Weaker Upfront May Put Pressure on Scatter Market

Broadcast networks supported their pricing by holding back inventory

The brodcast upfront market was
weaker than expected, which means the
networks will have to sell more of their
commercial inventory in the scatter market.

Broadcasters typically aim to sell about 80% of
their inventory in the upfront, but analyst David
Joyce of Miller Tabak + Co. estimates they sold
only about 77% in this upfront so they could
maintain price increases, which were in the 6%
to 9% range. Economic factors
including the stock market, unemployment
and global financial
issues impacted the scatter market
and “had the effect of dampening
the upfront negotiations,”
Joyce said in a report.

Information about the upfront
is carefully guarded by the networks,
which opted not to comment
on their negotiations. Most
media buyers said volume for
the broadcast upfront was down
compared to last year’s booming
upfront. But according to sources familiar with
the negotiations, CBS and NBC, the networks at
the top and the bottom of the food chain respectively,
both registered small increases in volume,
while Fox, ABC and The CW were flat.

Also, General Motors, looking to reduce
its media costs, shifted some spending from
broadcast to cable, where prices for original
programming are lower. It was not clear if GM
had done deals with all the major broadcasters
by the end of last week.

In his report, Joyce estimated the broadcast
upfront totaled $9.6 billion, up 4.1% from
2011. But Joyce’s figures appear to
be overly bullish, according to sources on both
the buy and sell sides of the negotiating table.

0618 Upfront Central chart

David Bank, analyst at RBC Capital Markets,
said that amid the murkiness surrounding upfront
volume and pricing, it’s more important to
look at inventory levels. “That is more interesting
to me than volume, because of the environment
it sets up for the scatter market,” Bank said.

“You could argue that the CBS pricing was a
touch lower [than expected], but as far as Wall
Street is concerned, we’re pretty indifferent between
a 10 and a 9,” Bank said. “What you’re
less indifferent about is, did we preserve some
sort of scarcity in inventories, and it feels like inventories
[sold in the upfront] were a little light.
They probably held back more than they would
have liked to. And that puts a little bit of a headwind
on the scatter environment next year.”

Joyce estimated upfront sales as a percentage
of the broadcast nets’ total sales would be 61.8%,
down from 62.5% in the 2011-12 season.

Some network execs believe it’s important to
maintain pricing levels, even if that means turning
away sales, because once cut, it can take years
to push rates back up to their former levels. That
can result in lower revenue in a weak market.

“The [network that] benefi ts most if they
did hold back inventory to maintain price integrity
is [the one that] has the least amount
of risk in their schedule, and that’s CBS,” Bank
said. “If [the other networks] have a ton of
make-goods, the only guy who’s going to have
dry powder is going to be CBS. And they’re
the guys that it matters most to.”

To Wall Street, the upfronts, and ad sales in
general, are becoming a less significant part of
how the companies that own the broadcasters
are valued. “All the other factors—the affiliate fee growth, the digital-distribution sales
to Netflix, Amazon, Hulu, retransmission—
those are far bigger drivers, and they’re the
reason we’re so bullish on the sector,” Bank
said. “All I need is a stable ad environment.”

With broadcast wrapped, buyers have turned
their full attention to cable and syndication.

Negotiations were moving at a more deliberate
pace than last year’s, but cable sales execs said
that while budgets weren’t as strong as expected,
they were looking at a market
that would be up between
5% and 7% overall.

“It’s hard work,” said Mel
Berning, president for ad
sales at A+E Networks. “Last
year was a one in 10, one in
12 kind of year. The fact that
we’re up versus last year is
remarkable. It’s actually a
fairly solid marketplace when
you’re talking [price] increases
that are mid-to-upper singles.
That’s not too shabby.”

Volume appeared to be up, with dollars “up
5%,” Berning said. “If you’ve got ratings points,
you’ll see more than that, as long as you’re reasonable.
I think money moved away from broadcast
and stopped first at top-tier cable networks.”

Many of the major cable network groups were
more than halfway sold at the end of last week.

Syndication was also moving toward completion.
“It appears that it’s a fair, flat market
for syndication,” said Michael Parent, senior
VP and director of broadcast at media agency
TargetCast tcm. “There are a lot of untested
shows in daytime,” Parent said, noting new fall
talk shows hosted by Katie Couric, Jeff Probst,
Ricki Lake and Steve Harvey. “The Oprah void
has never been filled, and the viewership has
trickled all over the place. The agencies are
getting the prices they’re looking for.”

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