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NBC Caves, Lowers Upfront Ad Prices

Jun 6, 2005  •  Post A Comment

Once-dominant NBC was forced to swallow price cuts as the broadcast portion of television’s upfront ad market neared its finale late last week.

The cable market had begun to perk, with networks including USA, Lifetime and FX making sales with prices ranging from flat to up 5 percent.

With a late night of Friday deal-making still ahead, sources said NBC was about halfway done with its upfront sales. Pricing on completed deals ranged from flat to down 2 percent.

The agencies still waiting to do deals with NBC were likely looking for price cuts in the 3 percent to 4 percent range. Given NBC’s 16 percent drop in ratings last season, buyers estimated NBC’s upfront could drop 20 percent to 30 percent-to around $2.1 billion from last year’s $2.8 billion.

“We made the assumption all along that once ABC, CBS and Fox all settled in at modest CPM increases that NBC would have to be in the negative column. It’s not a surprise,” said a senior executive at a large media-buying company.

“NBC’s problem is that they have a high-priced base because of their success over the years and the way they’ve been able to charge a premium,” the executive said. “That made it doubly challenging for them. They had to wait, and have their management convinced that no one was going to bite at a price increase.”

Much of the money leaving NBC went to ABC and CBS. ABC was first to say it was done with its sales, increasing its prime-time advertising commitment by $500 million to $2.1 billion. CBS followed, saying it has the most sales, with volume in the $2.5 billion to $2.6 billion range, up from $2.4 billion. Fox then said it was about even with last year’s sales of $1.6 billion.

Cost-per-thousand increases for ABC, CBS and Fox ranged from 4 percent to 6 percent, with ABC mostly on the high end of the range, CBS in the middle and Fox on the low end, buyers said.

ABC set the moderate pricing tone for the market. “We’re very happy with our price,” said Mike Shaw, president of sales for ABC.

“I wish there were 15 percent more dollars working in the marketplace and I’d turn around and tell you about 20 percent CPM increases. But that’s not reality,” he said. “Reality is, you’ve got a flat market at best, you’ve got flat [gross rating points] and on an overall basis, that means you have a flat market.”

Jo Ann Ross, president of sales for CBS, said CBS was in the market making sales at the same time ABC was. ABC’s move “didn’t affect our strategy or our plans or our pricing,” she said. “ABC was just writing it a little bit faster. They were doing a lot of conceptual deals and we were having the proper conversations regarding what the plans would look like. It didn’t really affect us negatively at all. We’re still going to write more volume than we’ve ever written before.”

Fox executives declined to comment on the market.

“It was smart for the networks to be more moderate and realistic with prices,” said Ray Warren, managing director of media buyer OMD. “It doesn’t delay the inevitable, which is how do you connect with consumers in an ever-changing world of media consumption.”

Mr. Warren said the agencies were smart too. “We didn’t run in with our hair on fire saying how much more can we pay, sir. We let them know that we’re all questioning this and we’re all looking to moderate a business that is at best holding its own.”

Cable sales executives may have held out for higher prices too long, he said. “They opened the door for Mike Shaw to walk in, and now they’re probably wishing they’d moved a little more aggressively a little sooner,” Mr. Warren said. “It’s a never-ending cycle. If the broadcast networks come out moderately priced, they can staunch the flow of dollars to cable. If the cable guys respond appropriately, they can staunch the flow of dollars to syndication.”

Network sales executives said the telecom, financial and travel categories were strong, while pharmaceutical advertising was off sharply. Spending by automakers appeared flat.

Cable network sales executives were expecting to do the bulk of their business this week.

NBC Universal appears to be selling cable at the same time as broadcast and getting single-digit increases for its USA, Sci Fi and Bravo networks. Turner, after originally looking for high-single-digit increases, was about 30 percent done late last week with deals in the 3 percent to 5 percent range. FX and Lifetime were said to be writing deals in the single-digit range.

MTV was in talks with several agencies, but negotiations appeared hung up on pricing.

Cable is going to settle into a range of flat to 5 percent, one cable sales rep said.

The exception will be Discovery Networks’ Discovery and TLC, sources said. “Joe [Abruzzese, president of ad sales for Discovery Networks U.S.] is going to be lucky if he gets zeros,” one sales exec said. “They’re probably going to get creamed.”

Discovery and the other cable networks declined to comment.

Media buyers said they hadn’t begun to look at syndication. “The market hasn’t broken yet,” one syndicator said.

Wayne Friedman contributed to this report.