Status Quo for Broadcast, Cable in TV Ad Market

Jan 3, 2005  •  Post A Comment

The more things changed, the more the television advertising market stayed the same last year.

After an outcry by buyers that the upfront buying process was broken, the market went off with no big changes, and with broadcasters pushing prices ever higher. And with ABC finding new hits in “Desperate Housewives” and “Lost,” the networks maintained their spot at the top of the television food chain as the season unspooled.

“There is great value in broadcast,” said Mike Shaw, president of sales for ABC. “Absolutely.”

But there were signs that broadcast’s dominance was eroding with its ratings. Though much of the chatter was about broadcast’s new hits, viewers continued to flow toward cable in prime time. And to some degree, so did ad buyers.

During the upfront, many buyers made their first deals with cable networks, from the MTV Networks to Turner Broadcasting’s channels. And while the price of broadcast rose, the sheer number of ad dollars going to cable grew even faster.

“Cable had a great upfront,” said Jeff Lucas, president of Universal Cable Entertainment Sales. “The top-tier cable networks moved before the broadcast networks. We had a very good upfront in terms of volume and unit price and also in extending good deals to the clients.”

Industry executives estimated that cable took in anywhere from $600 million to $1 billion in additional spending commitments during the upfront, compared with 2003. However, it was unclear how much of that shift was new money to TV that advertisers were spending on cable, rather than dollars that were once earmarked for broadcast.

Barry Fischer, executive VP of market strategy for Turner Broadcasting, said that given broadcast’s loss of viewers, “It is surprising that broadcast continues to grow its business at all.”

Mr. Fischer said that broadcast throughout the course of 2004 has lost more than 1 million viewers. “For a business in such a dramatic decline it is remarkable that anyone is willing to pay more for less,” he said.

Cable already is the leader in kids programming and in sports. “Everything around prime time is a cable first buy,” Mr. Fischer said. “Prime is the Alamo for those guys.”

The disparity in the price/value relationship between cable and broadcast is out of whack right now, with advertisers overpaying for broadcast, he said, adding, “When it turns, it’s going to turn big.”

But the broadcast habit isn’t one advertisers are going to be quick to kick.

The 2004 upfront “reaffirmed the importance not only of television but the continued dominance of the broadcast networks,” said Andy Donchin, director of national broadcast at Carat USA.

Mr. Donchin said that while audiences continued to erode, the gap between what advertisers pay per viewer on broadcast versus cable widened. “It’s a medium we complain about-broadcast television-but we realize its power,” he said.

Despite ABC’s success, Mr. Shaw said, advertisers were trying hard to curb price increases. But costs for broadcast are set by supply and demand, and demand stays strong because broadcast works. He noted that Mitsubishi was one advertiser that went almost exclusively for cable during this year’s upfront. Since then management at the Japanese automaker has been replaced. “Nobody saw those commercials,” he said. “No company ever pulled its ads off network and said its sales were better.”

Product placement and ad integration continued to gain in importance for advertisers and networks.

“You had more and bigger opportunities for product and brand integration,” said Mr. Donchin. “That should continue in 2005, with advertisers trying to find things that rise above the clutter, that are TiVo-proof.”

Once, product placement and integration were mostly the province of cable networks. But Mr. Shaw said they’re growing on broadcast as well. “If advertisers are searching for ways to showcase their products, that bodes well for network,” he said.

In addition to reality shows such as “Survivor” and “American Idol,” product placement became a part of scripted shows on broadcast in the past year. ABC aired “The Days,” a show developed by ad agency MindShare for its clients, and there were glaring product placements for Sprite in NBC’s “Father of the Pride.” CBS belatedly joined the other networks with Tyson products featured in the sitcom “Still Standing.”

Cable networks also did more integration. Sci Fi ran a miniseries, “Five Days to Midnight,” that included 10 clients of one ad agency, OMD, in its script. Sister network USA aired a movie, “The Last Ride,” that was written around the Pontiac GTO. “These were integrations that were done in a grand way, and we learned a lot about what to do and what not to do,” Mr. Lucas said.

“One of the lessons learned is not to do integration for integration’s sake, but do integration to maximize a particular brand’s interest in a show,” he said. “There are a lot of sale organizations that do integration for the wrong reasons-just for the sake of getting it out there and saying they’re in the integration game.”

Mr. Lucas said integration is here to stay, “But it’s a tool. It helps us help advertisers to move product. That’s the bottom line, what we’re in business for.”

Product placement becomes an important card when client budgets are getting tight. And after the upfront-and the Olympics, which absorb a huge chunk of ad spending-the overall market went cold.

Ad sellers said the fourth-quarter 2004 and first-quarter 2005 scatter markets were slower than they would have liked. They were also difficult to forecast because advertisers and their agencies appeared to be making decisions later and later. As a network ad sales executive said, “At the beginning of the weeks, I’d have no idea what business was coming in. Then, a few budgets would come in, and by Friday, it had been a pretty good week.”

Most weeks were pretty good for ABC and CBS. Nearly buried by ad buyers and critics alike, ABC rebounded with “Desperate” and “Lost.” And after finishing first in most demos during the November sweeps, CBS appeared to have the ratings and revenue momentum to end NBC’s years of dominance.

“With ABC, it showed that one or two shows can really change a network’s fortunes,” Mr. Donchin said. In the 2004 upfront ABC held out for price increases based on unproven shows. Some of those shows turned out to be hits. In the meantime, NBC, which must have felt its strength waning, “fell back to earth, but is still a strong force out there,” he said.

The improved picture for CBS and ABC should change the dynamics going into next season. With the networks on a more even footing than in the past, buyers have more options, which gives them more leverage.

“It’s going to be a very interesting upfront,” Mr. Donchin said. “We’re not only going to be looking at relative [cost-per-thousand] increases but at what our absolute bases are and trying to determine who is going to get what.”

And Mr. Shaw said he’s hearing fewer complaints about the process. “The upfront worked. In every daypart, scatter prices were higher,” he said.