Next week in New York, as the big broadcast networks unveil their fall slates, they face an advertising upfront market unlike any other before. In years past, pre-upfront buzz focused on the threat of broadcast dollars’ flowing to cable. Today, emerging platforms such as video-on-demand (VOD), mobile phones, and perhaps even iTunes will steal attention—if not dollars—away from established video media.
There are other issues on the table since buyers and sellers haggled last spring en route to more than $18 billion worth of broadcast, syndication and cable dollars’ changing hands. Nielsen launched DVR ratings; two networks (The WB and UPN) were given a death sentence while two others (The CW and MyNetworkTV, or MNT) teed up for launch; and the leading Hispanic networks put themselves in position to compete head-to-head with the general market.
In previous years, media executives held back money, betting that the scatter market would be lower in price than the upfront. Now buyers will withhold money for the year because, given the plethora of new-media choices, they are uncertain about which platforms may develop measurable audiences.
“We would not serve our clients well to put all our money in the upfront,” says Donna Speciale, president, U.S. broadcast and programming, MediaVest. “There are too many things happening 52 weeks of the year. Overall, marketing dollars are being looked at differently.”
With fresh TV entertainment options available all the time, John Musyznski, CEO of Starcom USA, says, “The upfront is every day.”
A week before the broadcast networks announce their new schedules, many executives agree with him. “I now have people walking into my office every day with great ideas,” says Larry Novenstern, executive VP, national broadcast, Optimedia International. “The question is, how much you do hold back? If I had a $100 million client, maybe I’d hold back $5 million. But if I had a fast-food company, I might not have that choice, since franchises want you to spend the money now.”
CHANGING TIMES FOR BROADCAST
Internet advertising won’t overwhelm spending on cable or broadcast, but it will affect it by slicing off hundreds of millions in multiplatform deals. An early reading shows that the network part of the upfront could drop $100 million-$200 million from last year to some $8.7 billion. Cable might be up a tick by $200 million to some $6.8 billion, while syndication also may improve by about $100 million to $2.8 billion.
And what about the cost per thousand viewers (CPM)? Don’t expect much growth, say buyers. Perhaps low single digits, maybe flat to 4% increases for the best and most deserving networks. ABC and Fox could be at the high end, NBC at the low; that network may have to roll back its pricing for some programs.
Overall, neither buyers nor sellers are predicting the kind of rush to make deals that occurred some years.
Viewers are increasingly demanding television on a whenever and wherever basis, and networks are responding. Consider that, since last year’s upfront, episodes of Desperate Housewives have been made available on iTunes and now on ABC.com; CSI and Law & Order: SVU are available on VOD; and Fox has launched a series of shorts on cellphones linked to its drama Prison Break. Meanwhile, a slew of cable channels, from MTV to Sci Fi to Court TV, have launched broadband channels on their Web sites.
More important, the networks extended their content to nontraditional platforms. Desperate Housewives and Lost are accompanied by ads on ABC.com. Toyota signed on with Fox as the sponsor of the Prison Break short videos on Sprint phones. Cable networks such as Turner Broadcasting and Scripps Television have aggressively moved to sign up advertisers for their VOD offerings.
Traditional major media companies aren’t going to be left out of the new-digital mix. For instance, every proposal MTV Networks sends out to buyers will include the opportunity to advertise on broadband, cellphones or another platform in conjunction with a traditional schedule of 30-second commercials. Comcast held its first-ever VOD upfront, and General Motors last week announced a deal with Time Warner Cable to show long-form infomercials on that cable system’s VOD channels. Discovery Networks plans to sell sponsorships for its video available on Google Earth, a satellite-imagery–based mapping product. If Apple and networks can agree on a way to integrate advertising into programs available on iTunes, marketers will likely rush to sign up.
“If we had been given the chance to link up with Lost on iTunes, we would have been there,” says Star­com’s Muszynski.
Driving interest is the strong viewer connection with hit shows like Lost and The Office, as well as a desire for clients to tap into that passion on new platforms.
“We’re following the content,” says Scott Haugenes, senior VP, group director, national broadcast, Initiative Media. “If there’s something that works on television for our advertisers to be around, we want to follow it to the Web and—if we can—onto wireless applications. We want to extend it as far as we can, because that’s where we see the future going.”
How much will be taken in for digital platforms at this upfront? Estimates range from $90 million to as much as $300 million. Even at the high end, that’s still less than 2% of the total traditional-TV upfront last year.
But if demand for traditional on-air ads spikes suddenly, networks may be able to generate additional volume with the new platforms. However, if the market is soft, networks could offer ads on broadband or VOD as “added value”—essentially, a throw-in.
Networks want to avoid that option, in part because it sets a precedent about the value of the new platforms. Content providers are betting new-media delivery devices will become a bigger part of their business going forward. They count on that money. Starcom’s Muszynski predicts that, as soon as next year, the traditional television upfront will morph into a “video upfront.”
Here’s another less radical view: Some buyers say clients aren’t looking to cut TV spending to move dollars to emerging media. Instead, those dollars could shift from the struggling print medium. “I don’t think clients are looking to peel their broadcast and cable budgets to get into this [Internet] space,” says Bill McOwen, executive VP/managing director, MPG.
THE DVR DIVIDE
New platforms make headlines, but the biggest sticking point in this upfront could be how to value Nielsen’s new DVR ratings.
