Upfront Market a Test for NBC

May 8, 2006  •  Post A Comment

After being pummeled in last year’s upfront, NBC may be satisfied this year by simply standing still.

Taking in the same $2 billion in commitments at this year’s advertising sales market that it did last year would likely be seen as an achievement by the Peacock Network, even though that figure is down a whopping $800 million from the 2004 total.

Ad buyers say pulling that off might be difficult in a market likely to show little overall growth at best, even though fourth-ranked NBC has been doing a lot right in developing new programming and creating hundreds of digital advertising opportunities attached to its shows.

Jeff Zucker, CEO of NBC Universal Television Group, said NBC doesn’t necessarily have to generate additional ad dollars in this year’s upfront. He said one reason was that the network will be running NFL football on Sunday nights, reducing the amount of prime-time entertainment inventory it has to sell. (NFL ad sales are usually counted separately, even though networks package some football ads with ads in other programming.)

That’s good for NBC. Taking dollars away from the other networks might prove difficult, since after many years at the top NBC’s ad prices in terms of cost per thousand viewers, or CPMs, are still the highest in the industry. That means that at a time when buyers are trying to limit CPM increases, moving money from a network with a lower CPM to one with a higher CPM could exceed the budget limits agencies and clients set when creating their media plans.

“That’s their dilemma,” said Steve Grubbs, CEO of media buyer PHD. “I think that the community as a whole is enthusiastic about [NBC’s] development slate, but how much that translates into the negotiation process remains to be seen.”

“I think their goal is to try to keep the money they got last year, said Larry Novenstern, executive VP and director of national electronic media at Optimedia. “Three of their shows-‘The Black Donnellys,’ ‘Kidnapped’ and ‘Studio 60’-all look really good, and I think they will use the NFL as a promotional platform to help them. I think they’ve got a shot to rebound with the NFL.”

NBC also will probably have to wait while ABC sets the ceiling on price increases. Last year, despite being seen as the hot network, ABC began making deals calling for CPM increases in the mid-single digits. That was lower than NBC expected, and NBC lost a lot of business to ABC before deciding to cut its CPMs by 2 percent from the previous year.

This year NBC again will have to settle for smaller CPM increases than ABC gets, or it may have to cut prices again if ABC can manage only a tiny hike. “I’m sure they’re hoping that ABC sets the price point nice and high,” Mr. Grubbs said.

Keith Turner, president of NBC Universal ad sales and marketing wouldn’t discuss sales goals, but said, “We are going to be user-friendly, we’ve got a great programming slate, we’ve got over 100 digital ideas that we’re going to take to market.”

“They’ve been slowly getting their pricing in line with what the market should bear,” said Peter Gardiner, partner and chief media officer at ad agency Deutsch. “I think they’ll do significantly better.”

Most buyers see ABC President of Sales and Marketing Mike Shaw as being in the catbird seat. But with ABC’s ratings up and “Monday Night Football” being replaced by entertainment programming, ABC also needs to attract new spending.

“Ultimately, if he sets the price point higher than what the buying community believes is acceptable, then it will be a very, very slow upfront,” Mr. Grubbs said. “And given the fact that the last two years we’ve seen scatter markets that have been very modest in terms of inflation relative to the upfront, that encourages and emboldens people to play the scatter market and hold money back.”

New Revenue Streams

Mr. Gardiner believes that there is too much talk about price increases during upfront season. “The game is revenue, how much money did we get?” he said. And that’s particularly true this year. “[Increases are] not what this market is about and not what any other market will be about. It’s about how to begin to monetize in a big way new distribution and revenue streams.”

While some feel that digital is only a small part of the television market, Mr. Gardiner thinks it will have a growing impact.

“Network TV is more like downhill skiing in an avalanche: When [digital] starts to happen, everybody feels it,” he said. ABC, the leader with traditional programming, has also been a digital leader with its groundbreaking iPod deal and putting its popular programming on ABC.com with advertiser support and free to viewers.

“They’re really setting the framework for trying to create a different kind of marketplace,” he said.

Last week CBS made a big leap into the digital game with its new broadband site, Innertube, which will be ad-supported and will feature original programming.

With demand lukewarm for traditional spots, digital opportunities could light a fire under some buyers, Mr. Gardiner said: “I think that’s what the networks want to do to encourage people and get them freaked out that if they don’t get involved they’re not going to get some of that stuff.”

Jo Ann Ross, president for sales for the CBS Television Network, agreed that there should be strong demand for the digital offerings, which will be sold both by CBS Network sales and by the sales force at CBS Digital Media.

“Our job at CBS sales is to grow revenue, and I think the good news about what we did [with the Innertube launch] is we’re hopeful that our content, whether it’s original or a redo of what’s already on the air, is going to be compelling enough not to cannibalize our money but to add incremental money,” Ms. Ross said.

Ms. Ross said CBS was well positioned in linear television as well, with two midseason shows clicking-“The New Adventures of Old Christine” and “The Unit”-and a Friday schedule that’s brought life to a dead night.

She declined to estimate whether the overall spending will be up or down during the upfront, adding that the upfront is only part of the network’s revenue picture.

“I think that everyone is going to hold it close to the vest,” she said. “I think that people are going to hold some monies out for special opportunities, whether it be special sponsorships on-air or whether it be a broadband opportunity, an Internet opportunity, a wireless opportunity.”

But buyers say the market is unlikely to grow.

“We know what some of our budgets are right now, but that last week before people begin to register budgets and actually put them on the block, there’s always a shift one way or other,” PHD’s Mr. Grubbs said. “If there were no shift, I would say it would be relatively flat versus a year ago. But I will tell you that at the last minute you’ll see a shift either into the market or out of the market.”