Buyers Take Tough Stand in Upfront

Jun 13, 2005  •  Post A Comment

This upfront marks the year the buyers struck back.

After being stampeded into buying frenzies that left them crying in their beer about paying more for less in recent years, buyers have been sober and steady while purchasing advertising spots in the 2005-06 television season.

As a result, prices have been moerate, first with the broadcasters, aided and abetted by ABC, which in the wake of its comeback season set a ceiling in the market for cost-per-thousand increases. ABC made deals that ranged from 4 percent to 6 percent CPM increases.

The buyers even stared down once-mighty NBC, forcing the peacock network to reluctantly cut prices, in some cases by 2 percent to 3 percent. All of the broadcast networks have for the most part wrapped up their upfront deals, with the exception of NBC and UPN. The overall take for the broadcast networks is expected to come in around the same as last year’s $9.1 billion.

The patience has caused the cable upfront to drag on much longer than the recent norm, but again, it appears to be paying off for buyers, who are enforcing price increases that of no more than 5 percent in most cases.

Patience is not the only tactic that’s working for the buyers. They’ve also played their cards very close to the vest, leaving network ad sales people with only a vague idea of how much money they’ve got to spend and how much money is in the market overall. “It’s a good tactic,” said ad buyer Harry Keeshan, director of national broadcast at PHD. But he added, “At the end of the day there’s not as much money in the market.”

“They’re playing the game very well this year,” one cable network ad sales executive said. “Everyone’s registering less [money} and they’ve gotten the networks to price at reasonable levels.”

The ad sales executives said that once negotiations get close to deals the buyers like, they’ll put more money on the table.

“That’s a great negotiating tactic. Clash a little bit, and then when a deal is on the table, give them more,” the ad sales executive said.

To be sure, with the broadcast market being negotiated first, the prospect of another huge shift of money to cable evaporated. In the last two upfronts, between $700 million and $1 billion of additional revenue came to the cable networks. Some in the industry say that additional revenue was directly at the cost of the broadcast networks, others argue it was incremental.

Some advertisers appear to have really cut their budgets. Sales executives have seen big cutbacks by the pharmaceutical companies. And one major buyer, MediaVest, has come to networks only recently, registering sharply lower budgets for some of its large clients, including Procter & Gamble and Mars. MediaVest executives declined to comment.

The upshot is that cable networks have been forced to settle for price increases in a 0 percent to 5 percent range. And they’ve been taking shots at one another.

Early on, while Turner Broadcasting was asking for bigger increases, sales reps at NBC Universal’s cable networks were able to get business done with 4 percent increases, which now look pretty good. The NBCU reps would tell buyers to call their Turner reps to get price quotes, a source said. After confirming that Turner wanted 7 percent to 8 percent increases, they signed on with NBCU’s USA Network, Sci Fi Channel and Bravo.

Toward the end of last week, Turner, NBC Universal Cable, MTV Networks and Fox Cable Networks Group had found price levels that appealed to buyers and were done with a significant amount of business.

“I think everybody is getting to be in a place where there will be significant business written,” Mr. Keeshan said. “I think next week will be a bigger week for cable.”

Most cable sellers, speaking on background, claimed to be doing business at the high end of the 0 percent to 5 percent range, then listed several networks they believe are operating at the low end of the range.

“There’s no one marketplace this year,” one sales executive said. “If they see something they want to buy and they’re interested in your programming, they attach a different set of values and they allocate more money to you.”

Several sales reps said they seemed to be getting money that in past years had gone to Discovery Networks. Ratings for Discovery’s TLC have been down in the double-digit range, and rival buyers expected Discovery to take an NBC-style beating.

Like NBC, Discovery is thought to be a relatively high-priced network, and buyers are looking to severely limit increases on high-priced networks or get them to roll costs back.

Discovery is getting budgets from buyers that were down at least 15 percent from last year, sources said. Discovery had done a handful of deals, but none appeared to be at lower CPM prices than last year.

Discovery executives declined to comment, but when Joe Abruzzese, president of ad sales at Discovery Networks U.S., was with CBS, he often preferred to wait for scatter rather than lower prices.

Rival sales executives pointed to A&E as another high-priced network buyers had in their sights for price reductions. With less than half his deals done, “we’re doing fine,” said Mel Berning, executive VP for ad sales at A&E Television Networks.

Once the bigger networks are done, buyers will turn their attention to the smaller cable networks and to syndication.

“I’m hearing a recurring theme from buyers that they’re looking to consolidate the number of cable networks they’re buying,” one sales executive said. “There may not be enough money for the third tier. They don’t have to buy as much of that tier and it’s an administrative nightmare because you need a lot of spots on those networks.”

Difficult as the upfront has been on most cable networks, ad sales people remain optimistic that if clients aren’t spending as much money in the upfront, they’ll still spend it later.

“There will be a second tier of upfronts” in July or August, said one senior ad sales executive. “Or scatter’s going to be off the charts.”