For GM: No Price Rollbacks, But Lower CPMs

Creative deals may drive more revenue to cable
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When is a rollback not a rollback? Ask the networks that
have made upfront deals with General Motors. They say creative deal-making
should put more money in their pockets without rolling back prices, as GM has
insisted. While GM won't be buying its TV spots cheap, the deals should
creatively lower the average price-per-impression by changing the mix of
broadcast and cable, networks, shows and dayparts.

The automaker hired Carat to be its new media agency last year. And word
quickly spread among media executives that Carat had assured GM that it would
be able to achieve substantial savings on its advertising expenditures.

In a series of meetings preceding the upfront, Carat and GM
gathered media vendors to explain the new rules of the road. GM had shows it owned
a piece of that it wanted the networks to run. The automaker wanted some big
marketing ideas from media vendors. And it warned that there would be winners
and losers: Media companies that didn't play "let's make a deal" wouldn't be
getting GM dollars, which have been substantial in the past.

GM showed it meant business. It pulled its ads from Facebook, just before the
social network's big IPO. It also opted out of the Super Bowl, a powerful
platform for high-profile advertisers like the major automakers.

Finally came the dreaded phone call. GM and Carat wanted networks to roll back
their primetime prices by double digits.

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While it's not uncommon for new agencies to ask the networks to help them look
good when doing deals for new clients, it's usually handled with a lot more
finesse and a more cooperative attitude, network executives say. Instead, the
way GM and Carat tried to bully people rubbed networks the wrong way. "They
were like a 200-pound gorilla who thought they were an 800-pound gorilla," says
one ad sales executive.

The networks resisted. Fox reacted initially by letting GM know that unless it
dropped its demands for lower primetime prices, it wouldn't sell the automaker
spots in NFL football games, a key showplace for car ads.

The tug-of-war prolonged the upfront. Eventually, GM softened its demands and
was able to do deals with perhaps two of the big broadcasters and many major
cable players.

But ad sales execs, who declined to talk about individual clients on the
record, say there were no rollbacks in ad rates. Instead, GM and Carat accepted
the creative ways networks have to lower a buyer's average CPM, or cost per
thousand viewers. And in some cases, the nets and network groups generated more
revenue from GM. (Because it was working under a multiyear deal, MTV did not
have to negotiate its rates with GM.)

GM declined to comment on its upfront strategy.

The more options a programmer has, the easier it is to be creative. That gives
media companies with multiple networks selling at different price points a leg
up in putting together schedules that produce lower costs and better
efficiency.

On a single network, an advertiser like GM could reduce its CPMs by adjusting
its mix of programs and dayparts, such as buying fewer spots in some primetime
shows and buying more daytime and news, media executives say.

But give a savvy TV ad sales exec a few networks to play with, and the
creativity really flows. Let's say, for example, a programmer has multiple
cable networks. Some are fully distributed and are fully priced for cable. But
original programming on those networks is still significantly cheaper than
broadcast originals. That means an advertiser can lower its media costs and
continue to sponsor high-profile programming by shifting funds to cable.

Within a cable group, there are also opportunities to lower costs beyond buying
different shows and dayparts. Sometimes, steering dollars into emerging nets is
a priority. Even if a programmer gets an increased rate for its emerging network,
the client is still usually paying far less than they would on a more mature
channel. The advertiser also gets some upside if the emerging channel grows.

Of course, there are some in the you-get-what-you-pay-for school that might
question whether by seeking lower priced vehicles, GM's advertising will drive
fewer people to dealers to buy cars. Time will tell.

What's in it for the programmer? Such a deal is only worth an ad sales exec's
effort if the client agrees to spend more money-probably taking it away from a
vendor that is less creative.

Bottom line: Even a powerful advertiser has a limited amount of leverage when
it comes to buying a unique commodity like commercials. And selling TV spots
remains a very good business.

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