Unsinkable Upfront Defies the Prophets

Jun 15, 2008  •  Post A Comment

A writers strike couldn’t kill it. Nor could a shaky economy, a shortage of pilots, lower ratings, higher prices and fewer gigantic shrimp.
The upfront, despite predictions of gloom and doom, would not die.
In fact it thrived, with spending exceeding last year’s total of $9 billion as sales wrapped up for the broadcasters last week. Top-rated Fox generated price increases of close to 10% on a cost-per-thousand-viewers basis, leading the broadcasters.
Cable was seeing spending increases of about 10% above last year’s $7.5 billion as some top-tier networks completed nearly all of their deals with major buyers.
“We feel good about what occurred and feel good about the business going forward,” said Mike Shaw, president of sales for ABC, who preaches that companies that cut TV advertising during recessions find it difficult to regain market share afterwards. “Like everyone else, we would like to see a stronger economy and would love to see all our customers hit all of their sales results now.”
In the wake of the Writers Guild of America strike, networks had to think about the possibility that there might be no new shows for fall and no upfront market. The networks revamped plans for their upfront presentations, cutting down on some of the glitz and canceling some parties. In the end, the buyers still came, and their clients spent big.
“I think advertisers have an important need to be in the networks,” said Hal Vogel, a media and entertainment analyst at Vogel Capital Management. “It’s the best way to get a large audience with one contract, and I think viewers will gravitate back to some degree to network television because they had nothing to watch this year.”
The outcome was far different than the expectations of a down market by some buyers and a dire report by Merrill Lynch analyst Jessica Reif Cohen, who saw broadcast commitments dropping by between 2% and 14%. Ms. Reif Cohen couldn’t comment because she has not published a follow-up report.
Just as the networks aren’t going away, the upfront still serves as a good way for advertisers to buy ad time.
“There are a lot of reasons why this isn’t going away as fast as everybody seems to think,” Mr. Vogel said. Among them are even bigger price increases in the scatter market and the ability to lock in the right mix of old and new shows.
“They’re going to have an upfront next year, and it will probably come in about the same as it did this year. And they’ll have nicer parties,” he said.
Buyers were a bit chagrined by the level of pricing, but their clients need broadcast advertising‘s reach and the upfront remains the best place to buy it.
“In tough times, advertisers gravitate back to what works for them,” said Andy Donchin, director of broadcast at media buyer Carat. “Television is still the most efficient and effective place to advertise.”
Marketers have long complained about the upfront, figuring that buying their ad time once a year and letting the networks know how much they plan to buy before finding out how much they’re going to be charged is a prescription for higher prices.
Alternatives to the upfront have fizzled, such as a plan backed by advertisers including Home Depot, Toyota, Intel and Hewlett-Packard to spend $50 million through an auction system run by eBay. Last week eBay said it abandoned the effort.
“If there was a better way to conduct business, we would have found it,” Mr. Donchin said.
All TV buying can’t be done on a quarterly basis, and while the networks have leverage during the upfront, advertisers have flexibility to make changes in their plans.
“The process still works on both sides of that,” Mr. Donchin said.
Tipping Point
As they pay higher prices for smaller ratings, buyers have long said there will come a time when the price gets so high that the networks kill the goose that lays the golden eggs. But that point never seems to arrive. Instead, what could eliminate the need to buy broadcast would be a decline in ratings that makes the broadcast networks comparable to cable and syndication.
“Without a doubt, if everything does a 0.5 rating, the networks won’t be in a commanding position,” one buyer said.
The broadcast upfront doesn’t necessarily provide a good picture of how the broadcast year will shape up.
Buyers said some of the extra revenue in the upfront came from advertisers moving money from the scatter market after broadcast and cable networks chalked up prices that were 25% to 40% above upfront pricing. Movie studios and pharmaceutical companies shifted their spending, buyers said.
The automakers also appear to have shifted money from local TV into the upfront, they said.
Having sold more inventory during the upfront this year, the networks will have less to sell in scatter, and less still if ratings continue to erode and they have to provide make-goods. And there will less money to be had if indeed money that traditionally rolled into scatter has already been spent.
ABC’s Mr. Shaw said it wasn’t clear to him that new money came into the market from scatter; he said it was too soon to forecast what the short-term money would look like next season.
“I don’t know what the GRPs [gross ratings points] are going look like next year, I don’t know what the ratings look like next year,” Mr. Shaw said. “Certainly, based on the start we have based on this upfront, you could assume that there’d be more dollars available for the broadcast networks, but we’ve got to deliver the GRPs that can hold onto those dollars.”
Some network sales executives said there was concern some of the money that came into the networks might vanish if advertisers employ their options not to buy as much as 50% of the ad time they’ve reserved. Some said they were taking steps to make more of their upfront money firm and less optionable.
Some major cable networks said they were nearly done with their upfronts last week. Lifetime said it had completed sales, with 9% to 10% CPM increases and double-digit volume growth. Viacom CEO Philippe Dauman told an investor conference at midweek that MTV Networks was 75% done with its deals. Time Warner’s Turner Broadcasting also had only a few deals to finish, sources said.
“There’s been a shift of money from broadcast to cable, as everyone anticipated,” said Mel Berning, executive VP of sales at A&E Television Networks.
Buyers said they were having talks with syndicators, but none indicated they had completed any deals.


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