Add the television upfront to the list that once included Mark Twain, the dollar and Abe Vigoda: Reports of its death remain greatly exaggerated.
Industry experts have long doomed the annual sales process—its too glitzy stage shows and rigid commitment to early buys—to obsolescence, complaining about it the way one whines about the weather. Yet the numbers for 2007-08 speak to a clear outlook of optimism.
A very early assessment of the market indicates strength. After a couple of weak years for TV, advertising commitments in the upfront should see a moderate, single-digit uptick over last year, when networks brought in approximately $9.1 billion and cable commanded $7.4 billion. And this season’s strong scatter market and the networks’ continuing to create ways to attract digital dollars also lead many to predict a healthy upfront, about $17.2 billion.
Plus, the fragmenting of audiences increases the value of the grand-scale TV buy, especially for broadcast.
“The upfront may become more important,” says John Rash, senior VP/director of media negotiations for Campbell Mithun. “As everything fragments, even the upfront’s reduced share of the pie is more impressive.”
That doesn’t mean the upfront is equally impressive in keeping up with the times. Both the market and the industry continue to progress. Such factors as the country’s overall economic strength in wartime, the controversy over which measuring metrics to use, and the increasing importance of digital products will continue to alter the balance of power between buyers and networks.
Expect a more pronounced evolution this year—starting with nearly every big cable network’s ditching its onstage hullabaloo. Beyond the surface, shifts will come between now and early summer, when the upfront talks wind up. And four huge factors will help spearhead these changes.
1 THE BATTLE OVER SHIFTING RATINGS METRICS HEATS UP
With all the talk of commercial ratings and time-shifted numbers, it’s an understatement to say “these are not your grandfather’s Nielsen ratings.”
Commercial ratings are about to become more prevalent, which will force the industry to shift away from Nielsen program ratings as the sole basis used to sell advertising. Whether commercial ratings are fully embraced this season or not, the battles over live versus time-shifted numbers will still rage. Networks continue to want credit for all viewing. Advertisers say adding the audience watching on a DVR skews unfairly. With the measurement criteria up in the air and phrases like “engagement guarantees” entering the parlance, the 2007 upfront will see executives playing both sides against the middle in buys.
“I might negotiate off of one currency with one agency and another with another,” says one network executive. “But by next upfront, I expect commercial ratings to be more established.”
It is universally expected that bartering over measurements could stretch out the negotiating season by extra days or weeks. One ad buyer says customers will take their time if they can’t easily compare apples to apples.
“Clients want to know what you’ve got and how it compares to the competition and to last year,” he says. “If the metrics are different, that will cause more delays.”
Networks and buyers began discussing metrics earlier this year, which could move things along, although NBC’s talk of guaranteeing engagement figures could complicate matters. While ad buyers are anxious to see the result and many say they are intrigued by a better measurement standard, some detractors call the move a function of the network’s recent primetime struggles.
Whether tactic or smart tactical move, NBC’s plan only highlights the uncertainty in a vital area involving the upfronts.
“It muddies the water a little bit,” says Horizon Media Executive VP/Director of Broadcast Aaron Cohen. “It means that advertisers can look at television differently and try to improve upon the relatively inadequate measurements that have been there so far. It’s a way of television finding more reasons for advertisers to keep their money in the television community and not go running off to broadband or online.”
2 CABLE WILL TRY NEW WAYS TO CLOSE THE GAP WITH BROADCAST
Although cable continues to grab audience share from broadcast—albeit more slowly than it used to—cable networks have not been able to close the cost-per-thousand-viewers (CPM) gap between their entertainment programming and that of broadcast during the upfront. That trend will continue this year.
Broadcast networks can still draw tens of millions of viewers to mammoth hits like American Idol and Dancing With the Stars. Even the biggest cable original dramas, which average about 5 million or 6 million viewers at best, can’t compete. Cable as an aggregate still charges about 20% less than broadcast, taking in about $7.4 billion in last year’s upfront versus broadcast’s $9.1 billion.
“Cable sells brands; on broadcast, you’re looking for the big show,” says Discovery Networks Ad Sales President and former CBS executive Joe Abruzzese. “If that changes, we will be headed toward parity.”
While some say all cable originals give advertisers too many options, others say high-quality, ratings-earning originals are cable’s key to its reputation and respect.
“As original programming continues to enhance the cable business, I see the gap closing a lot quicker,” says David Levy, president of Turner Entertainment Ad Sales and Marketing.
For cable networks, the hottest period continues to be the scatter market, where they sell more ads and increase rates more than broadcast. Broadcast sells 70%-80% of inventory during the upfront; cable peddles about half. The rest is sold during scatter, often as part of intricate deals that include product integration that can bring in more money than a simple 30-second spot.
