For GM: No Price Rollbacks,But Lower CPMs

Creative deals may drive more revenue to cable

Why This Matters

Cable Grinding Out Upfront Gains

General Motors was not the only tough customer ad sales executives have been dealing with of late. Most large cable network groups said last week they were nearly done with their upfront deals, with the exception being GroupM, the large agency holding company where Rino Scanzoni heads up negotiations.

As he did last year, Scanzoni opted to wait till a market level was set and try to argue that his clout merited smaller increases than other agencies with less money to spend. Scanzoni did not return a call seeking comment.

Other buyers said that unlike broadcast, where dollar volume was flat, cable networks were seeing gains averaging about 5%. Though that was lower than many ad sales execs expected, price increases for the top cable networks were in the same range as the broadcasters.

Leading the pack in price increases was NBCUniversal’s USA Network, which buyers said was getting hikes in the 9% range under new ad sales president Linda Yaccarino. Despite several years as the top-rated cable network, USA’s ad rates have lagged many of its competitors. NBCU’s Bravo was also getting healthy increases, while other nets in its portfolio were seeing mid-single-digit gains.

Turner was getting 8% increases for its nets, according to market participants. Fox Network Group’s entertainment channels were getting slightly smaller price increases, but were pulling bigger gains in volume. Discovery was also getting 5%-7% price increases, buyers said.

Scripps Networks, whose lifestyle networks do a substantial amount of integrated marketing with sponsors, was still working on deals with most major agencies.

Viacom Music and Entertainment Networks, which aimed to get bigger volume increases by moving into the market early and offering moderate price increases, saw some success with its strategy, though it wasn’t finished.

In all, the market was moving at a more deliberate pace than a year ago, when volume and prices were higher. “As long as it’s done by the Fourth of July, it’s a good year,” said one sales exec. —JL

When is a rollback not a rollback? Ask the networks that have made upfront deals with General Motors. They say creative deal-making should put more money in their pockets without rolling back prices, as GM has insisted. While GM won’t be buying its TV spots cheap, the deals should creatively lower the average price-per-impression by changing the mix of broadcast and cable, networks, shows and dayparts.

The automaker hired Carat to be its new media agency last year. And word quickly spread among media executives that Carat had assured GM that it would be able to achieve substantial savings on its advertising expenditures.

Currency_Chart.jpgIn a series of meetings preceding the upfront, Carat and GM gathered media vendors to explain the new rules of the road. GM had shows it owned a piece of that it wanted the networks to run. The automaker wanted some big marketing ideas from media vendors. And it warned that there would be winners and losers: Media companies that didn’t play “let’s make a deal” wouldn’t be getting GM dollars, which have been substantial in the past.

GM showed it meant business. It pulled its ads from Facebook, just before the social network’s big IPO. It also opted out of the Super Bowl, a powerful platform for high-pro! le advertisers like the major automakers.

Finally came the dreaded phone call. GM and Carat wanted networks to roll back their primetime prices by double digits.

While it’s not uncommon for new agencies to ask the networks to help them look good when doing deals for new clients, it’s usually handled with a lot more finesse and a more cooperative attitude, network executives say. Instead, the way GM and Carat tried to bully people rubbed networks the wrong way. “They were like a 200-pound gorilla who thought they were an 800-pound gorilla,” says one ad sales executive.

The networks resisted. Fox reacted initially by letting GM know that unless it dropped its demands for lower primetime prices, it wouldn’t sell the automaker spots in NFL football games, a key showplace for car ads.

The tug-of-war prolonged the upfront. Eventually, GM softened its demands and was able to do deals with perhaps two of the big broadcasters and many major cable players.

But ad sales execs, who declined to talk about individual clients on the record, say there were no rollbacks in ad rates. Instead, GM and Carat accepted the creative ways networks have to lower a buyer’s average CPM, or cost per thousand viewers. And in some cases, the nets and network groups generated more revenue from GM. (Because it was working under a multiyear deal, MTV did not have to negotiate its rates with GM.)

GM declined to comment on its upfront strategy.

The more options a programmer has, the easier it is to be creative. That gives media companies with multiple networks selling at different price points a leg up in putting together schedules that produce lower costs and better efficiency.

On a single network, an advertiser like GM could reduce its CPMs by adjusting its mix of programs and dayparts, such as buying fewer spots in some primetime shows and buying more daytime and news, media executives say.

But give a savvy TV ad sales exec a few networks to play with, and the creativity really flows. Let’s say, for example, a programmer has multiple cable networks. Some are fully distributed and are fully priced for cable. But original programming on those networks is still significantly cheaper than broadcast originals. That means an advertiser can lower its media costs and continue to sponsor high-profile programming by shifting funds to cable.

Within a cable group, there are also opportunities to lower costs beyond buying different shows and dayparts. Sometimes, steering dollars into emerging nets is a priority. Even if a programmer gets an increased rate for its emerging network, the client is still usually paying far less than they would on a more mature channel. The advertiser also gets some upside if the emerging channel grows.

Of course, there are some in the you-get-what-you-pay-for school that might question whether by seeking lower priced vehicles, GM’s advertising will drive fewer people to dealers to buy cars. Time will tell.

What’s in it for the programmer? Such a deal is only worth an ad sales exec’s effort if the client agrees to spend more money—probably taking it away from a vendor that is less creative.

Bottom line: Even a powerful advertiser has a limited amount of leverage when it comes to buying a unique commodity like commercials. And selling TV spots remains a very good business.

E-mail comments to jlafayette@nbmedia.com and follow him on Twitter: @jlafayette