Upfront Favors Agencies, Nets

Jun 6, 2005  •  Post A Comment

By Peter Knobloch

The upfront season is upon us. There are secret meetings taking place between agencies and networks to discuss the advantages of an “early” deal. Buyers and sellers are posturing in the press about how strong or weak the upfront market will be. And in the end, clients will all pay the same increases, although their agents will never position it quite that way. But I’m getting ahead of myself.

So let me take some of the mystery out of this annual event called the “upfront.” I feel uniquely qualified, having spent my last 12 years as a media buyer as president of RJ Palmer, the 10th-largest U.S. media service company, and the 12 years prior to that as a media seller as VP at NBC. At this point in my career the process seems almost normal.

The networks will fight to the death to keep the upfront alive and well. And why wouldn’t they? In a short period of time, sometimes as little as two days, they will be able to sell 80 percent of their rating points (inventory) for the upcoming year at an increase that typically outpaces inflation, whether demand is up or down.

The networks accumulate all the vital client-budget information in the months preceding the upfront, and if budgets are up compared with the previous year, expect substantial increases. But even when budgets are down, the networks are the only ones truly privy to that information (they have the cumulative budget totals) and they will still negotiate increases. The 2004-05 season was an example of this scenario and I expect 2005-06 to be similar.

The simplest and most responsible approach to avoiding these unwarranted price hikes would be to purchase less TV inventory in the upfront and more in the scatter and opportunistic markets, where pricing has been more reasonable in recent years. But-and this is the really interesting part-the superpower media services, the ones that control 75 percent of the market, want to keep the upfront just as it is.

Why, you ask? Because while their clients are selling products and services, the big media shops are selling clout. Clout means cheaper deals-right? Maybe with widgets, but not in TV.

Remember, there is a limited TV supply, called gross rating points. The mega-services sustain the upfront in its present form because they have too much money. They have to place their clients’ budgets in the upfront because they aren’t staffed to do it any other way (scatter/opportunistic), and the networks know it. But the most amazing part of the process is that the mega-agencies are all paying the same price. Really?

Really. The upfront negotiation is all about cost-per-thousand increase, not price. And the networks can’t afford to, nor do they need to, deviate from the CPM increase of their initial deal. To be clear, while each network will negotiate an increase based on its strengths, each agency will ultimately pay the same increase by network. (If ABC gets a 10 percent increase, all the agencies pay 10 percent more; CBS a plus-12 percent, the agencies pay 12 percent more, etc.)

So if the agencies are paying the same increases, are all clients paying the same prices? No, because over the years, clients have made changes to their budgets, buying specs, geography, programming needs, targets, etc., all of which affect price.

What clients should be concerned with is where they rank at their agency in the pricing pecking order. In an April 1999 Advertising Age article, Arthur Anderson of Morgan Anderson Consulting put it most appropriately: “The range between ‘best’ buyer and ‘worst’ buyer has not narrowed. … The size of client media-buying volume does not necessarily mean efficient buying.” He also wrote, “Within a group of buying units in the same company, the buys themselves ranged from a base of 100 to a high of 153, a whopping 53 percent difference. If clout is at play here, who is benefiting?”

Clients will show their concerns both publicly and privately, but the upfront will continue to thrive because networks and the mega-media agencies want and need it to. The supposed client benefit of agency media consolidation-lower pricing-has actually had the opposite effect.

Finally, there are alternatives to TV and there are alternatives to buying TV in the upfront, but I’ll bet once the buying bell goes off, those agencies with the clout will close deals within a 48-hour window, all at the same increase.

Peter Knobloch, a former ad agency and NBC executive, is CEO at RJ Palmer Media Services, an independent agency based in New York. This article originally appeared in Advertising Age.