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Cable Takes Back Seat in Soft Upfront Market

Jun 6, 2005  •  Post A Comment

When the cable networks finally started their upfront deal-making process last week their initial bids for high-single-digit price increases succumbed to the soft-to-moderate marketplace that media buyers had predicted. Consequently, increases in the range of just 2 percent to 5 percent are being anticipated.

Cable this year once again made a big play to be the catalyst of the upfront ad sales market by making presentations ahead of the broadcast networks and offering attractive pricing. But for the first time in years, media buyers made cable wait, instead inking deals with ABC and most other broadcast networks first.

“That was really surprising to me,” said Lee Westerfield, managing director and senior research analyst for Harris Nesvid.

“Cable was trying to do the right thing,” said Bill Abbott, senior VP of advertising sales for Hallmark Channel, which didn’t participate in the earlier cable network pitches. “They were trying to get prices at high-single-digit increases, but their offers weren’t resonating.”

“What you are dealing with is a marketplace with not a whole lot of momentum,” said Rino Scanzoni, chief investment officer of Mediaedge:cia.

For the past several years cable networks have been looking to move up the food chain, stealing some of the broadcast networks’ thunder by increasingly doing deals before the broadcast network upfront presentations were completed. But this season the market seems to have reverted back to the old days, when the powerful and expensive broadcast networks did their deals first, media buying executives said.

Here’s why it happened: By comparison, Mr. Abbott said, price hikes at the broadcast networks-which some buyers perceive as more valuable real estate-were lower than the proposed cable increases. ABC, for example, set its price hikes at 4 percent to 6 percent. Cable wanted more but was willing to compromise if agencies would consent to spend more money overall on their networks. “Unless [an advertiser’s expenditure] was way, way up, you weren’t going to be able to do deals,” Mr. Abbott said.

Two weeks ago, when ABC and the other networks were making deals in the market, NBC made a strategic decision to sit on the sidelines. As a result, last week NBC found itself in the unusual upfront position of selling its wares against cable networks and syndication programmers.

As the industry leader in cost-per-thousand-viewer price in adults 18 to 49, NBC will be hard-pressed to get much of an increase, media buying executives said. Pricing for NBC this year versus last year could be flat to up perhaps 1 percent or

2 percent.

NBC’s main goal is to maintain network program prices, which is always a prime concern for television advertising sellers. That could be difficult because some media buying executives are saying they’ll now push for NBC to drop its program CPMs slightly.

Some media executives speculate that NBC’s game plan might be to use its cable assets to help build advertising revenues across all of its television businesses. NBC Universal’s USA Network, Sci Fi Channel, Bravo, MSNBC and CNBC could be packaged attractively with NBC.

Other executives doubt that NBC Universal’s package selling will happen this year. “They are not set up to coordinate with each other,” Mr. Scanzoni said. “NBC is still done separately for the most part,” he added, noting that while NBC can be sold with cable siblings CNBC and MSNBC, it is not sold with USA Network and Sci Fi Channel.

To maintain overall upfront CPMs, NBC Universal would need to cut pricing somewhere-from the NBC Network itself or at USA Network/Sci Fi Channel. That is why selling cable and broadcast together doesn’t work, industry TV sellers and buyers said. Cable has its own market dynamics-including lower-rated shows and lower costs to advertisers. That is why media buyers expect cable and broadcast to continue to be sold separately. “Old habits seem to die hard,” said Harris Nesvid’s Mr. Westerfield.

Broadcast networks are enjoying a taste of the good old days during this upfront advertising process because broadcast television debuted a number of popular new shows last season, including ABC’s “Desperate Housewives,” “Lost” and “Grey’s Anatomy.” That gave broadcast networks an overall rare seasonal increase-albeit a small one of 0.9 percent-in adults 18 to 49 rating points. Typically broadcast networks have seen a 3 percent to 5 percent annual rating decrease in 18 to 49 rating points.

“Broadcast had good year in a lot of people’s eyes because of a few shows,” Mr. Abbott said. “But they were still relatively flat, while cable was up again.”

Now that ABC has moderately pushed upfront selling, the market looks to be slowing down somewhat. Cable is looking at 2 percent to 5 percent program price increases; the same is expected for syndication.

The real question on media buyers’ minds is how much money is in the marketplace. Media agency executives don’t know whether cable will move much beyond its $6.2 billion upfront revenue mark of a year ago. Similarly, when the market is completed, broadcast networks might not move much beyond their overall $9.1 billion upfront take of a year ago.