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Will the Price Be Right for Upfront Buyers?

May 25, 2008  •  Post A Comment

Media buyers are waiting to get a fix on how much television networks are looking to increase prices before jumping into advertising deals after this month’s upfront presentations.
Buyers and sellers said they were unsure when negotiations would start in earnest. Some said they expect broadcast deals to be made this week. Others said the market might drag out longer.
The peculiar economics of TV advertising, wherein fewer viewers can translate into higher ad prices, are likely to come into play again this year. Fewer ratings points available for sale restricts supply, and as long as demand remains constant, prices can rise.
With broadcast ratings down more than 14% overall, the networks have been hinting they would seek double-digit increases in the price sponsors pay for ads on a cost-per-thousand viewers basis, or CPM. But with the shaky economy likely to tighten marketing budgets, buyers say their clients won’t stand for that level of inflation.
“We’re just very concerned about the pricing, in addition to our mixes and our extensions and everything else,” said Andy Donchin, director of broadcast at Carat.
He said conversations between buyers and the network are in progress. And while there probably have been some deals struck, he hasn’t heard any specific conversations about price yet.
“We’ll go in and see what we can do and adjust accordingly if we’re not happy with some of the results,” he said. “We may go in with a certain plan of how we want to spend our money, but we have options within television.”
Media agency Starcom and Hallmark Channel last week announced what may be the first official deal of the upfront. Many of Starcom’s clients will be on both Hallmark’s regular channel and its new Hallmark Movie Channel in high definition.
Terms of the deal were not disclosed, but industry estimates were that the transaction is worth $10 million, up 50% from the network’s deal with Starcom last year.
To get that big an increase in volume, networks often have to accept a smaller increase in CPMs, but Hallmark officials declined to comment on financial questions about the deal.
It was unclear how much of an effect Hallmark’s opening salvo would have on the larger market.
“One deal doesn’t make a marketplace,” Mr. Donchin said. “Sometimes it’s not the best time to go early, but being last may not be good either.”
But an early deal can set a direction.
Merrill Lynch analyst Jessica Ref Cohen, in a report earlier this month, expected ad dollars in the upfront to decline from last year, with price increases for broadcast network topping out at about 4%.

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