Upfront Talks Snag on Pricing, Demand

Buyers Balk in Strike Aftermath, Double-Digit Dive During Sweeps
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Last year, haggling over a metric change from live program ratings to C3 -- average commercial ratings with three days of digital-video-recorder viewing -- caused the $9 billion upfront market to break later than usual. This year, the timeline looks to be similar, but now the hang-up is the pricing.

Negotiations are currently taking place in the wake of a disappointing season for the networks, most of which got off to slow starts even before the writers’ strike shut down the industry for 100 days and left collateral damage thereafter. By the May sweep period, every network was down double-digits in the advertiser-coveted 18-49 demo.

So the deals that are about to be written will tell just how much that has affected demand for network television -- still the biggest and often easiest buy there is. And both buyers and sellers said answers are coming in days.

If demand is strong, the broadcast networks can push through healthy price increases thanks to the strong scatter market. Lower ratings mean less available rating points for advertisers to reach their audience-delivery goals.

But plummeting ratings and the battered state of the U.S. economy mean more bad news than good, and any aggressive network pricing could potentially drive more ad dollars to cable and the Web.

Investment house Lehman Bros. estimated that network primetime dollar volume would be down 3% on a 5%-7% hike in CPMs (cost per thousand homes) and a 7% decline in audience ratings. One week earlier, Merrill Lynch forecast a 1%-14% decline in dollar volume for network primetime. Lehman estimated that cable’s upfront dollar volume would be up 5%.

As always, the networks were professing optimism.

“We are guardedly optimistic that upfront is going to be up, that CPMs are going to be up,” CBS president and CEO Leslie Moonves told investors Thursday at the Sanford C. Bernstein Strategic Decisions Conference. “If volume is down, that doesn’t bother us.”

But network executives are not blind to the new on-demand reality, so the deals will continue to get more complex. That will probably stretch out the active deal-writing, which, in past years, would be jammed into a few frenzied days.

“The days of the big stampede are over,” predicted John Swift, executive vice president and managing partner of activation at media buyer PHD.

The networks typically sell three-quarters of their primetime ad inventory in the upfront with audience-delivery guarantees, and the balance is sold later in the season without rating guarantees. In 18 of the past 20 years, upfront unit prices were lower than scatter.

But ad-supported cable’s momentum is continuing to spill over to the ad market. Nickelodeon and Hallmark Channel already concluded some ad deals.

“Many advertisers want to bring their overall costs down, so that means marrying the efficiency of cable with their broadcast-network schedules,” said Carrie Drinkwater of media buyer MPG North America. “But buyers still value the network properties and content.”

Also, buyers are pressing for pricing their upfront guarantees against more detailed audience metrics. Last year, for the first time, network guarantees were benchmarked to average ratings for all ads in a show, and now, discussions center around minute-by-minute ratings for more precise viewership of individual commercials.

What’s likely to remain the same is that a big first deal is a catalyst that establishes pricing and opens the floodgate. In 2007, the upfront “broke” open June 13 when WPP’s GroupM signed its $800 million deal with NBC Universal covering multiple TV channels and video platforms.

And branded-integration demand continues to grow, such as Starcom USA’s deal that put Applebee’s into NBC’s Friday Night Lights. “We want to try to get more people to see our brand essence in the content of the show,” said Jackie Kulesza, senior VP and broadcast activation director of Starcom USA.

And while the strike did have a major effect on the business, several ad buyers said the reduction in pilots was not a big obstacle to upfront buys.

Swift saw one silver lining in the strike aftermath: New series premieres will be spread out over the year. “Midseason will be a bigger deal than in the past, and this is a good thing,” he added. “Our clients are selling products 12 months per year.”

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