,000 a minute, then that would be a very serious problem.
“But because they are not agreeing as to price, and [what they’re agreeing on] seems on its face not likely to influence the substantive economic outcome of the negotiations,” the lawyer said, “It’s likely that a court would say [to the sellers], `Where’s the harm? … How are you worse off? Well, you have to go home every night instead of staying for consecutive all-nighters until you get it done. That doesn’t seem like much of an economic harm.”’
But if the sellers want to challenge the buyers on the issue of restraint of trade, they will “probably argue that it’s a species of boycott,” the antitrust attorney continued. “You would argue that the agencies-the competing buyers-are agreeing among themselves on the terms under which they will do business with the networks.”
The buyers have already held informal discussions in various combinations. “We’re starting to have the meetings to talk about it,” Mr. Verklin said. “I’ve talked informally to Irwin [Gotlieb, MindShare’s CEO], I’ve talked to Jon Mandel [Mediacom’s co-CEO and chief negotiating officer] about it, I’ve talked to Steve Grubbs [PHD North America’s CEO] about it.”
Mr. Verklin expects to have additional conversations with other senior buyers as well.
Clearly, Mr. Verklin believes that even if the buyers don’t make headway on their quest to move the 2004 upfront to later in the year, they do have a good chance to limit the late-night deal-making at the next upfront. “Seven of us control 70 percent of the market,” he observed. “I know the other six guys, and they’re all honorable guys. And what’s going to happen is, the first thing, is that the seven of us are going to agree that we should have a closing bell. … And the seven of us are going to try and go to the selling community. … I think we can get the sellers to enforce it.”
Not all of Mr. Verklin’s colleagues agree. “The answer is not an extra week to buy,” said Mike Drexler, CEO, Optimedia International (U.S.). “The answer is not that people have a deadline. The problem is much bigger than that.”
Mr. Drexler, who said he has had “informal” discussions with his colleagues at other agencies who are “floating” ideas about changing the upfront, hasn’t yet decided if he will join any formal reform campaign, but he allows that “any change is better than no change.”
Like his colleagues, Mr. Drexler was outspoken about the present “insane” system of upfront time buying. “The biggest problem with the way the upfront occurs now is that it clearly gives the advantage to the seller and not the buyer,” he said, adding that a “handful of sellers can count the house in a week. … They count the house, the game’s over.”
His idea of a true solution: Do away with the fall season start entirely and buy time throughout the year in accordance with the actual advertising needs of individual clients.”
And though that may strike sellers as shocking, that’s exactly how the process unfolded in the early days of television. In fact, Irwin Ephron, president of the media consultancy Ephron, Papazian & Ephron, and a historian of the TV advertising business, said the fall season concept dates to September 1962, when then-last-place ABC hit on the idea of introducing its new shows all within the space of a single week to garner added attention. That idea caught on with CBS and NBC, and the advent of the upfront followed shortly thereafter.
The issue of changing the 2004 upfront also was addressed during at least one recent American Association of Advertising Agencies committee meeting. According to a participant in the meeting, the senior buyers “briefly” discussed potential changes, but senior executives from the two biggest agencies-OMD and Magna Global-were not present.
Any upfront discussion without Magna and OMD’s participation is probably doomed to fail, more than one senior executive said. Mag
na and OMD-“that’s 30 percent of the spending,” said Magna’s Mr. Cella. “Magna and OMD should be a part of that eventual resolution.”
`A Lopsided Process’
For now, agencies are concentrating on making clients aware that “this is a lopsided process that needs to change,” he added. “In 2004, there could be some changes, but not wholesale.”
On the surface, it would seem that sellers have scant incentive to change a process that this year has benefited them handsomely. But advertisers have been “retreating” to television during tough economic times, as more than one ad executive has observed, and sky-high TV ad costs have caused some clients to rethink ad budgets.
Ultimately, if the networks don’t meet their biggest customers’ objections, “People will be running away from [the upfront] faster and faster, because they’re fairly disgusted with the process right now,” as Robert Liodice, president and CEO of the Association of National Advertisers, put it.
A Four A’s spokesman did not respond to specific questions about the meeting. Senior sellers at ABC, CBS and NBC did not reply to specific queries upfront changes. Most senior buyers that have participated in conversations did not return calls or declined to respond.