Upfront Iceberg Slowly Melting

Both sides anticipating movement around July 4 holiday 

Posted at June 18, 11 p.m. ET

Upfronts 2009: Complete Coverage

The upfront may not break this week, but the iceberg that has been standing between the handshake deals is starting to melt, according to both buyers and sellers in the market.

Several agencies have partially registered their budgets, a sign that players are finally ready to start spending some of the $70 billion that is allocated to TV advertising annually. The upfront period last year saw buyers commit around $9 billion to the broadcast networks, while cable took $8 billion and the syndication market $2.3 billion.

The rest is committed in the year round scatter market. The market is anticipating a decline in the overall dollars spent this year, and at least one major sales entity is predicting negatives, though the sticking point is how deep anyone will go. Some agencies are pushing for double digit declines in CPM pricing in broadcast and for high single digits down in cable. Not surprisingly, the sales side of the table has been resisting that.

“Things are starting to percolate,” said one broadcast network executive. “The stalemate that’s been written about is starting to thaw because we all have to get moving.”

That is something both sides actually agree on.

“Budgets are being registered and things are picking up,” said one senior agency executive. “Substantive talks may be coming late this week, early next.” Though this executive added that there is no reason to believe anything frantic will occur and that there will be time for everyone to get their money down.

When and, with whom, the market will break is still anybody’s guess but several players say they sense that the market will see some real activity ahead of the July 4 weekend. One cable channel sales chief said he had already been offered a deal by an agency that is typically an early player in the upfront, but had turned it down to wait and see how pricing would be set in the market.

Once one major deal is done, it tends to affect the entire upfront marketplace and what it will bear. According to some players the difference between the bid and the ask price is still far apart. In many cases, sales executives haven’t even been willing to sit down and discuss their pricing at all. “Nobody is throwing a number out there,” said one agency buyer. “The buy side is always concerned that we give the networks too much time to count the house. That might be a good thing,” added this person.

Once all budgets are registered sales executives have a clearer idea of what money is in the market overall and what pricing the market will bear. This person suggested the agency is working off the assumption that money will be down some 20% this upfront.

“The money is going to be down,” said one major sales executive who wished to remain anonymous for fear of being seen to negotiate in the press. “The autos are on the sidelines and there’ll be a premium on flexibility.” One Wall Street analyst said media companies were likely to back-off their “greenshoots,” comments made on first quarter calls. (The next round of earnings calls come at the end of July.)

While negatives are being discussed, few sales side executives have been willing to be specific about the extent of the rollbacks they’re willing to take. The buying community appears to be universally pushing for negatives arguing that in this economy clients will balk at paying anyone an increase. “We’re closing the gap,” said one agency buyer. “That is the added complexity, going into the negative realm.”

A cable sales executive said: “There are rumblings, but [talks] will hold off through next week. We won’t see any activity in earnest till the fourth of the July weekend. I don’t believe the market is there. The clients are more ready to go but the gun hasn’t gone off yet.” This person said they were expecting a tough upfront. “Look at the ten top ad categories, they’re down significantly. Even pharmaceutical is being hammered by drugs going out of patent and fear of regulation.”

Not everyone sees it that way.  Another cable sales executive reflected a common perception in the sales community that the request for rollbacks was purely based on client emotion rather than a rationale view of the state of the marketplace. Despite the overall poor economy, demand for scatter market inventory continues. “The arithmetic isn’t there for a huge rollback,” said this veteran cable sales executive.