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Upfronts Zero In on Pricing, Demand - Broadcasting & Cable

Upfronts Zero In on Pricing, Demand

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Last year, haggling over a metric change from live program ratings to C3—average commercial ratings with three-days of DVR 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.

The upfront began to break Friday 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 with ABC kicking things off just prior to the weekend, answers are coming in now.

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 May 20 that network prime time dollar volume would be down 3% on a 5-7% hike in CPMs and a 7% decline in audience ratings. A week earlier, Merrill Lynch forecast a 1-14% decline in dollar volume for network primetime. Lehman estimated that cable upfront dollar volume would be up 5%.

As always, the networks are professing optimism.

“We are guardedly optimistic that upfront is going to be up, that CPMs are going to be up,” CBS President and CEO Les Moonves told investors Thursday at a Sanford C. Bernstein & Co. 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,” predicts John Swift, executive VP and managing partner of activation at media buyer PHD.

The networks typically sell three quarters of their prime time ad inven-tory 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. Already, Nickelodeon and Hallmark cable networks have 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,” says Carrie Drinkwater of media buyer MPG. “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 on 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,” says Jackie Kulesza, senior VP-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 is not a big obstacle to upfront buys.

PHD's Swift sees one silver lining in the strike aftermath: 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,” Swift explains. “Our clients are selling products 12 months a year.”

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