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Upfronts 2009: Impasse, Interrupted

With a two-month deadlock broken, broadcast and cable TV are finally seeing some ink from the agency side. According to industry sources, broadcast networks are averaging a 4% drop in CPM rates across the board. CBS and Fox are taking the smallest declines, and NBC is accepting rollbacks anywhere between mid-single digits and a minus-7 depending on whether Jay Leno’s hour is part of the package.

Top-tier cable is in the same range as broadcast with low-single-digit price drops from last year, while second-tier networks are negotiating to discount as much as 6%. While the ball is finally in play, senior agency executives caution that there are still many unresolved issues on the table, among them legacy “integration fees,” the timing of option-taking and whether broadcast will agree to calendar-year options as cable does.

The most conservative agency estimates put total dollar volume down 10%, while the most aggressive peg a decline of 20% this upfront. Last year’s upfront saw $9.3 billion of ad spending commitments.

With the upfront finally thawing, that will next lead the way for deals to be made in other areas like sports, syndication and branded integration packages.

Parties now face a lightning round of executions on sponsorships and integrations. Around $50 million of marketing dollars have been tied up in unconcluded media buys, according to one estimate.

United Entertainment Group, which helps develop shows in conjunction with companies, forecasts the branded entertainment business to be worth some $1.5 billion in 2009, including TV, film and live events. The TV portion is valued at some $500 million to $600 million.

The upfront deadlock has been holding up product destined for fall shows, along with the cash that comes with mentions in storylines. Around 50% of branded entertainment deals are negotiated in the spring upfront, while the remainder are done year-round.

“The overall marketplace has been affected by it,” says Alison Tarrant, executive VP of integrated sales and marketing at The CW, of the delayed upfront. “We said to our advertisers, we’re not going to start integrations until there is a media deal in place.”

In many cases, the broadcast networks have been using the desire for a particular integration as a bargaining chip. One media agency chief says, “The networks are pushing, saying if you want the integration, you have to come up with a final negotiation on the upfront.” According to this agency executive, clients have responded by saying: “We’ll negotiate our integration in, say, Survivor, but that’s not part of our overall deal. You’re not going to force us to make an upfront deal.”

But not all deals have waited; in fact, the upfront complications may also have put new TV financing models into overdrive. NBC Universal, under entertainment co-chairman Ben Silverman and president of sales and marketing Mike Pilot, has been among the most aggressive in seeking new ways of working with advertisers, according to sources. McDonalds has already announced a pact with the new primetime Leno show.

The CW has a strong hold on the young female audience with shows such as Gossip Girl and America’s Next Top Model. These shows are among the most in demand among advertisers that have been willing to pony up bucks regardless of the broader market dynamic. Tarrant cites Melrose Place as the most popular new show among marketers for integrations, though she isn’t ready to give away who’s in just yet. “The timing of the marketplace has affected the mid- to low-tier shows,” she says. “With the top-tier shows, there is a limited supply of integrations. Every show will only have one [telco] wireless integration, so you have to be the first one in.”

Another TV executive in the entertainment marketing world says, “The timing is working against everybody. Companies need a long lead time to properly integrate a brand into a show and to activate at retail or on the Web. The real worry is that this extended sales cycle will turn into half-baked partnerships that might sour brand executives who might not get full return on investment.”

The good news is that integrations are in no less demand than before. Since the business has evolved to a place where there is a real process for measuring effectiveness, there is a greater comfort level with the somewhat nebulous world of entertainment marketing. However, as the TV executive points out, “A delayed upfront will certainly take a toll on the timing for negotiated integrations.”

Says Bob Friedman, president of media entertainment at Radical Media, which is producing a fall show about ping pong for ESPN in partnership with tennis sneaker maker K-Swiss and fast-feeder Anheuser-Busch: “TV is dis-aggregating and becoming multi-platform; similarly, the networks are looking for other ways to finance their product with revenue shares and client-supplied programming.”