In the Eye of the Upfront Storm

The merriment of upfront week is over. The fall schedules have been set. The champagne is flat, and executives have put away Polaroids, taken at network parties, of them grinning with the Desperate Housewives or the latest winner of Survivor.

Now the buyers have moved on to the serious business that is the entire reason networks spend millions of dollars on their elaborate presentations: How will they commit nearly $20 billion in advertising during the next TV season?

Like the first few minutes after a Super Bowl kickoff, the initial cacophony has quieted down to a tense silence as the big buying agencies call the networks, nosing around on price and program availabilities. They're still detailing the needs of their clients: major car companies, fast-food restaurants and retailers that need to secure air time.

All this silent strategizing and squeezing is part of the big buildup. At some point, the Byzantine upfront market “breaks,” and broadcast networks will rush to sign deals, locking up commitments for billions of dollars' worth of business perhaps in just a few days.

And the first cracks in the wall showed up immediately. By last Thursday, ABC was writing business with advertisers. As for other networks, buyers and sellers reported that upfront talks were slow, that phones and BlackBerries were not yet beeping.

If ABC is actually breaking early, that doesn't mean all the other networks will move as quickly. Last year, the market broke within days after the broadcast presentations. But the process stretched into July.

Mike Shaw, ABC president of sales and marketing, wouldn't comment, and a spokeswoman said he'll say little until he has his upfront business wrapped up.

ABC's deals didn't immediately electrify the market. An executive at another Big Four broadcast network said at midweek that few agencies had completed even the most basic stage of the negotiating process: submitting their clients' budgets. “We've seen maybe 20% so far,” the executive said at midweek.

Cable executives report a similar situation. At this point last year, major cable networks had wrapped up major deals, sealing a couple of billion dollars' worth of sales. But so far this year, only midsize agencies have submitted budgets and cut a handful of deals.

“No one's in a rush,” says the ad-sales chief for one major cable-network group. “People have come to us wanting to do early deals, but not at a price we want to do it.”

ABC's Shaw said recently that his network doesn't even begin price negotiations until it sees nearly all of its clients' budgets. Advertisers and their buying agencies lay out a plan for each individual brand, specifying the size and type of audiences they need to reach and the timing of their campaigns through the year. ABC then matches the plans against its model of the 30,000 or so prime time spots the network sells for the year, each individually coded with expected audience delivery and the amount of revenue it generates. Network sales reps and analysts balance the plans against the clients, favoring those paying the most or that have the best relationship or ordered the same show last years.

ABC is asking for the biggest gains in price per spot this year. Its ratings are up a dramatic 16%, and the network is seeking a 5% hike in average cost per thousand (CPM) viewers, which would raise its average revenue per spot 21%. Other networks were inclined to sit back, letting ABC set the pricing bar high and help them get higher prices themselves.

NBC's strategy is different. The network comes into the market with a 17% decline in audience, 10 points more than the network had expected after Friends went off the air last year. The network's plan has been to wait until ABC, CBS and No. 1 network Fox were negotiating hard, looking for advertisers resisting their price demands to come to NBC for a little relief and leverage to negotiate with the others.

NBC is trying desperately to keep its premium. Because the network was No. 1 for so long and its audience tends to be more upscale and urban, it has long set its CPM about 5% higher than other networks'. NBC Ad Sales President Keith Turner is working hard not to give that price up now that NBC has fallen to fourth place.

After closing deals before broadcasters even got out of the gate last year, cable networks won't likely have the same clout this year. Still, they'll post bigger gains than broadcasters.

There are many other parts of the upfront-market equation—daytime, late- night and evening-news dayparts, Spanish-language, syndication—but the biggest factor is broadcast prime time, which Merrill Lynch media analyst Jessica Reif Cohen expects to grow just a hair to $9 billion. (Other analysts forecast a decline.) Cable prime time is the next largest and is expected to rise 11% to $7.3 billion.

One network executive is frustrated by the flurry of inquiries from Wall Street and media about talks so far. “You people are trying to call the Super Bowl, but it's only one minute into the first quarter,” the executive says. I noted that Super Bowl pre-game coverage starts at noon for a 6:30 p.m. kickoff. In a game with this much at stake, you have to anticipate every number.

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