Upfront Forecasters Are All Wet


Each year, when the weather gets warm on the streets of Manhattan, otherwise sensible people line up to play an irresistible con game. No, it’s not “Three Card Monte,” although the
sleight of hand involved is every bit as deft and the chances of actually coming away a winner are no more assured.

On Madison Avenue, they call this game the “upfront.” The deck gets shuffled over and over again until nobody is sure exactly what they got—even when it’s over. Part of this is due to the fact that the upfront isn’t actually the distinct marketplace many people think but is part of a broader set of future, current and revised markets that make up the network-TV advertising business. And at the end of the year, when all those network ad units are finally bought, paid or exchanged for “make-goods,” the final number often bears no resemblance to what the networks say they took in during the upfront. In fact, it never does.

To illustrate this point, I analyzed the past 14 years of network advertising revenues and compared it with their upfront advertising sales claims. There was little, if any, correlation between the two. On average, the network upfront ad marketplace grew nearly 8% a year for the 14-year period between the 1990-91 and the 2003-04 seasons. Actual network advertising revenues for each full year following those upfronts rose at half that rate.

And it’s not simply that the upfront overstates actual network advertising sales. Consider this: In upfront sales seasons 1990-91, 1992-93, 1996-97 and 2000-01, when upfront sales volume rose, actual network ad revenues decreased the following year. Conversely, in 1991-92 and 2001-02, upfront sales declined, but network ad revenues rose the following year.

“The network upfront is an artifact,” says Dan Hodges, managing partner of Greenwich Consulting Partners, Greenwich, Conn., who consults for advertisers and networks on their TV advertising strategies. “It’s more a reflection of what people say they intended to buy than what actually gets bought.”

Hodges, a veteran of both selling and buying in the upfront marketplaces, says the final numbers that networks boast about selling in June of each year dissipate when the rest of the network sales cycle is taken into account, including upfront cancellation options, make-good advertising units, and ratings shortfalls that can affect how much the networks have to sell during the scatter marketplace.

“It’s really one part of a whole,” explains Lawrence Fried, chief revenue officer, national TV, at SQAD, a Tarrytown, N.Y.-based company that tracks actual TV ad spending for advertisers and agencies. Fried, a former top sales executive at ABC and ESPN, calls the upfront sales figures an “illusion” designed to drive advertising deals by convincing advertisers and agencies that the networks are “selling out” their ad inventory.

“It is an artificial deadline created by the networks to force advertisers to 'pin’ advertising in case they need it,” says Mike Lotito, president of Media IQ, a New York-based company that monitors TV advertising buys for marketers. “As a result, advertisers often reserve more than they need, knowing they can reduce their inventory via options.”

In fact, the market is such a moving target when advertisers make their ad commitments during the upfront that they are allowed to cancel about a third of that time later in the year if they think they over-bought. Typically, upfront advertisers are permitted to cancel up to 25% of their first-quarter buys and up to 50% of their second- and third-quarter buys during the broadcast season.

When the networks fail to deliver on overly optimistic ratings projections, they are forced to give some of their ad inventory back to upfront advertisers as compensation, which depletes what they have to sell in the scatter marketplace. Says Media IQ’s Lotito, “The final difference between upfront gains and final revenue is a result of declining ratings.”