It was the upfront advertising market that let the broadcast television industry crow about its strength as an advertising medium. Now cable executives are preparing for a tug-of-war with ad buyers as they seek similar price gains.
After being flat to down last year, upfront ad commitments for the broadcasters rose about 5 percent to $9.2 billion, according to sources familiar with the network totals.
Buyers might opt to do syndication deals until the cable dust settles.
Most buyers admitted they paid steeper increases for broadcast commercial time in the upfront than they had planned on a few months ago. Whether upfront gains translate into high revenue remains to be seen, but last week’s numbers gave a shot in the arm to broadcast networks contending with viewership declines and new competition from Web video.
“This upfront affirmed the power of network television, and we’re extremely pleased with our results,” said Mike Pilot, president of sales for NBC Universal, whose team struck the first big deal of the 2007 upfront with GroupM, basing the transaction on how many people on average watch commercials, plus three days of DVR playback.
Some buyers and sellers say that transaction, based on what is coming to be known as the C3 ratings currency, set the tone for the rest of the field. Rino Scanzoni, chief investment officer at GroupM, has said he wants to apply that standard to the cable market as well.
“I think what we really saw was the transformation of the entire advertising business,” ABC President of Sales and Marketing Mike Shaw said of the switch to C3. “Now that we’ve moved to the cost-per-commercial-seen business, it changes everything.”
Buyers’ Perspective
While conceding that prices rose, buyers downplayed the strength of the broadcast market. They said while some money shifted back to the upfront, where about 70 percent of prime-time commercial time is spoken for, from scatter buys, overall spending was little changed.
“I haven’t heard anybody really tell me it’s any more than up a tick or down a tick,” said John Swift, managing director of PHD.
Mr. Swift added that the high increases in cost-per-thousand-viewers being reported were mostly a product of inflation and the change from program ratings to C3.
“The change in cost per thousands this year can’t be viewed the same way that we’ve historically looked at this to measure the strength of the marketplace because it’s not an apples-to-apples comparison,” Mr. Swift said.
Ad buyers say they expect the cable networks to seek prices anywhere from 8 percent to 15 percent higher than last year. But before cable prices can be settled, they have to decide whether they’re going to mirror the broadcast industry and negotiate based on commercial ratings plus DVR playback.
For networks that experience a big difference between program and commercial ratings — notably MTV — that’s likely to be a tough negotiation. Cable networks are hoping they can get the same high CPM increases the broadcasters got because, by and large, they are hurt more if ad sales deals are done on commercial ratings.
“Everybody’s goal is always to tuck in under broadcast prime,” said one buyer. “It doesn’t mean that’s what they should do or will do, but that’s definitely what they’ll try to do.”
But after being bloodied by the broadcasters, some buyers are looking to make a stand on the cable contest and say they expect flat pricing.
Small price increases would be tough on cable networks if deals are done on program ratings. Small increases would be devastating under C3 for networks that don’t retain viewers through commercials.
That’s why the market is waiting for the outcome of the battle between buyers like GroupM’s Mr. Scanzoni, who wants to do all his deals on C3, and MTV, which wants program ratings for next season.
Mr. Scanzoni’s GroupM deal with NBC Universal included cable using the C3 ratings. Sources said they thought the deal covered the conversion to commercial ratings — which translated into a 7 percent increase in CPM, plus a point or two more.
But an 8 percent CPM increase won’t be enough to keep revenue steady at many cable networks.
“I think Rino set the floor for price increases, rather than the ceiling,” said one optimistic cable sales executive.
“The bottom line is that there’s more television money in the marketplace,” said another bullish cable ad sales executive, who noted that if buyers paid big increases in broadcast, they’ll need to buy even more lower-priced cable to balance that out and keep their clients’ average cost down. “If I don’t get my increases in the upfront, I’ll get it in scatter.”