ABC's Upfront Payoff

Ad buyers celebrate deals on Housewives and Lost
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Viewers are tuning into Desperate
Housewives
for its trashy mix of sex, betrayal and suburban
frustration. But television executives should be watching the ABC hit for an
interesting lesson in the economics of TV advertising.

ABC is riding high because the long-ailing network is suddenly
performing much better than they—and the all-powerful ad buyers—expected.
Buyers who locked in prices for Desperate
Housewives
and another ABC hit, Lost, at the upfront market this summer are gloating.
They can brag to their clients about the terrific deal they got for shows that
can demand premium prices now.

"It's the best time of the year for us from that perspective," says John
Rash, director of broadcast negotiations for ad agency Campbell Mithun. "We're
very happy."

But look more closely at the delicate chemistry of the ad market. Each
spring, broadcasters have to decide how much inventory to commit upfront and
how much to sell later, hoping for better prices when the new season actually
starts. Commit too much upfront, and you risk leaving money on the table later
on. Hold back too much, and you could get caught with a lot of inventory in a
soft scatter market. It's a game of chicken that sellers and buyers play every
year.

At the upfronts last spring, ABC was in a tough spot. Ratings had
tanked—which meant plenty of make-good ads to compensate for
lower-than-promised performance—and Disney CEO Michael Eisner had sacked the
network's two top executives. Adding to the anxiety: ABC's schedule was
populated with more new, unproven shows than any of the competition's.

So, according to Morgan Stanley analyst Richard Bilotti, ABC sought just
a 6% increase in cost per thousand—the smallest rise of any major broadcast
network—and lowered its ratings guarantee by 11% from last season. The
network committed about 80% of its time to upfront, about the same as its
peers.

Then, boom! Desperate Housewives and
Lost became instant hits. In the sweet 18-49
demo, the smart soap has been delivering a huge 9 million viewers, while the
spooky deserted-island drama is snagging about 7 million.

Did ABC sell too cheap? Networks and ad buyers are fairly tightlipped
when it comes to detailing guarantees for specific programs, but in a preseason
survey of prime time spot prices, buyers told B&C that ABC was getting about $155,000 for a
30-second commercial on Housewives. On the
scatter market today, according to one ad exec, the network is asking about
$255,000—a 65% increase.

Lost is found money, too. A spot that
could have been yours for just $130,000 this summer is now going for about
$220,000.

And despite its play-it-safe strategy of committing a lot of inventory
to the upfronts, ABC still has plenty of time available on these suddenly
desirable shows. Why? Because the network's dramas didn't sell all that well at
the upfronts. Advertisers were more interested in ABC's sitcoms than in an
unproven prime time soap and a drama that was going to showcase plane-crash
victims—plus an amputation and a mercy killing—in the 8 p.m. "family
hour."

ABC didn't even sell Housewivesfor
the full season, booking ads only through the end of December, gambling on
being able to charge a bit more later on. Good plan.

The upshot of all this: ABC now has a disproportionately large amount of
inventory for its hottest shows, ripe for sale in the scatter market.

Geri Wang, ABC senior VP of prime time sales, wouldn't discuss ad sales
in detail but did acknowledge that she has inventory on the network's biggest
hits to sell. "Advertising is about reach. I've got some nice reach stories,"
she says. "We've got to pull up the comedies. But we have nice dramas, strong
reality and solid comedies."

Still, it's a little early to pop the champagne. As Peter Butchen,
senior vice president and national broadcast group director for buying agency
Initiative Media, says, "Unfortunately for ABC, it's a soft scatter market. You
can make the case that it's even worse for them, because they've got so much
more inventory to sell."

And the season is still young. these hits could cool off the way ABC's
Tuesday- and Friday-night comedies have.

The folks who have an unqualified reason to celebrate are the buyers who
jumped onboard with the network during the upfronts. Even ABC reality shows
Wife Swapand Extreme
Makeover: Home
are out-delivering the network's promises, rewarding
advertisers with millions more viewers than they paid for. Beats the heck out
of make-goods.

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