Record upfront: $8.32 billion

NBC leads the way in most lucrative broadcast upfront ever; cable, syndication await their shares

Why This Matters

SNTA's DeWitt sees 10%-15% growth for syndication

SNTA's DeWitt sees 10%-15% growth for syndication

The syndication upfront market got going last week immediately after the networks' ended, and early word is, the purveyors of daytime talk and late-night dating may make up a lot of ground lost last year.

Syndication was TV's hardest-hit sector in 2001. According to one estimate, the market dropped 25%, to less than $1.7 billion. Most syndication advertising is sold during its upfront.

Gene DeWitt, the newly installed head of the Syndicated Network Television Association, says that, based on conversations with his members last week, total sales are "going to be up very significantly'"—at least 10%-15%. It's even possible, he says, that the upfront could "bring them back to where they were before."

Syndication's high-water mark came in 2000, when it recorded $2.4 billion in sales.

DeWitt is encouraged that many buyers turned to syndication right after the broadcast networks. For the past six weeks, he has been meeting with buyers, he says, and "one of the things we've talked about is that there's lots and lots of inventory at the cable networks so there's no need to rush with them."

On the other hand, he adds, inventory for the best syndicated programming is limited. He has urged advertisers to "jump in and get that stuff because it's comparable to network and you can average down [costs] and help you meet your rating goals."

The A-tier product, he says, "is moving very fast, and I think it will be all done by the end of [this] week."

DeWitt declined to discuss pricing.

Less than two weeks ago, broadcast-network executives were debating whether the advertising slump would skulk into next season. Then, on Thursday, May 30, NBC started advance selling of ad time in its 2002-03 prime time season and was surprised by the strong demand. Other networks quickly followed. By Tuesday, June 4, this year's upfront market was pretty much over, and a new record for total sales—$8.32 billion—had been set.

"This is way beyond what we thought the overall marketplace was going to be this year," says Randy Falco, president of the NBC Television network.

"The agencies were flashing less money than was really spent," says Joe Abruzzese, president of sales for CBS. "So when they finally submitted budgets, they were huge."

This year's take is just a bit higher than 2000's but a whopping 21% greater than last year, the first down market in a decade. The networks sold a lot more of their time this year, though: in the normal 80% range. Last year, in an effort to bolster cost-per-thousand-viewer (CPM) pricing, they sold considerably less time. CBS capped it at just 65%.

This year's turnaround was remarkable, coming amid still bearish, if not recessionary, economic conditions. But it remains to be seen whether other TV sectors and radio will rebound as strongly.

Cable executives are bullish. They say that the deals they have written so far signal strong gains and contain no evidence that cable budgets were shrinking. "Clearly, a rising tide raises all boats," said Bill McGowan, executive vice president of ad sales for Discovery Networks. Clearly, that's what cable is hoping for, at any rate (see stories, pages 12 and 14).

But Jon Mandel, chief negotiating officer at Grey Global's Mediacom, says he saw many of his clients, which include 57 national advertisers, move money from the cable to the broadcast networks. As a result, Mandel believes cable's total take may dip by a single-digit percentage and CPM prices may drop even more.

One positive sign for cable: NBC says it last week sold $450 million in upfront time in its two cable news networks, MSNBC got going last week immediately after the broadcast networks wrapped up business. Early indication was it would make up a lot of lost ground from last year. The market is not expected to be completed until some time this week (see below).

Even before the upfront, TV stations were seeing some positive signs in the ad market, including a 3.5% climb in first-quarter sales—quite a change from the 13.8% decline in first quarter 2001.

Television Bureau of Advertising President Chris Rohrs says the big gains in the network upfront can only help local broadcast's cause: "It's a very encouraging sign." Spot TV is on track to grow 7% in 2002. That's up from the TVB's most recent official projection of a 2.5% to 5% increase.

Mandel cautions local broadcasters. Auto manufacturers last week were shifting money from spot TV to the broadcast networks, he says, noting that they spent an additional $140 million at NBC alone.

"I hope he's wrong, and I think he's wrong," says Rohrs, who notes that, in the first quarter, auto spending in local and national spot was up 11.1%, almost double the auto industry's overall increase in ad spending.

Radio was also feeling good in the afterglow of the broadcast-network action. "I've never seen a bad year after a good upfront," says Gary Fries, president of the Radio Advertising Bureau. "It's encouraging." In radio, "the advertisers are making plans and committing themselves earlier," he says. "I see a strong July developing in May."

