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Lower Broadcast Price Hikes Could Send a Signal to Cable

Now that media buyers have pushed the broadcast networks to accept smaller upfront price increases than last year, they may be expecting the same thing from the cable networks.

CBS, the broadcaster expected to get the most upfront advertising dollars as well as the biggest price hikes, did about the same $2.65 billion in upfront deals as it did last year, getting 7.5% to 8.5% price increases on a cost-per-thousand viewers (CPM) basis. That’s on the low end of what CBS CEO Les Moonves told Wall Street analysts to expect and a percentage point down from last year.

The slower pace of deal making suggested that buyers had an advantage in this year’s negotiations and the decision to take more reasonable price increases rather than dig in its heels for gains closer to double digits was done quietly and surprised at least some rival sales executives.

Buyers expect ABC and NBC try to tuck under the upper limit established by top-rated CBS, leaving them with rates of change a tick below last year as well. ABC and NBC had already gotten some of its deals done, but weren’t as far along as CBS or Fox.

Fox was also very close to finishing, getting 5% to 7% increases--also smaller than last year—after a season in which ratings were down about 20%.

The CW finished its upfront sales last week, getting a price increase of 5% to 6% on sales of about $400 million. The price increases were smaller than a year ago. Volume was flat.

The smaller increases would suggest that predictions that upfront volume for the broadcasters could be down 5% could prove accurate. With CBS flat and Fox down in volume, ABC and NBC are unlikely to see substantial increases. “The sheer fact of the matter is money is tighter and ratings were a little rough last year. Those declining ratings have a lot of money shifting,” one senior buyer said.

“The demand is not as strong as predicted and with numerous viable outlets the buyers are re-evaluating options,” said another top buyer. “Money is being spent with those national media owners that are more reasonable.”

Buyers also have new options if broadcast prices are too expensive. In addition to cable, “digital video is in that conversation as well right now,” according to one agency executive.

With NBC, in addition to broadcast, NBCUniversal’s cable and digital assets are parts of the package being offered. Some clients have made deals to buy NBCU portfolio deals. Some agencies said that dealing with all of the assets in an NBCU package would take some extra time. “It is an enormous opportunity. It’s is an enormous operation. It’s hard to put a value on the whole package,” one buyer said. Other agencies might not be set up to do business that way. “I’m not sure everyone aligns," the buyer said.

Having restrained the broadcasters, buyers are going to do the same thing in cable, even though the economics are different. While broadcast spending is expected to be down, cable demand is expected to be up. How much is the question.

“The buyers are taking a hard line,” said one cable network sales executive. “They say ‘I can’t pay the same rate of change as last year.' They used that approach in the first battle with the broadcasters. Now they’re using it with cable. I’d do the same thing.”

The sales executive suggested that buyers might keep a little money in their pockets while negotiating cable. “Once they get everyone to agree to a number, I wouldn’t be surprised to see another $500 million show up.”

The CPM smaller increases garnered by the big broadcasters might justify Viacom’s early move to generate volume with low prices. Viacom used a similar strategy last year and might actually have gotten a slightly larger increase this year.

AMC Networks is unlikely to have issues with volume. It’s telling buyers it is over-registered for its original programming, which means advertisers want more spots in shows like The Walking Dead and Mad Men than AMC plans to sell. That dynamic should lead to substantial price increases.

One analyst suggested that the lower volume the broadcasters are seeing in the upfront could mean that advertisers are shifting to the scatter market from the upfront.

Brian Wieser of Pivotal Research said most businesses are making buying decisions closer to deadlines and that making upfront commitments a year in advance is something of an anomaly.

“A shift of budgeting from Upfront to scatter markets could play out with an upfront that is much weaker than expected, especially given the price increases that many of the networks are asking advertisers to pay,” Wieser said in a research note June 7. “This could lead many observers to conclude that television is 'finally' weakening given the ratings declines that most national networks have experienced in recent period. That conclusion would be mostly wrong.”

Wieser notes that sales and pricing from the upfront are only one factor in how much ad revenue networks will generate over the course of a year.  “We expect national TV to grow by around 5% during 2014 regardless of what happens in the upfront,” he said.