Upfront 2009: The Correction Year

Several TV advertising executives are describing the 2009/2010 upfront as a correction year now that the majority of players have accepted that it’s going to be a cut-price CPM marketplace.”It happens about every ten years,” one syndication executive said, “so we’re due.”

An ad industry consultant advising marketers echoed that sentiment: “The truth is it’s time for a correction. We do it every 10 to 15 years.”

The last down market occurred in 2001, following the dotcom bust, and before that a decade earlier during the 1991 recession. The 2001 upfront market saw broadcast networks cutting rates at anywhere between two and eight percent.

In an interview with B&C ahead of the upfront marketplace, NBC Universal president ad sales, Mike Pilot, appeared to acknowledge this market would in all likelihood be a down market given the economy. “There’s been real pressure on pricing. I think if you are a buyer in these kinds of market conditions, in any industry, you’re not feeling great about paying increases right now, and we’re not immune to that.”

Even so, the demands for double-digit price reductions don’t appear to have abated even as the negotiations between Group M and NBC Universal looked like they might kick-start the market last week, with sources saying a deal had been closed at a minus-seven number on the network and at minus-three for NBC Universal’s successful cable channels. One cable ad sales executive joked the supposed Group M/NBC Universal deal was starting to resemble the search for the mythic Scottish monster at Loch Ness.

The 2009 season might be the year that the networks and their agency counterparts would rather forget. This ad consultant said there had never been so much anger in the market, as a result of the gap between what TV sales executives want and where clients are prepared to meet them.

“The clients are saying, ‘I’m not going in with that number,’” a senior agency executive said Tuesday. “They’re all saying that number is ridiculous: ‘My volume is down 20%. Where do they come off asking for minus seven?’

The consultant added, “They want double-digit decreases because their business is in the shitter, and that’s not just autos. The media and marketing guys are afraid to go back to their management. There is so much pressure.”

Even fast food restaurant McDonald’s, which has been having a relatively positive time on the business front, is said to be among the tougher clients insisting on big rollbacks from its TV partners. Others observed that clients that had called reviews of their media business within the last 12 months–Home Depot and Unilever are two of them–would be among those looking for more aggressive upfront deals this time around.

But one senior cable industry veteran countered that the “saber rattles for deep discounts” are “just language.”

“The market is going to be determined by supply and demand factors, and right now, there is not a reason to write business at big rollbacks or deep discounts,” the cable veteran said. “All the health metrics and trading currency information for cable are terrific. If there is a price/value adjustment it’s at broadcast.”

Not everyone’s stalled, though. In the auto category, General Motors is active in the marketplace, weighing a number of TV opportunities that have been presented by TV partners. GM is currently working hard on selecting marketing initiatives to help it claw back sales once the Chapter 11 reorganization is complete, and the government has signed off on a $40 million-a-month ad budget. Ford is also said to be highly active finalizing fall integration plans with its TV partners, even as the upfront talks drag on. Chrysler, on the other hand, is said to have been much quieter than its rivals.

Meanwhile, the back and forth is leaving agencies between a rock and a hard place with chief marketing officers and procurement departments determined to focus deals around price as never before.

CPM numbers are one thing, but what clients actually get on the other side of their CPM deals is a large part of the upfront process that goes unreported. Some clients have told agencies to include less of the top shows in their mix and to simply buy as many eyeballs as possible, even if that means having more B- and C-tier shows in the plan. Complicating negotiations, no doubt, is the expectation among clients that whatever price they agree to, average ratings on the Big Four networks will continue to fall again this year, as viewers increasingly watch their TV shows on DVRs, on VOD services or via online video sites such as Hulu or TV.com. CBS is the notable exception and has seen an uptick in ratings.

Even with all the hubbub over pricing, talks with several upfront players indicate a commonly held belief that NBC Universal will have to take the steepest cuts–partly as a result of the expectation of lower 10 p.m. ratings when The Jay Leno Show launches–while their broadcast network rivals will reap decreases in the low to mid single digits (CBS may likely hang in for flat CPM rates at best). TNS Media Intelligence predicts the Leno change at NBC will take about 4% of ad spend out of the 10 p.m. time period.

A negative marketplace will be a blow to many large cable players which have done well this year, but the fact that no one in cable has been able to finalize a deal suggests that either cable pricing is also out of whack with the buyers or that they’re waiting to see how the broadcast market shakes out first.

Morgan Stanley’s latest ratings report card, based on Nielsen’s live-only numbers for June, has cable up 1.7% in the adults 18-49 demo, while broadcast is down a collective 16%. Of course, these figures are directional given that the currency of the upfront is not live ratings but C3 ratings. In June, ABC and CBS were down 10% and 13% respectively, while NBC and Fox were down 17% and 27% in the 18-49 demo during primetime.

In cable, Discovery’s networks were up 12% overall, with Animal Planet up 25%, TLC up 24% and Discovery Channel up 4%. At Turner, CNN was up 18%, Headline News up 14% while the company’s entertainment channel’s fared less well. TBS was flat, TNT was down 8% while TruTV was up 14%. Indeed upfront chatter about Turner’s stable, usually one of the first off the blocks, has been non-existent this year.

While all parties are agreed that there has been some inching towards the middle ground this past few days, deals are still far from happening. Some say the upfront is unlikely to wrap until the end of August. The waiting game would appear to give TV sales executives the upper hand.

“There are two pressure points for agencies,” said one veteran cable sales executive. “The first is the expectation of a price reduction and the second is the need for agencies to lay down a terrific volume of advertising, and with every week that goes by that pressure increases. Company’s sales forces need to know where ad schedules are, what business plans and marketing plans have been written.” Plus, the end of August and early September period is usually the time that clients “go to order,” meaning they firm up their upfront plans and make real commitments.

“Client expectations are so great; agencies are in a no-win situation,” said a separate cable ad sales chief. “It has been the worst economic year for decades, but scatter wasn’t that bad so why would I drop my pricing?” Cable sells only half of its inventory in the upfront market, and many networks work off of a calendar year upfront which closes in December. “Scatter’s going to be fantastic,” quipped this executive.

Indeed even for broadcast networks the final upfront numbers are a far cry from what gets spent annually. According to TNS Media Intelligence, which measures rate-card ad pricing, CBS secured $4.03 billion during the season starting September 1, 2008, and ending on May 17, 2009. ABC came in second, with $3.67 billion; NBC came third, with $3.02 billion, while Fox, which has fewer hours to sell, took in $2.99 billion. The CW took approximately $361.9 million.

For now, though, the standoff continues.