The broadcast-network upfront was conducted over a six-day period that ended last Wednesday. The pace and depth of the business signaled one of the fastest recoveries on record for broadcast TV. After the previous recession, 1991-92, it took two years for the broadcast network upfront to reach pre-recession levels.

Here's a rundown of how the networks fared in the upfront.

NBC. In the prime time upfront, NBC did almost $2.74 billion in sales, a new single-network record, surpassing ABC's $2.4 billion in 2000. It sold 83% of its inventory, with an 8% CPM increase.

But prime time was only part of the NBC story. In addition to the $450 million (up 10%) it sold in CNBC and MSNBC, the network set records in early morning ($357 million, up 18%) and late night (up 30%). Telemundo posted sales of $225 million, a gain of 29%. Overall, NBC did $4.1 billion in upfront business in about 21/2 business days—approximately 32% more than last year.

CBS. The Viacom-owned network raked in the second-biggest share of upfront ad dollars at about $1.95 billion, a record for the network. CBS executives say its pricing was up an average 10%, the highest increase of the Big Four. NBC still commands the highest rates in the industry, some 10% to 15% higher than ABC's and CBS's. CBS executives say that, with this year's increases, CBS is close or equal to ABC on pricing.

The WB
and UPN. Both the weblets were up dramatically. The WB basically sold out in one day (Friday, May 31) with rate hikes that were the highest of the six networks (15%-16%), for a total dollar-volume gain of $100 million. UPN had the second-highest rate hikes (13%-15%) and boosted its total dollar take by $50 million.

and Fox. It's a cliché, but it's true in this case: The rising upfront tide saved these two networks from getting crushed in the market based on their ratings performances in the 2001-02 season. That was especially true for ABC, which was down close to 20% in its key sales demographic, adults 18-49. Fox was also down sharply, but the strong demand for time enabled both to command price increases (4%-6% for ABC, 6%-8% for Fox). And Fox was able to hang on to the $1.3 billion it achieved both last year and the year before. ABC's pool of dollars shrank 6%-7%, although network executives said they expected far worse.

"Two weeks ago, if you predicted ABC and Fox would get the price increases they got, nobody would have believed it," said Mike Shaw, president of sales for ABC. "That's a testament to the strength of the market."

This year's recovery is particularly striking, executives say, given the lack of the dotcom-like anomalies that spurred 2000 to record levels. Instead, sales executives report, the strength of this year's market was broad and deep. Just about every category showed solid growth.

Sellers and buyers agree that part of what drove the huge upfront increases was a desire to lock in prices rather than wait to buy during the season, in the so-called scatter market. Advertisers "felt like they really got burned in scatter this year," said the ad-sales head at one network.

Jon Nesvig, president of ad sales at Fox, says the shift of dollars from scatter to upfront is positive because "it reflects a strengthening demand for network television time and advertisers' confidence going forward."

So why did everyone underestimate the strength of the market? Sellers believe it has a lot to do with the recent trend in "just-in-time advertising," as NBC's Falco calls it, when advertisers don't pull the trigger on spending budgets until the last moment.

It's a trend born of the recession, when companies simply won't commit in advance to an advertising budget in case the money has to be redirected to the bottom line. "I think it says a lot about the strength of the economy," says Falco. "Companies are manufacturing again, and they have to take the product to market. The quickest and most effective way to do that is on network TV."

Says another high-level network executive, "The clients didn't let the agencies know until the very last minute how much money they really had to spend."

But agency executives say that that is something of an overstatement. "We know everything," quips Rich Hamilton, CEO of Zenith Media's Americas operation. He says he encouraged all his clients to get their upfront budgets done early and most of them complied. To reveal such information too soon is not in the clients' best interests, he says.

But Hamilton concedes that, "generally speaking, the market was more robust than most people predicted." To some extent, the unexpected strength of the market reflects the improved economic climate, he says. Also, a lot of clients who didn't participate in the upfront last year chose to do so this year, he says. Zenith alone had five such clients.

Mediacom's Mandel says the increases in the upfront market tell only part of the story. "The real issue is the total year." When all factors are considered, the total year will likely yield some "small single-digit percentage increases."

The big bounce
Total upfront ad sales
Network 2002 2001 2000 CPM change '02 vs. '01 Inventory sold '02/'01
NA = not available
Source: Networks and advertising executives
Total $8.32B $6.88B $8.30B