The upfront ad market is playing out like a World Cup soccer match. Industry watchers leapt to their feet when CBS suddenly raced down the field to score with advertisers. But now fans are waiting for another goal. They may have a long wait ahead.
“There's no urgency,” says a senior executive with one major buying firm. “We're not in a hurry, and no one else seems to be either.”
Says the head TV buyer for another firm, “If it's not the market that a seller wants it to be, it takes longer to finish.”
The upfront process, staged over a few weeks, is a high-stakes game in which advertisers will allocate $20 billion over the next year. Price levels are hard to gauge at this stage, largely because of the cacophony as buyers and sellers talk their position and—at best—selectively disclose only a few details that support their case.
But there's no sign that would conflict with forecasts from the likes of Lehman Bros.' Vijay Jayant and Merrill Lynch's Jessica Reif Cohen that the broadcast upfront will be flat or up just 1%.
The first break
The first break in the market came last Monday as buyers and sellers reported that CBS started writing a significant amount of business. People familiar with the negotiations say network Sales President JoAnn Ross and her team were writing deals securing a 2%-4% increase in the average cost per thousand viewers (CPM), the key benchmark for gauging ad pricing. Only in a market as bleak as this one would this seem an optimistic view. Other analysts and buyers dismissed those figures, estimating that CBS was flat or up perhaps 2%.
The network had reportedly committed more than 35% of the inventory it planned to sell upfront. (Broadcast networks generally hold back 15%-20% of their inventory to sell in the scatter market or to offer as make-goods if ratings fall short of guarantees. Cable networks generally manage to sell only half their inventory.)
Then momentum stalled. Major ad buyers were asking for substantial reductions in CPMs. CBS, which already endured a 3% decline among key viewers last season, resisted. At least for that moment, it became a stalemate.
Remember that networks tend to secure the biggest CPM increases with their earliest deals, so things aren't looking up from here. This means that CBS chief Leslie Moonves' prediction of growth of more than 4% isn't likely to pan out, though the shortfall won't be dramatic.
Industry executives say ABC, Fox and The CW cut a small amount of business last week. ABC and Fox were initially asking for increases of more than 5%, which would combine with an increase in ratings guarantees to give both of them nice overall revenue growth. But it's not clear that either one will get close to that level, either.
NBC's ratings problems have been so dramatic that the network is striving to get through the upfronts with a minor reduction in CPMs. Some buyers, however, are looking to exploit NBC's weakness and are asking for 7%-8% price cuts.
Cable networks were quiet, with the notable exception being a $300 million commitment by agency OMD to MTV Networks, a “cross-platform” deal covering both cable networks and online properties. But advertisers represented by OMD (McDonald's, for example) are already major clients of MTVN, so it's not clear how dramatic that announcement really is.
Advertising opportunities online are clearly overhyped. For months, networks, anxious over losing audiences and advertisers to the Web, have flooded the market with broadband products. They've peppered upfront ad pitches with talks of full episodes, Webisodes, mobisodes and podcasts.
But when it comes down to actually negotiating deals, broadband has been a minor issue. “It's all about price, price, price,” says an executive with one broadcast network.
Indeed, the folks at buying agency Mediacom tallied the advertising opportunities for all broadcast and TV networks to determine how much they could possibly buy even if they wanted every bit of inventory. The answer: $370 million.
That's just a drop compared with the $9 billion broadcast primetime market and the $7 billion cable market. (Other elements of the upfront: daytime, news, late night, Hispanic.)
But it could take a while to book all those billions of dollars.
“No one's going to get the numbers they thought they were going to get,” says one securities analyst. “But at this point, no one's going to write deals with negative CPMs. If that's what buyers are demanding, networks don't have to do anything. They can wait it out.”
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