ABC's Upfront Payoff

Viewers are tuning into Desperate Housewivesfor its trashy mix of sex, betrayal and suburban frustration. But television executives should be watching the ABC hit for an interesting lesson in the economics of TV advertising.

ABC is riding high because the long-ailing network is suddenly performing much better than they—and the all-powerful ad buyers—expected. Buyers who locked in prices for Desperate Housewives and another ABC hit, Lost, at the upfront market this summer are gloating. They can brag to their clients about the terrific deal they got for shows that can demand premium prices now.

"It's the best time of the year for us from that perspective," says John Rash, director of broadcast negotiations for ad agency Campbell Mithun. "We're very happy."

But look more closely at the delicate chemistry of the ad market. Each spring, broadcasters have to decide how much inventory to commit upfront and how much to sell later, hoping for better prices when the new season actually starts. Commit too much upfront, and you risk leaving money on the table later on. Hold back too much, and you could get caught with a lot of inventory in a soft scatter market. It's a game of chicken that sellers and buyers play every year.

At the upfronts last spring, ABC was in a tough spot. Ratings had tanked—which meant plenty of make-good ads to compensate for lower-than-promised performance—and Disney CEO Michael Eisner had sacked the network's two top executives. Adding to the anxiety: ABC's schedule was populated with more new, unproven shows than any of the competition's.

So, according to Morgan Stanley analyst Richard Bilotti, ABC sought just a 6% increase in cost per thousand—the smallest rise of any major broadcast network—and lowered its ratings guarantee by 11% from last season. The network committed about 80% of its time to upfront, about the same as its peers.

Then, boom! Desperate Housewives and Lost became instant hits. In the sweet 18-49 demo, the smart soap has been delivering a huge 9 million viewers, while the spooky deserted-island drama is snagging about 7 million.

Did ABC sell too cheap? Networks and ad buyers are fairly tightlipped when it comes to detailing guarantees for specific programs, but in a preseason survey of prime time spot prices, buyers told B&C that ABC was getting about $155,000 for a 30-second commercial on Housewives. On the scatter market today, according to one ad exec, the network is asking about $255,000—a 65% increase.

Lost is found money, too. A spot that could have been yours for just $130,000 this summer is now going for about $220,000.

And despite its play-it-safe strategy of committing a lot of inventory to the upfronts, ABC still has plenty of time available on these suddenly desirable shows. Why? Because the network's dramas didn't sell all that well at the upfronts. Advertisers were more interested in ABC's sitcoms than in an unproven prime time soap and a drama that was going to showcase plane-crash victims—plus an amputation and a mercy killing—in the 8 p.m. "family hour."

ABC didn't even sell Housewivesfor the full season, booking ads only through the end of December, gambling on being able to charge a bit more later on. Good plan.

The upshot of all this: ABC now has a disproportionately large amount of inventory for its hottest shows, ripe for sale in the scatter market.

Geri Wang, ABC senior VP of prime time sales, wouldn't discuss ad sales in detail but did acknowledge that she has inventory on the network's biggest hits to sell. "Advertising is about reach. I've got some nice reach stories," she says. "We've got to pull up the comedies. But we have nice dramas, strong reality and solid comedies."

Still, it's a little early to pop the champagne. As Peter Butchen, senior vice president and national broadcast group director for buying agency Initiative Media, says, "Unfortunately for ABC, it's a soft scatter market. You can make the case that it's even worse for them, because they've got so much more inventory to sell."

And the season is still young. these hits could cool off the way ABC's Tuesday- and Friday-night comedies have.

The folks who have an unqualified reason to celebrate are the buyers who jumped onboard with the network during the upfronts. Even ABC reality shows Wife Swapand Extreme Makeover: Homeare out-delivering the network's promises, rewarding advertisers with millions more viewers than they paid for. Beats the heck out of make-goods.