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An Open Secret: Upfronts Make No Sense

Advertisers, agencies urge change but don't have a better idea 5/08/2005 08:00:00 PM Eastern

The broadcast-network upfront advertising marketplace is a lot like the
hackneyed joke about the weather: Everyone likes to complain about it, but
nobody seems to do anything about it.

Complaints about the upfront aren't new. They've risen periodically
ever since the networks began selling advance time on their new prime time
schedules during the 1960s. They got noisier in the 1990s, especially when a
corresponding erosion of network audience share began to exacerbate the
problem, causing advertisers to pay more for less.

And those complaints are back. In March, for example, DaimlerChrysler
executives floated the idea of transforming the network upfront advertising
marketplace into a Wall Street-like exchange, in which TV ad time is bought and
sold at open-market rates for all to see.

“I would envision an electronic system where each trader is anonymous
and has the ability to buy and sell spots every day—spots that would, at any
given time, have a value established by the marketplace,” Julie Roehm,
director of communications at DaimlerChrysler, recommended during a keynote
speech at the Association of National Advertisers' (ANA) Television
Advertising Forum in New York. “The process would start with what would
amount to an enormous IPO: the sale of all these spots to the market. After all
shares have been parceled out, they would be traded between advertisers and
networks.”

That “IPO,” Wall Street parlance for the initial public offering of
a company's stock, would replace the current closed-market structure of the
upfront, with the remaining TV ad time traded in an ongoing exchange that would
operate much like Wall Street's Nasdaq market, she suggested.

Roehm's idea caused a stir, but no one's taking it too seriously
yet. In part, that's because the ad industry just isn't ready for reform.
Last year, the industry went through a similar effort to fix the upfront sales
process, and a summit of bigwigs made a ruling (drum roll, please!): Keep
things exactly as they are.

Call to action

That effort was sparked during the ANA's 2004 Television Advertising
Forum, when Carat CEO David Verklin issued a call to action, challenging big
national marketers to change the system. The ANA formed a task force dubbed
NUDG (Network Upfront Discussion Group), which posed a number of scenarios,
including an “opening” and “closing” bell that would begin the upfront
sales process each day the way Wall Street's stock markets do.

Last April, after five hours of discussion, the group decided to
do...nothing: “While not a perfect process, the current processes in place
were generally acceptable, were essentially optimal, and will continue as
is,” ANA president/CEO Robert Liodice said in a statement issued after the
meeting.

That uneasy peace didn't last long. Within weeks of the NUDG meeting,
marketers and agency executives were back to their usual complaining about the
upfront during a series of conferences and news stories that led up to the
2004-05 upfront marketplace.

Unlike in years past, when requests for upfront marketplace reform
coincided with strong seller's markets, DaimlerChrysler's call to action
follows 2004-05's buyer's market and comes on the eve of the 2005-06 sales
season, which many believe will favor media buyers once again.

“Julie Roehm's idea is refreshing and interesting, but I don't
think the stock-market concept demonstrates true value for advertisers,” says
Mike Drexler, CEO of Optimedia, New York. “The question remains, how do you
get real value out of the upfront when prices go up and audiences go down?
It's the real value everyone is beginning to question.”

To Drexler, a veteran of numerous upfront markets and once the top media
buyer at a Chrysler ad agency (Bozell), the trouble with the upfronts is that
they aren't what they're cracked up to be. “We all say that the upfront
gives us guarantees and the ability to pick specific shows, and that's why we
buy it,” he explains. “Theoretically, those are the real benefits of the
upfront. But the reality is that most shows aren't around for the whole
season and the networks are programming year-round, anyway. When you think
about it, it mitigates any real benefit of an upfront in concept.”

“Insane”

Another buyer puts it more bluntly. “It makes me insane,” says Shari
Anne Brill, VP/director of programming at Carat USA, New York. The constant
“tweaking” of the networks' prime time schedules—after they've been
announced, in the period leading up to the upfront, following it, and even once
the shows have been introduced in the fall—has made the whole notion of
buying a prime time upfront schedule ludicrous, she says.

“The reality is, it's more like you're buying a mix of shows: some
good ones, some moderate performers and a couple of frightening things,” she
adds, recalling last year's upfront, which included shows ranging from
ABC's breakout hit Desperate Housewives to
NBC's heavily touted but ultimately doomed Father of
the Pride
.

“I just knew it was going to be bad,” Brill says, “but NBC kept
talking it up during the upfront. It was horrendous.”

Optimedia's Drexler says the biggest and “easiest” fix, especially
because networks now introduce shows all season long, would be to shift the
upfronts from late spring to the fall, when advertisers' annual ad budgets
are decided. Instead, buyers are like moviegoers who queue up without knowing
what movie they're going to see or how they'll pay for it.

“What drives the upfront market? Fear,” says Jerry Dominus, a
one-time head of sales for CBS and retired head of network-TV buying for J.
Walter Thompson. “When I started out in this business as a young media buyer,
I asked my boss how much a commercial cost,” he recalls. “He told me,
'Whatever any damn fool was willing to pay for it.'”

In the dark on costs

It's frighteningly true for many marketers and agencies that have long
operated in the dark about the actual costs of broadcast network ad buys.
That's because, when media buyers buy the upfront, they negotiate to buy a
package of programs. At that point, they don't know what the ad units are
actually worth. Instead, they negotiate a percentage increase or decrease on
the CPM, or cost per thousand viewers, they paid in the previous year's
upfront. The actual prices for each show are set later.

One reason that has been the case is that the networks preferred to sell
that way and media buyers accepted the practice. Another reason is that there
is no objective pricing data to measure against.

That has begun to change, says Larry Fried, a former top sales executive
at ABC who is now chief revenue officer, national TV, at SQAD, a Tarrytown,
N.Y.-based research company that has provided cost data about spot-TV ad time
to advertisers and agencies for years and last year began supplying network ad
costs, too.

“I'm down here at a procurement meeting where marketers are saying
they want to know what they're paying. They want accountability,” Fried
said last week at the ANA's annual financial-management conference in
Florida. “They want proof of what they got and what they paid for it.”

That proof, he said, now exists, albeit in a syndicated research
database called NetCosts being pitched by SQAD. To date, 30% of national
marketers, representing 50% of broadcast-network ad spending, have agreed to
share data about their actual network ad buys in the database.

During an address at the ANA conference, Fried's boss, Neal Klar,
founder and president of SQAD, said the new database has “replaced opinions
with transactions,” giving agencies and marketers information to negotiate
upfront ad buys based on actual unit costs, not vague percentage increases,
rumors on the street or network spinmeisters.

Knowledge is power, as Klar notes: “If you don't know what [a
competitor] is paying for a spot on American
Idol,
what does CPM matter?”

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