Upfront Preview: Handicapping the Upfront StakesWith a strong scatter market and a steadying economy, the upfront is expected to regain its buzz. Here are seven factors that will dictate how far it bounces back. 2/15/2010 12:00:00 AM Eastern
Predicting the upfront is, for media players, a favorite game of skill and luck, filled with strategy and timing. But if the pastime can normally be tabbed “Deal or No Deal,” with last year's economy it felt more like “Jeopardy.”
That appears to have changed. Confidence in the ad market is back, if one is to judge by the number of TV companies already putting their upfront plans into overdrive. The 2010 broadcast upfront week, which kicks off May 17, is already buzzing with returning participants, including NBC and Univision.
Other indications abound. MTV's early February upfront presentation won a positive reaction for parent company Viacom from ad agencies. And Rainbow Media's Sundance Channel also made a play for early attention with news that it is getting into scripted programming, a la sibling AMC.
However, the question going forward is, what other factors will influence whatever terms the players on both sides can set? The nuts and bolts of the upfront is about deal-making and buying enough ratings points to reach potential customers. On that metric, TV has never been healthier. U.S. viewers watch 4 hours and 49 minutes of television a day, up 20% from a decade ago. CBS will again have a good case to present to Madison Avenue following its record ratings haul with Super Bowl XLIV and the Grammys. And yet broadcast TV is still losing viewers to cable.
While mid-February may be too soon to accurately predict where the market will land, there are already some pointers for those in the TV futures business. The ad market is under the microscope like never before, and for good reason. Indications remain inconsistent. For every gain in the fourth quarter (News Corp.'s Fox cable unit), there was a decline (Time Warner's cable group). Super Bowl sales were big, while Olympics sales are lower than expected.
There's lots of hope and hype, but the jury is still out as investors look to see whether marketer spending will confirm the predicted comeback in the overall economy. Here's a handful of factors that will help those on the inside of the game know how to play their poker hand.
1. Keep Watching the Scatter Market
Ultimately, the strength of the upfront is defined by one simple equation: If demand outstrips the supply of rating points, pricing goes up; if there aren't enough advertisers willing to put down their dollars in advance of the September start to the season, prices come down. Trying to decipher the extent of the demand for TV ad inventory isn't easy even for those in the thick of the game.
Market-setting agencies such as GroupM, OMD and Starcom turn to the breadth of their client lists to give them a sense of what spending levels will be. On the other side of the desk, sales executives shake the trees hard for information on what their clients' budgets will be before they count the house and attempt to set pricing.
Media buyers and sellers are all expecting the upfront sales period to be a happier affair than last year—it could hardly be worse. But before anyone puts the jumbo shrimp back on order, market-watchers will continue to look for signs that the confidence isn't all wishful thinking.
Scatter rates are running as high as 20% above upfront pricing levels; Disney executives reported scatter rates of 30% above upfront at ABC, and in the mid-single digits at ESPN in the current quarter. In cable, a handful of earnings calls gave the market some early guidance. Discovery CFO Brad Singer said ad revenue in first quarter is running at 5% above the previous year.
That's driving most of the confidence, according to Miller Tabak + Co. media analyst David Joyce. “The typical assumption is that scatter is driving what the level of pricing will be,” he says. Joyce thinks this upfront might look a little more like normal. It appears that sales executives will ditch the cost-conscious door-to-door road shows of 2009 in favor of somewhat splashier New York-based upfront events.
The strong demand for big-ticket TV ad buys also helps upfront optimists make their case. CBS not only sold out the Super Bowl sooner than expected, it also ran more commercial airtime than any other Super Bowl broadcaster in five years. While the network was said to have sold spots for $2.5 million to $2.8 million, networks executives insisted that some spots went for as high as $3 million. ABC's pricing for the Academy Awards is on par with last year as well, around $1.3 million to $1.5 million per spot.
That said, even the most bullish media companies admit that it's too soon to talk about upfront—but not too soon to make the pitch. Speaking on the firm's latest earnings call, News Corp. CEO Rupert Murdoch told B&C, “We'll be going into the upfront as the number-one network, and as strong or stronger than anybody else, but that's about all we can say.”
However, one media buyer, who didn't wish to be named for fear of being accused of posturing, explained that with so many advertisers spending so little on last year's upfront, a strong scatter market was more than predictable: “We had to expect record activity and people can play that out as they wish, but they started with the bucket emptier than it ever was. I think it's debatable if we're looking at a robust marketplace.”
2. See How Marketers Refine Spending Plans
Automakers were a big presence in the Super Bowl, and with sales trending upward and ad budgets tied to sales projections, one might reasonably assume that this major category will urge the market north. The question is whether Toyota will limit media budgets in the short term and spend big later to win back customers.
Political ad dollars are expected to be much bigger in 2010 as the midterm elections loom, but that's money that's likely to benefit cable news outlets, which play in the upfront in a small way, as opposed to local stations, which don't.
Ad agency buyers say they must contain the ebullience of media companies, along with the media that cover the upfront market, since the agencies consider the market to still be shaky. Most advertisers aren't going to be jacking up their ad spending to any great level, they say.