The ratings offer three streams of data. There’s “live” viewing (the traditional measurement of viewership during the broadcast window). Then there’s “live-plus-same-day” (which aggregates the viewers who watch a program live with those who have until 3 a.m. the following day to watch a DVR version). Finally, there’s “live-plus-seven-day” (which aggregates live viewing with DVR viewing in the seven days following broadcast).
The number of DVR homes in Nielsen’s sample is small—though growing—but the ratings reveal that some shows are experiencing ratings increases of 7% or more in the live-plus-seven-day DVR ratings.
For example, the April 13 episode of CSI posted a 7.5 “live” number in the 18-49 demo, which increased by 0.5 (7%) to an 8.0 in the “live-plus-seven-day” metric. Buyers and sellers are at odds over whether that additional DVR-aided 0.5 has any value, since DVR users are believed to be rabid commercial skippers.
Network executives assert that they should receive some compensation for time-shifted, or DVR, viewing. Most are arguing that upfront deals should be made based on the “live-plus-seven-day” metric.
Perhaps that argument’s most fervent proponent is David Poltrack, executive VP/chief research officer, CBS Corp. At the Television Bureau of Advertising’s annual conference last month, he insisted that ads viewed in fast-forward mode still deliver a message, perhaps via exposure of a logo or other brand symbol, which helps advertisers.
“Commercials are getting through, and there is value there,” Poltrack says. The CBS numbers-cruncher says recall of fast-forwarded ads is high. Since DVR and TiVo users are heavy viewers, many have already seen the ads, and the DVR version simply reinforces the message. “DVRs will add advertising value,” he says.
He’s not alone in thinking that. “There’s a value there,” says Bill Morningstar, who will oversee ad sales for the new CW network. “Marketers are incredibly smart, and they’ll figure out a way to create a value proposition in DVR households. If you’re a car company and you can get a consumer to stop and watch your spot and give them a trigger to go online and learn more about it, there’s a value to that.”
Buyers couldn’t disagree more. “If anybody holds out and says we’ll only deal with you on a 'live-plus-seven’ basis, we’ll move on,” says Aaron Cohen, executive VP/director of broadcast, Horizon Media.
Initiative’s Haugenes wants to watch what happens for a while: “We’d like to table this for a year, work on 'live’ ratings, and then get more research on this and have a full year to look at everything.”
Some sales executives expect to find a middle ground with buyers. Discovery President of Ad Sales Joe Abruzzese says he’s open to making deals without using the “live-plus-seven” metric.
“Company policy at News Corp. is 'live-plus-seven,’” says Bob Cesa, executive VP of advertising sales for Twentieth Television, who will oversee ad sales for Fox’s MNT when it launches this fall. “But at the end of the day, we’ll work with our advertising partners to come up with a solution that works for them.”
Also figuring into media buyers’ calculations this upfront will be the new broadcast entries—The CW and MNT, replacing The WB and UPN. MediaVest’s Speciale said recently at the MediaPost Outfront conference that she doesn’t think the two will change the dynamics much—especially for advertisers targeting 18-49 viewers. She says The WB and UPN targeted a narrower, younger audience.
A BATTLE OF THE SMALLS
The CW has been perceived as the stronger of the two networks, say media-buying executives. Initially, before the announcement of MNT, The CW execs dreamed of amassing the upfront revenues of both The WB and UPN, but Speciale says that is unlikely.
The CW’s Morningstar cites a strong case for big ad dollars: “No network has launched with this level of quality programming across the board. It would take years and a lot of money to develop this level of quality, and that’s a huge difference and a huge advantage, frankly.”
He says the new network wouldn’t be able to equal last year’s combined take of The WB and UPN, estimated at $950 million. “It’s not going to be additive, and we know that going in,” he says. “But we’re going to try to establish a fair value for the quality we bring to the marketplace and monetize that to the best of our ability.”
Buyers and some cable executives expect dollars spent on UPN targeting both the 18-34 demo and ethnic audiences to shift over to cable. “If it’s young money, it probably goes to MTV; if it’s ethnic money, it may go to BET,” says Discovery’s Abruzzese. “We’ll probably get some of it for our targeted stuff.”
Separately, younger-skewing networks could also benefit from Nielsen’s decision to begin including college students living away from home in its national ratings in early 2007. Nielsen estimates that the move could mean a rating point to some shows.
Spanish-language broadcasters are likely to be more of a factor this upfront because Nielsen is now measuring them using its general-market NTI rating index, which allows buyers to compare them equally to their broadcast counterparts. TNS Media Intelligence projects spending on Hispanic network television to grow 10.4% in 2006, more than any other media form.
For English-language cable networks, the story isn’t as good. Cable has shown only modest ratings growth, and buyers may further appreciate broadcast’s advantage as audience fragmentation accelerates.
“We have not found to this date that cable can do it alone,” said MPG’s McOwen.
For networks’ regularly scheduled programming this season—the core of what’s on sale in the upfront —Fox has soared 14% in the 18-49 demo, and ABC has climbed 5%, while CBS is down 3% and NBC has plummeted 14%.
In overall marketplace dynamics, that’s a good news/bad news scenario for the networks. In the cable era, network gross ratings points for 18-49 viewers have been dropping anywhere from 4% to 5% per year. But not this season. Networks—thanks to hot shows like Fox’s American Idol and better ratings on ABC’s hits—are virtually even in gross ratings points versus a year ago.
More ratings points mean more supply, and, with similar demand, that could keep price hikes to a minimum. But, says Optimedia’s Novenstern, “be careful what you wish for.”
Every upfront market administers its own peculiar forms of rewards and punishment. This year, it appears, buyers and sellers will just spread it around differently.