TV’s Ad Market Hangs in Limbo

May 14, 2007  •  Post A Comment

The only certainty going into this year’s upfront television advertising market is the prospect of unprecedented complexity.

New ways to watch TV. New forms of advertising. New ways to count viewers. Each promises to create a battlefront where networks and ad buyers will try to tip the balance of bargaining power in their own favor. Last year, advertising commitments declined about 1 percent to $8.7 billion in an upfront where buyers held the advantage.

Based partly on improved post-upfront revenue last year, optimistic network sales people see signs of a shift in momentum. But long-term trends seem to argue that the forces that affected last year’s market will only be stronger this time around.

Either way, negotiations over TV ratings, television’s reach onto the Web and mobile devices, and the TV ad market’s often contradictory logic are likely to test the patience of advertisers, the resolve of their buyers and the faith of the networks.

At the heart of the conundrum for TV ad buyers and sellers this year is a decline in prime-time viewers that has been chalked up to increasing use of digital video recorders, early daylight-saving time, some creative misses and competition from other media such as the Web.

Season to date, audiences have declined 11 percent to 20.5 million on average in the key 18-49 demo, according to Nielsen Media Research. Sellers will balance that decline with the argument that TV is still the broadest medium for reaching consumers.

“I don’t think you can look at it apples to apples,” said Andy Donchin, director of national broadcast at media agency Carat. While he says DVRs and changes in viewer habits probably overstate the rating declines in prime time, “I’m still looking for vehicles that reach a lot of people and that erosion always concerns me.”

Mr. Donchin conceded that the lower ratings haven’t dampened the networks’ expectations that there will be more money in the market than last year.

That’s a view shared by Merrill Lynch media analyst Jessica Reif Cohen, who has forecast a “mid-single-digit” increase in upfront prices and a similar rise in spending commitments. A year ago, many agencies held back client money from the upfront in order to spend it later in the scatter market, where commercials are bought closer to the time they air. Some buyers were considering not spending the money on television at all, considering digital opportunities instead.

Most broadcast and cable networks have seen robust scatter sales as money held back from the upfronts poured into the market and digital opportunities were slower to develop than expected. Fox, for example, says its upfront sales set a record, and the scatter market has been better than ever.

“They’re bullish because of the scatter market, and hey, I can’t blame them,” Mr. Donchin said. “The question is how much of the scatter money is going to move over to the upfront. We’re all talking about that.”

But even if scatter money moves, some buyers say the 2007 upfront total will be lower than last year’s, softening the market. Clients want better accountability from TV and are turning to the Internet, where they believe they have a better handle on who is responding to their advertising.

So buyers may be able to threaten to shift dollars to Yahoo, MSN or AOL, each of which held its own upfront presentation in the past few months.

Buyers and sellers will also face the renewed challenge of agreeing on how to measure viewers. Nielsen Media Research will be generating ratings that measure how many people are watching the commercials in a show, as opposed to the average viewership of the programs themselves.

Previously, ads have been sold based on how many people are watching a show. Since fewer people watch the commercials, prices will have to be adjusted if the networks are to maintain their revenue. They argue that the value of a spot hasn’t changed-only the method for measuring spot audiences has been altered. Some buyers seem more amenable to adjusting the price they pay per thousand viewers (CPM), but others see this as a chance to get closer to the true, lower, price they should have been paying all along.

Further complicating the issue is Nielsen’s new ability to measure delayed viewing by people with DVRs. While most people using DVRs skip commercials, enough of them are still watching that adding those viewers back into the commercial ratings count comes close to making the broadcast networks whole.

The broadcasters want those DVR viewers added in, but some buyers question their value. After all, if a movie company buys an ad on Thursday to support the opening weekend of a film, and the ad is not seen until Monday, what is it worth?

A compromise might be to count live viewing plus DVR usage in the first one or two days after a show airs. It remains to be seen how long it will take to get to that compromise and how it will affect pricing.

ABC Sets the Tone

Last year ABC led the charge to get DVR viewing included in its ad deals, but after the other networks caved, ABC gave in. The effort cost ABC in terms of pricing and revenue.

Ad buyers and network executives say ABC is likely to set the tone at the upfront again, led by its combative head of sales Mike Shaw. Ms. Reif Cohen agrees with that analysis and forecasts that ABC will increase its take 5 percent to $1.93 billion. She predicts Fox’s commitments will rise 6 percent to $1.8 billion and NBC will boost its share 5 percent to $1.93 billion. CBS and The CW will be flat, while MyNetworkTV will be down 20 percent to $40 million, she said in a March report.

David Verklin, CEO of Carat Americas, said he expects the market to move slowly and finish flat to down.

The networks may try to create a stampede by doing a favorable deal with one of the big agencies, but, “It could be a very slow upfront if we have anything to do with it,” he said.

On top of client budgets getting approved late, the biggest issue could be finding a common currency. “I think it’s going to be impossible to do because the clients don’t have alignment yet.” That means different clients within individual agencies might make buys based on different ratings streams, from live program ratings to commercial ratings with seven days’ worth of DVR viewing baked in.

Additionally, he noted that commercials are part of a package now that includes digital, product placement and other assets. “The negotiations are much more complicated now,” Mr. Verklin said.


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