Advertising and Marketing

Finally Done, Scanzoni Says Upfront Was Weak

GroupM finished with drawn-out NBCU, ABC negotiations 8/02/2013 10:57:42 AM Eastern

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The opera's not over till the fat lady sings, and this year's upfront wasn't
over until Rino Scanzoni was satisfied.

The chief investment officer of GroupM, for now the largest media buying
operation, declared himself essentially done this week after completing
negotiations with NBCUniversal and ABC that dragged out weeks longer than has
been normal in recent years. "There's some isolated, little things that
need some T's crossed and some I's dotted, but I think they were waiting for
us," he says.

In years when it's a sellers' market, buyers get stampeded
into getting their money down quickly. Usually Scanzoni is in no rush and this
year he says patience was a great virtue. He declined to talk about pricing,
but says, "We're very happy with how it turned out for us."

He says this year's upfront market was weak.
"If you isolate primetime on the broadcast side, I would say that volume
was probably down 5%-6%," he says. "I don't think you're going to see a
very strong scatter marketplace either because I think the price points early
on were probably higher than what they should have been."

Scanzoni estimates that cable sales volume was up 2% to 3%. "I think they
were expecting probably 5% to 7%," he says. "I'm sure cable will probably
build its growth a little bit as we go to scatter." Unlike broadcast
networks, which sell 80% to 85% of their commercial inventory in the upfront,
cable networks sell about 50%, which means if prices rise in scatter, cable
network have a better opportunity to cash in. (Cable sales execs mostly concede
the market was weaker than they expected, but insist they did better than
whatever the average was.)

Paying for Flexibility

The market was weak, because "you're still dealing with a very sluggish
economy and there are more and more options, so as clients find digital, the
money's got to be spread over more things," he said. And without a lot of
upward pricing pressure in the upfront, a lot of clients wanted more
flexibility than they could get from the upfront.

Scanzoni didn't think of lot of TV money moved to digital. "I don't think
the money went to Facebook or Google. They probably got some of it, they do get
some growth and probably more of that growth comes out of broadcast prime
because that's the most expensive component, but I don't think that was the
driver at all," he said. "I just think the organic budget growth
wasn't there."

It took a little while but the networks adjusted to the market. Going in
looking for high single-digit to low double-digit price increases, top-rated
network CBS got nearly 8% price hike in the upfront, according to CEO Les
Moonves. After weeks of off-the-record whispers from sources familiar with
negotiations, Moonves was one of several top TV executives discussing their
upfront results last week during their companies' earnings calls with analysts.

Like CBS, the CW and Fox largely finished their upfronts in early June and,
according to sources, also got high single-digit price increases. (With its
ratings down sharply, Fox's upfront volume dropped by more than 10% to about
$1.8 billion.)

During Comcast's earnings call, NBCUniversal CEO Steve Burke said NBC's upfront
primetime revenue was up 13%. "Our ratings and CPM [price on a
cost-per-thousand basis] were the best we've had in about nine years," he
said. Burke also said cable CPMs were up in the 7% to 8% range with USA and
Bravo doing particularly well.

But it took until this week for NBCU to finish its deal with GroupM. Scanzoni
says there were good reasons why NBC got good deals, even if it took a while to
get them done.

"I think they're the only one that is actually up in ratings. So that's a
driver. They have the Olympics, which is popular. So they probably have as
strong a story coming out of the season as one in their competitive set,"
he says.

Package Deal

NBCU's strategy of selling its broadcast, cable and digital assets in an
integrated package made negotiations complicated, says Scanzoni, who says that
approach is "clearly the wave of the future," even if, right now, not
all clients are set up to do business that way.

"We've always preferred to do that, even when they weren't necessarily set
up that way," Scanzoni says. "I think there is legitimacy to that's
going to slow things down, no doubt about it. They've got a lot more on the
table than any of their competitors. The business is complex. It's not just
buying spots and dots, there are a lot of sponsorships and integrations and all
of those things have to work out so that's clearly a challenge to them too.
That puts them in a more difficult position in terms of being able to move
quickly than an ABC that doesn't even have cable or CBS for that matter."

So why did it take so long to complete negotiations with ABC? "Completing
a deal that met our parameters," Scanzoni says.

Haggling over price also probably took some time. Both NBCU sales president
Linda Yaccarino and Geri Wang, ABC's sales chief, have been known to be
aggressive on price. Meanwhile, some buyers and sellers say GroupM like to wait
till late in the upfront to see what price hikes other agencies are getting and
then insisting that, because they're bigger, their clients should pay smaller
percentage increases.

"It's not about a half a point. It's about getting the most value for your
client," Scanzoni says.

Getting value takes time and care. "I don't see in this market or in any
market now, given the complexity of it and the fragmentation of it, why
agencies feel it all has to happen in two weeks at four o'clock in the morning.
I wouldn't even let my people do a deal after normal business closing. There's
no reason for it."

Of course, Scanzoni and his boss, GroupM global CEO Irwin Gotlieb, invented the
art of late-night shock-and-awe negotiations. These days, however, there are
more than 70 viable networks and GroupM controls 25% of the market, making that
approach counterproductive. "It has been some time since we were in a
market that could actually sell out to the point of driving prices up," he
says. "Quite the opposite today, but I am not sure my competitors realize
that yet."

Bigger Than Big

Speaking of competitors, the merger announced between Publicis Groupe and
Omnicom would create a doozy, with a 40% share of the national TV market. But
Scanzoni is skeptical that the combined company would be able to marshal its
spending through a central point the way GroupM does.

"My view on that is you've got two organizations that have not done it up
to this point. So, I'm not so sure that situation is going to change. You're
dealing with a lot of independent silos. I don't see the way they go to market
or manage is going to change all that much. And frankly, it's a lot harder to
do it than say it because it does take a lot of reorganization and a lot of
egos have to be moved out of the process for it to work
effectively,"  he says.  "We'll see. I don't know what
their plans are. But if that was something that was high on the agenda, they
would have done it already, I would think."

Scanzoni says organizing a buying operation isn't just about leverage. And
you've got to put in place systems, a process and leadership. Trust me. I did it.
It's not so easy," he says.

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