An Open Secret: Upfronts Make No Sense

The broadcast-network upfront advertising marketplace is a lot like the hackneyed joke about the weather: Everyone likes to complain about it, but nobody seems to do anything about it.

Complaints about the upfront aren't new. They've risen periodically ever since the networks began selling advance time on their new prime time schedules during the 1960s. They got noisier in the 1990s, especially when a corresponding erosion of network audience share began to exacerbate the problem, causing advertisers to pay more for less.

And those complaints are back. In March, for example, DaimlerChrysler executives floated the idea of transforming the network upfront advertising marketplace into a Wall Street-like exchange, in which TV ad time is bought and sold at open-market rates for all to see.

“I would envision an electronic system where each trader is anonymous and has the ability to buy and sell spots every day—spots that would, at any given time, have a value established by the marketplace,” Julie Roehm, director of communications at DaimlerChrysler, recommended during a keynote speech at the Association of National Advertisers' (ANA) Television Advertising Forum in New York. “The process would start with what would amount to an enormous IPO: the sale of all these spots to the market. After all shares have been parceled out, they would be traded between advertisers and networks.”

That “IPO,” Wall Street parlance for the initial public offering of a company's stock, would replace the current closed-market structure of the upfront, with the remaining TV ad time traded in an ongoing exchange that would operate much like Wall Street's Nasdaq market, she suggested.

Roehm's idea caused a stir, but no one's taking it too seriously yet. In part, that's because the ad industry just isn't ready for reform. Last year, the industry went through a similar effort to fix the upfront sales process, and a summit of bigwigs made a ruling (drum roll, please!): Keep things exactly as they are.

That effort was sparked during the ANA's 2004 Television Advertising Forum, when Carat CEO David Verklin issued a call to action, challenging big national marketers to change the system. The ANA formed a task force dubbed NUDG (Network Upfront Discussion Group), which posed a number of scenarios, including an “opening” and “closing” bell that would begin the upfront sales process each day the way Wall Street's stock markets do.

Last April, after five hours of discussion, the group decided to do...nothing: “While not a perfect process, the current processes in place were generally acceptable, were essentially optimal, and will continue as is,” ANA president/CEO Robert Liodice said in a statement issued after the meeting.

That uneasy peace didn't last long. Within weeks of the NUDG meeting, marketers and agency executives were back to their usual complaining about the upfront during a series of conferences and news stories that led up to the 2004-05 upfront marketplace.

Unlike in years past, when requests for upfront marketplace reform coincided with strong seller's markets, DaimlerChrysler's call to action follows 2004-05's buyer's market and comes on the eve of the 2005-06 sales season, which many believe will favor media buyers once again.

“Julie Roehm's idea is refreshing and interesting, but I don't think the stock-market concept demonstrates true value for advertisers,” says Mike Drexler, CEO of Optimedia, New York. “The question remains, how do you get real value out of the upfront when prices go up and audiences go down? It's the real value everyone is beginning to question.”

To Drexler, a veteran of numerous upfront markets and once the top media buyer at a Chrysler ad agency (Bozell), the trouble with the upfronts is that they aren't what they're cracked up to be. “We all say that the upfront gives us guarantees and the ability to pick specific shows, and that's why we buy it,” he explains. “Theoretically, those are the real benefits of the upfront. But the reality is that most shows aren't around for the whole season and the networks are programming year-round, anyway. When you think about it, it mitigates any real benefit of an upfront in concept.”

Another buyer puts it more bluntly. “It makes me insane,” says Shari Anne Brill, VP/director of programming at Carat USA, New York. The constant “tweaking” of the networks' prime time schedules—after they've been announced, in the period leading up to the upfront, following it, and even once the shows have been introduced in the fall—has made the whole notion of buying a prime time upfront schedule ludicrous, she says.

“The reality is, it's more like you're buying a mix of shows: some good ones, some moderate performers and a couple of frightening things,” she adds, recalling last year's upfront, which included shows ranging from ABC's breakout hit Desperate Housewives to NBC's heavily touted but ultimately doomed Father of the Pride.

“I just knew it was going to be bad,” Brill says, “but NBC kept talking it up during the upfront. It was horrendous.”

Optimedia's Drexler says the biggest and “easiest” fix, especially because networks now introduce shows all season long, would be to shift the upfronts from late spring to the fall, when advertisers' annual ad budgets are decided. Instead, buyers are like moviegoers who queue up without knowing what movie they're going to see or how they'll pay for it.

“What drives the upfront market? Fear,” says Jerry Dominus, a one-time head of sales for CBS and retired head of network-TV buying for J. Walter Thompson. “When I started out in this business as a young media buyer, I asked my boss how much a commercial cost,” he recalls. “He told me, 'Whatever any damn fool was willing to pay for it.'”

It's frighteningly true for many marketers and agencies that have long operated in the dark about the actual costs of broadcast network ad buys. That's because, when media buyers buy the upfront, they negotiate to buy a package of programs. At that point, they don't know what the ad units are actually worth. Instead, they negotiate a percentage increase or decrease on the CPM, or cost per thousand viewers, they paid in the previous year's upfront. The actual prices for each show are set later.

One reason that has been the case is that the networks preferred to sell that way and media buyers accepted the practice. Another reason is that there is no objective pricing data to measure against.

That has begun to change, says Larry Fried, a former top sales executive at ABC who is now chief revenue officer, national TV, at SQAD, a Tarrytown, N.Y.-based research company that has provided cost data about spot-TV ad time to advertisers and agencies for years and last year began supplying network ad costs, too.

“I'm down here at a procurement meeting where marketers are saying they want to know what they're paying. They want accountability,” Fried said last week at the ANA's annual financial-management conference in Florida. “They want proof of what they got and what they paid for it.”

That proof, he said, now exists, albeit in a syndicated research database called NetCosts being pitched by SQAD. To date, 30% of national marketers, representing 50% of broadcast-network ad spending, have agreed to share data about their actual network ad buys in the database.

During an address at the ANA conference, Fried's boss, Neal Klar, founder and president of SQAD, said the new database has “replaced opinions with transactions,” giving agencies and marketers information to negotiate upfront ad buys based on actual unit costs, not vague percentage increases, rumors on the street or network spinmeisters.

Knowledge is power, as Klar notes: “If you don't know what [a competitor] is paying for a spot on American Idol, what does CPM matter?”