This year, scatter has been strong. Cable ad-sales chiefs cite scatter-price increases between 7% and 20% over the upfront.
Also, cable networks will hope that less is more, beginning at this year’s upfront. As B&C reported in January, cable giants like Turner and MTV Networks are eschewing big presentations for smaller—and many say more-efficient—meetings.
Cable networks will try to carve out time to walk individual advertisers through the highlights of their ad packages and make specific claims about audience composition and engagement to stand out from the pack. With the volume of ad dollars no longer shifting from broadcast to cable, it’s increasingly a race between cable networks for a piece of that pie.
“There’s not that automatic growth,” says Jeff Gaspin, president, NBC Universal Cable/Digital Content, “so you have to fight a little harder, sell a little harder and distinguish yourself from the next guy.”
3 DIGITAL GROWS AS AN IMPORTANT BARGAINING CHIP
Digital ad sales could jump as much as 50% this year—from about $300 million last year to $450 million, still a tiny part of the overall $17.2 billion upfront take for broadcast and cable.
It’s rare for something this small to continue to be the elephant in the room, but digital opportunities will likely play a role in every discussion that networks have with clients, whether the money is there yet or not. Cable networks report that 30%-40% of their television sales deals contain some sort of digital tie-in. Broadcast lags slightly behind—another factor in the cable-versus-broadcast battle.
“I keep waiting for digital to play a huge role,” says Abruzzese, echoing sentiments of more than a dozen TV ad-sales executives. “Every year, it plays a bigger role, but we’ve not seen wholesale change in linear media based on new media.”
While Internet advertising is forecast to grow 21% in 2008 to $23.8 billion, TV advertising is still dominant and growing and will rise 7% to $80.2 billion in 2008, according to an October 2006 Morgan Stanley report called The U.S. Internet Advertising Outlook, 2006-2010.
But a shift seems much closer. After flooding the market with new Websites and other digital products last year, TV networks have had that time to see what worked and what didn’t as they head into this year’s upfront. At the very least, it will lead to more-informed conversations with clients.
“A lot of people were just trying to kick the tires and figure out what we have,” says Harry Keeshan, executive VP/director of national broadcast at PHD. “There’s a lot of opportunity now, a lot of choices to fulfill a media plan.”
Says Gaspin, “We made a big deal of digital last year and had a lot of success, so clearly we plan to make an even bigger success of it this year. We’re coming to market with a better set of products.”
Broadcast networks have seen success with ad-supported streaming of TV-show episodes and will likely sell the bulk of those ads during the upfront. They are at a premium, while more-prevalent banner ads are not.
Some networks say integrating broader digital tie-ins helps them orchestrate large-scale deals that they would otherwise not be able to. “They bring much more value than just the money we generate against each site and each business,” says Jim Perry, executive VP of 360 Brand Sales at MTV Networks’ Kids/Family Group.
4 THE UPFRONTS WILL GET DOWN TO BUSINESS
While the industry grapples with these changes, some variables remain well beyond anyone’s control. The industry is keeping a close eye on the broader economy, with worries that the market is teetering on the brink of further correction as the U.S. remains at war abroad.
“I’ll be happy when we have a solution to what is happening overseas. It really is affecting a lot of companies,” says one network ad-sales executive. “I’d also be really happy if [former Fed chief] Alan Greenspan keeps his mouth closed. Every time he opens his mouth, we lose business.”
It’s far too early to say for certain how much money advertisers will commit this upfront season. And with struggles in key advertising sectors, particularly automotive, networks are hoping that a category—any category—gets hot and picks up the slack.
But one thing’s for sure: Look for less glitz. And major cable companies aren’t the only ones turning down the stage volume. Broadcast networks are thinking along the same line, with many planning to cut back on entertainment and focus more on programming and digital opportunities this year.
“Just show me the shows,” says one ad buyer. “I’m offended at how much they waste my time. It sometimes makes me want to move all my money to The Economist.”
Still, these are evolutions, not a revolution: Discounts, guarantees of prime real estate, cancellation privileges, and not having to pay until ads air will keep marketers flocking back en masse and the upfront healthy.
And although the scatter market’s flexibility has its advantages, agencies consider it a risky path.
“With agencies in such razor-thin margins, you become more risk-averse,” says another ad buyer. “If you are buying for a car company and you don’t get access to the programs and are launching a new car in October, that’s what gets agencies fired. So you have to be in the upfront right now.”
For all its antiquity, the upfront is still a $17.2 billion business for broadcast and cable. So don’t look for the networks to completely shut down the fancy post-presentation raw bars just yet.
Says one network executive, “The same people that say we don’t need the dog-and-pony shows are also bitching they didn’t get enough tickets to the after-party.”
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