Even with strong scatter pricing over the past two quarters, national TV ad sales overall were down in 2009. Numbers from Interpublic's Magna suggest that the decline was 3.6% for the year, to $33.3 billion.
Magna's longer-term outlook for TV is far from disastrous. National TV is expected to grow by 6.2% in 2010, to $35.3 billion, and 4.1% over the next five years.
But Tony Pace, chief marketing officer at Subway, disagrees: “I think the economy is weaker than the perception. I just don't think [the true picture] will play out fast enough for the upfront market.”
As if on cue, the Association of National Advertisers on Feb. 3 released its ritual report on ad spending projections for this year. Titled the ANA Recession Survey, the report says that clients are more optimistic, but its findings are hardly a ringing endorsement of a comeback. According to the report, 53% of marketers say they are reducing their advertising media budgets. Fifty-nine percent of marketers say that their budgets will stay the same, while 19% are hopeful that budgets will increase.
“While it appears as though cutting costs may be the new reality even when times are good, our series of surveys suggest that the deepest cuts may have already been made,” ANA President Bob Liodice said in a statement that accompanied the survey.
National TV Ad Spending
|* Estimated change from previous year
3. Whatever Can Be Measured Can Be Sold
Viewing is up but ratings have eroded as DVRs and onlineviewing have continued to fragment audiences that are essentially watching the same programming.
Last week, the ANA issued a second February report titled TV Budgets Under Siege that underlined just how dissatisfied marketers are with the industry's reach and frequency-measurement standards. Measurement will be high on the agenda during pre-upfront discussions.
Networks will be arguing that they ought to get paid for viewers watching their shows regardless of the platform. They're working with agencies and clients to get new measurement standards in place ASAP. Agencies will counter that they want to buy a given show on multiple platforms.
The cross-industry group Coalition for Innovative Media Measurement plans to make some headway by May, but how fast the business moves to a place where marketers can make multi-platform deals on apples-to-apples ratings data is still up in the air. Nielsen's ability to incorporate online viewing into its C3 numbers for TV providers is at least on the horizon. The company says it will complete the rollout of PC users into its TV panel by August.
Some veteran upfront players believe multi-platform deal-making will be the order of the day, as TV Everywhere gains steam and marketers thirst to know more about their target customers.
4. The Growth of Branded Entertainment and Advanced Advertising
Among the interesting trend lines to emerge from the ANA report is one that could bode well for media companies' production studios: 80% of advertisers believe that branded entertainment will play much more of a role in TV advertising, with 38% planning to spend more on branded advertising in 2010.
But here's the rub: The plan is to increase that spending “as an alternative to the 30-second spot,” says the report. As for advanced TV, which includes addressable and interactive components, everyone wants progress but few are willing to underwrite it. The report suggests that only 28% of respondents plan to spend more on interactive TV ads in 2010.
5. What Comcast's NBCU Buy Will Mean
Madison Avenue will keep an eye trained on how Comcast will retool the network once its deal to acquire NBC Universal goes through. That's expected to happen anytime between the fall-season debut and January's mid-season rollouts.
While that's a few months off, Comcast is already mapping out how its new acquisition might look under various restructuring scenarios. Says one upfront veteran, “You could see the blurring lines, led by NBC and Comcast if they do it right. They're going to define how TV is bought and sold. We may see cable and broadcast being sold together. We might see NBC primetime and USA sold together. The move will be away from cable versus broadcast.”
The market is also closely watching Disney to see whether Mike Shaw's departure from his post as president of sales and marketing for ABC will usher in a closer relationship between ABC and its sibling cable channels such as ABC Family.
Shaw opted not to represent ABC Family when the channel was incorporated into Disney. Shaw's replacement is yet to be named.
Broadcast Network Upfront Take
|Sources: Various media reports|
6. What Are the Most Efficient Buys?
Cable will again be arguing to close the pricing gap with broadcast. Cable CPMs are typically one-third lower than broadcast's, but as one upfront player points out, that's a double-edged sword. Once cable is priced the same as broadcast, what's the efficiency incentive for marketers looking to cut costs?
It also puts the onus squarely on cable to continue sustaining its gains. Bernstein Research media analyst Michael Nathanson wonders whether cable's share can keep trending upward. He points to cable's net-share dip for fourth quarter, saying it “could force investors to wonder whether the secular trend of gains might be approaching an end.” But with trends for December stabilized, Nathanson is busy watching how the first and second quarters will unfold.
7. How Much Inventory Will the Broadcast Networks Sell?
In the bull years, broadcast networks sold around 85% of inventory in the upfront. Last year's market saw networks holding out an additional 20% of inventory for scatter. This May, watch for the scales to be tipped back in favor of bigger upfront sales, say market prognosticators. That will leave a lot less airtime for the year-round market.
But here's something that won't change: Marketers will again be looking for maximum flexibility in deal-making. “The last few years, the upfront marketplace has gotten a bad name, and there's a lot of noise out there in the marketing world about it,” Subway's Pace says. “We believe in it, but if you're going to have a Friday fire sale, then just understand that we've got to ask you for the same fire-sale prices.”
The staring match—the negotiations—will continue to take shape in the months leading to the upfront as the balance of power keeps shifting. As Pace explains: “It's all about how you assess risk.”