Ratings Down, Prices Up

Overall, Madison Avenue will spend more money on next season's prime time, but it will be cable that gets most of the extra cash. With the upfront market, where the bulk of commercial time is bought, close to wrapping up, the broadcast networks are expected to match last year's tally of $9.3 billion. In contrast, cable will be up at least 15%, banking an estimated $6.2 billion.

Although the broadcast networks' cumulative haul was flat, they still managed to up their cost per thousand 6%-8%, according to industry estimates. Still, that's half the CPM bump they got in the 2003 upfront.

But given that every network's ratings, save CBS's, were down in such key demos as the 18-49 crowd, it shows that advertisers are still willing to pay a premium for broadcast.

Look at the prices fetched by an ailing ABC. "ABC was down 16% this season in [adults] 18-49, yet they're holding out and getting 5% price increases. So you tell me how successful we were," says the chief broadcast buyer at a major ad agency. "To get the best price, agencies have to learn to fold their arms and walk away. And it hasn't happened yet."

But this upfront season, the ad community began to change: Specifically, new money went to cable.

Steve Grubbs, CEO of media buyer PHD, says advertisers that spent more on cable this year helped keep their overall TV ad costs to a minimum. "We moved more dollars to cable," he says, "and our year-to-year costs will be up just a couple of points, if that."

One big winner in the broadcast camp is CBS. The network was still holding out for and getting 10% rate hikes for its ad time. CBS insiders say the network was about 65% sold as of late last week. It was still trying to do deals with at least two major ad buyers. They are believed to be Magna Global, the ad-sales negotiating arm for the Interpublic Group of Agencies, and Group M, which does the negotiating for the WPP Group, the U.K.-based ad-agency holding company.

CBS sources insisted last week that it would not lower its asking price. And if it can't come to terms with the remaining agencies, says a source at the network, CBS will stop selling ads in the upfront and wait for the scatter market, when leftover ad inventory is sold during the year. At 65% sold, CBS has commitments for about $2 billion in ads. If it can get its price, the network will sell about 85% of its prime time ads for $2.4 billion to $2.5 billion, up from 2003's $2.2 billion.

NBC finished last week, saying it sold $2.9 billion in prime time spots in the upfront. Last year, the network did about $3 billion in that period, including $100 million in Olympic sales.

Late last week, ABC sales executives were still doing deals and declined to comment. But parent Disney President Bob Iger briefed investors attending the Deutsche Bank Media Conference and predicted this year's upfront would garner $1.5 billion and $1.6 billion, down more than $200 million from last year's $1.8 billion take.

Though projecting a lower tally, Iger did say that CPM increases would be in the 5%-6% range. He also said ABC would sell fewer spots upfront this year, betting that "scatter will be strong."

Iger estimates that ABC will sell about 80% of its prime time inventory at the upfront, about 5% less than a year ago. Packaged-goods advertisers (such as Procter & Gamble) and pharmaceutical companies are spending less in the upfront market this year, and Iger predicts they will put money down in the scatter market.

Fox ended at about $1.6 billion, about flat with last year, with CPM hikes of about 7%. Much of Fox's ability to stay even with 2003 was attributed to the continuing strong performance of American Idol and plans more original programming throughout the year, say media buyers.

The WB was down in total dollars—$675 million vs. $700 million last year—but with price increases of around 7%. It had one of its worst seasons ever in the ratings. But as one ad buyer noted, "They usually deliver, and their program development looked pretty strong."

UPN, on the strength of positive notices for its development slate, was getting 8% price increases and is expected to end up with about $325 million in total sales vs. $300 million a year ago. Like its Viacom-owned sibling CBS, UPN was threatening to hold back a significant part of its inventory for the scatter market, which could affect how much it ultimately takes in.