Impasse, Interrupted

Upfront marketplace finally breaks; integration, sports and syndication deals should follow

With a two-month deadlock broken, broadcast and cable TV are finally seeing some upfront deals from the agency side. According to industry sources, broadcast networks are averaging a 4% drop in CPM rates across the board. CBS and Fox are taking the smallest declines, and NBC is accepting rollbacks anywhere between mid-single digits and a minus-7 depending on whether Jay Leno's hour is part of the package.

Top-tier cable is in the same range as broadcast with low-single-digit price drops from last year, while second-tier networks are negotiating to discount as much as 6%. While the ball is finally in play, senior agency executives caution that there are still many unresolved issues on the table, among them legacy “integration fees,” the timing of option-taking and whether broadcast will agree to a calendar-year options schedule, which cable has.

The most conservative agency estimates put total dollar volume down 10%, while the most aggressive peg a decline of 20% this upfront. Last year's upfront saw $9.3 billion of ad spending commitments.

With the upfront finally thawing, that will next lead the way for deals to be made in other areas like sports, syndication and branded integration packages.

Time for the lightning round

Parties now face a lightning round of executions on sponsorships and integrations. Around $50 million of integration dollars has been tied up in unconcluded media buys, according to one estimate.

United Entertainment Group, which helps develop shows in conjunction with companies, forecasts the branded entertainment business to be worth some $1.5 billion in 2009, including TV, film and live events. The TV portion is valued at some $500 million to $600 million.

The upfront deadlock has been holding up product destined for fall shows, along with the cash that comes with mentions in storylines. Around 50% of branded entertainment deals are negotiated in the spring upfront, while the remainder are done year-round.

“The overall marketplace has been affected by it,” says Alison Tarrant, executive VP of integrated sales and marketing at The CW, of the delayed upfront. “We said to our advertisers, we're not going to start integrations until there is a media deal in place.”

Bargaining chip

In many cases, the broadcast networks have been using the desire for a particular integration as a bargaining chip. One media agency chief says, “The networks are pushing, saying if you want the integration, you have to come up with a final negotiation on the upfront.” According to this agency executive, clients have responded by saying: “We'll negotiate our integration in, say, Survivor, but that's not part of our overall deal. You're not going to force us to make an upfront deal.”

But not all deals have waited; in fact, the upfront complications may also have put new TV financing models into overdrive. NBC Universal, under entertainment co-chairman Ben Silverman and president of sales and marketing Mike Pilot, has been among the most aggressive in seeking new ways of working with advertisers, according to sources. McDonald's has already announced a pact with the new primetime Leno show.

But the upfront stall had its effects. Jak Severson, managing partner at entertainment marketing shop Madison Road, observes, “If your integration is not in the works today, it's not going into the early fall schedule.”

Jarrod Moses, president and CEO of United Entertainment Group, says marketers have been flooding his agency with inquiries. With their TV buys stalled for weeks, marketers have been looking for other, more effective ways of spending their ad dollars by subsidizing production costs. “They are calling us to say, 'What do you have in development? How can we assist with marketing muscle? How can we make sure it gets picked up?'” says Moses, who counts Procter & Gamble, Frito-Lay and Seventh Generation among clients.