Cable networks are finding themselves mired in the same deep mud trapping NBC in this year's upfront ad market, with business moving slowly and pricing down from the levels they had expected.
A week after three broadcast networks had wrapped up their negotiations, major cable networks weren't halfway though the upfront process, unwilling to write business at the prices buyers were offering.
Cable salesmen had been expecting to come away from the upfront with average increases of 7% in CPMs, the cost they charge per thousand viewers. Agencies and networks say that networks such as TNT, TBS, USA and even MTV Networks are averaging increases of less than 4%. Lifetime is writing deals with 2% to 4% increases.
Cable executives are expected to increase their upfront take by around $600 million, from $6.6 billion last year to $7.2 billion. Now it seems cable's gain might be far lower.
“Cable could be flat in total volume,” said an ad-sales executive for one top 20 cable network.
Cable's slowdown has been abrupt and caught key players by surprise. “Three weeks ago, I thought it would be higher,” says Tim Spengler, executive VP of national broadcast for buying agency Initiative Media.
That is not as bleak as NBC's negotiations. Now that the network has fallen from first place among broadcasters to fourth, buyers are demanding a reduction in CPMs. So far, NBC is averaging a 2% drop, but some buyers are demanding even bigger cuts—and NBC is declining. The network was not even halfway through its process as of late last week.
By contrast, ABC's negotiations went quickly. Because of its dramatic ratings turnaround, the network had been expected to hold out for a CPM increase of 7% or more. Instead, ABC decided to write business at 5% and less, and advertisers steered more money the network's way. Its upfront take soared 30% to $2.1 billion. CBS also posted strong gains on dollar volume, Fox posted a small gain and WB was flat. UPN's negotiations are still in progress.
The ABC network had been expected to hold out for a CPM increase of 7% or more. Instead, it decided to write business at 5% and less, and advertisers steered more money the network's way. Its upfront take soared 30% to $2.1 billion.
Cable's problems prompted CIBC media analyst Mike Gallant to reduce his earnings estimates for the major entertainment companies. Some count on cable advertising for a substantial portion of their earnings growth, particularly Viacom and Disney.
In a report, Gallant says that since buyers a securing reduced pricing from NBC “they'd be hard pressed to pay materially higher unit prices for USA Networks, TBS and TNT.”