Upfront Navigator: Buyers Sense a Competitive Market Ahead

Apr 25, 2005  •  Post A Comment

It’s good to be No. 1.

Since the days of “The Cosby Show” NBC has almost always been the ratings leader among the networks, and that strength has paid off at upfront time. The network last year took in the most upfront ad dollars and its advertisers paid the highest cost-per-thousand.

This season, however, NBC has stumbled. Without stalwart programming like “Friends” and “Frasier,” and with expensive new shows like “Family Pride” tanking, NBC’s ratings are off by double digits, opening the possibility that the Peacock could fall all the way to fourth place in the 18- to 49-year-old demo around which most advertisers plan their advertising.

This change has buyers and sellers wondering what will happen to the so-called leadership premium, the ability of the No. 1 network in the 18-to-49 demographic to push for slightly higher prices than its rivals.

There are multiple schools of thought. Some ad buyers said they think the idea that a No. 1 network gets bigger CPM increases is old-fashioned. Others said being the leader in attracting certain demographics allows a network to push up its rates. “There is a leadership premium, but it depends on what the leadership is and what you’re the leader in,” said Peggy Green, president of broadcast for Zenith Media Services.

“It’s a bigger deal to [the networks] than to [media buyers],” said Andy Donchin, director of national broadcast at Carat USA, referring to the networks’ determination to claim the top spot.

“We’re obviously concerned with who’s up and who’s down. That they’re all somewhat competitive this year, I think that bodes well for the buyers. It means no one network is a must buy as in past years, or as much of a must buy,” Mr. Donchin said.

Last year, Mr. Donchin noted, CBS got the biggest CPM increases-about 10 percent. CBS executives, led by CEO Leslie Moonves, have been talking about using their new No. 1 status to be aggressive in this year’s market.

“Should we lead the market? Absolutely,” said Jo Ann Ross, president of sales for CBS. “What does that mean? We’ve got to wait to see how big the market is.”

She said that while NBC has been the No. 1 network in ratings the past two years, “They [NBC] have not gotten the biggest cost increases on CPMs.” That honor, she noted, has gone to CBS.

“We’re in a position now where we have consistency across the board. We have growth in all the demos. We’re No. 1. We’ve gotten younger. We’ve gotten more upscale. So I think it’s all good news for us,” she said.

Because of its older audience, CBS’s CPMs trailed the market during the 1990s. But after Mr. Moonves introduced such hits as “Survivor,” “Everybody Loves Raymond” and the “CSI” franchise, “They definitely have the biggest CPM increase and they’ve made up a lot of the ground that existed because of past years,” Mr. Donchin said. “They closed the gap with the other networks on cost per thousand.”

And that means there’s no need for CBS to push for another double-digit increase. “I don’t think this year is the year anyone’s going to get big increases. I think any increases are going to be somewhat moderate,” Mr. Donchin said.

Mr. Donchin said NBC generally makes the most expensive deals, “and to a degree they deserve that for all the years they’ve been No. 1 and they’ve had the big upscale story, and the big Thursday night for movie advertisers.

“Obviously we’re going to look at that this year and see where everybody should be. Not only them, but everybody else.”

NBC Still Wants Premium

Randy Falco, president of NBC Universal Television Networks Group, said that despite NBC’s ratings performance this season, it will take more than one upfront for its premium pricing to disappear.

He said that this season the gap between the top-rated network and the No. 4 network is only 0.3 ratings points, compared with 1.3 or 1.4 last year. “It isn’t like you’re that far behind the other guys,” he said.

Mr. Falco added that NBC is still “very dominant at 10 p.m.” and that, most important, the network remains No. 1 with upscale viewers, whether one looks at the old demo of households with incomes of $75,000 or more or this year’s new breakout from Nielsen Media Research that shows households with incomes of $125,000-plus.

“That’s the premium that we’ve been holding onto for years. We don’t have the dominance that we used to have at $75K-plus or $125K-plus, but we’re still ahead of the other guys and we’ll be able to use those two arguments-that we’re not that far behind and the fact that we’re still No. 1 in the premium side of the business.”

Mr. Falco said upscale audiences are the hardest to reach with television and that it’s the audience that the car manufacturers, the retailers and the movie studios want to reach.

“Those are the three most important categories, and those are the three categories that want the upscale audiences most,” he said.

Ms. Green of Zenith concurred. “To me, the best thing to be the leader in for our clients is income,” she said. “I don’t know how this season is going to turn out, but historically, NBC has reached the affluent viewer and the question is … when we look at the analysis going forward to this year’s upfront, will that still be the case? That’s why I think they did well last year, because historically they had more affluent viewers than the other networks.”

Overall affluence isn’t everything, however, she added. “You have to look at what genre shows delivered that income, but if there are shows that you don’t think are appropriate for your brand, that restricts your ability to buy the network,” she said. “If you have a competitive category, and some of the shows that make you No. 1, like [Fox’s ‘American Idol’], if you can’t buy them, then maybe you’re not No. 1.”

With the emergence of new shows like “Desperate Housewives” and “Lost,” ABC has made a huge comeback, registering a 15 percent increase in ratings. Perhaps more important, it has significantly increased its ratings among affluent households.

And that should enable ABC to push its price and probably score the biggest increase in upfront volume of any of the networks, some TV executives said.

“I don’t want to sound flippant or arrogant to tell you what’s happened to us, because there’s a sea change and difference between how a customer’s approached ABC this year. We’re getting the first or second phone call of almost every budget that somebody has in the scatter market,” said Mike Shaw, president of sales and marketing for ABC Television Network, in a presentation to analysts. “So I’m feeling a pressure that I don’t know is marketwide, because of people and the mix of programs we have, the fact that I stress the upscale demographics. I mean we have a huge upscale story. We’re up 43 percent in hundred thousand-plus [household income] in the first quarter, JFM [January, February, March], this year versus a year ago.

“The number of different clients and the number of clients looking for that demographic is not something we’ve had as much of the last few years, quite frankly. We’re getting budgets from people we haven’t even been called for in the past.”

Upscale Spenders

One of the key ways networks raise their overall CPM is by increasing the amount of business they get from clients willing to spend to reach those upscale audiences, such as the automakers, the financial services companies and technology companies, while reducing the amount they take from packaged goods companies, who get lower rates because they’ve spent so much on network TV for so long.

All the talk about who’s going to drive ad rates higher may not sit well with buyers.

“It would actually behoove the networks to be a little more moderate on their CPM demands. Look what’s happened in the scatter market the last six or seven quarters. It hasn’t been robust by any means,” Mr. Donchin said. “If they could be a little more price-friendly, they could sell more in the upfront and they may create a st
ronger scatter market for themselves. That would be a benefit for them.”

Instead, with higher prices the broadcast networks “have been pushing money to cable and that could happen again if they are too aggressive. And [that is] money that they’re never going to get back,” he said.