The networks blinked first, as buyers and sellers got down to business last week and the upfront market moved from posturing to dealing. The best guess is that 25% to 30% of the market moved last week.
By most accounts, from buyers and sellers alike, it's going to be a correction year compared with 2000, when more than $8 billion was spent. Many observers believe the market will be about $1 billion less in upfront this time. Last week, S.G. Cowen issued these predictions for upfront sales for the Big Four, based on activity so far: NBC $1.96 billion (-16%), ABC $1.80 billion (-22%), CBS $1.65 billion (+3%) and Fox $1.35 billion (+4%).
But buyers doing business last week said three of the Big Four networks—NBC, ABC and Fox—backed away from previous efforts to raise prices. Sources confirmed that NBC triggered last week's activity by dropping cost per thousand viewers (CPM) 5% to 7% below last year's level. But there was a quid pro quo: In order to get the favorable pricing, buyers had to spend more than they originally allocated to spend with the network.
In a down market, "it quickly becomes an issue that you've got to keep share and improve it if you can," said Randy Falco, president, the NBC Television Network.
Falco wouldn't confirm numbers but disclosed that, almost two weeks ago, the network approached the top five or 10 biggest-spending agencies and offered "modest price concessions" in exchange for a greater share of dollars. And although he didn't want to talk specifics, Falco did say the revised strategy worked.
As of late last week, NBC had completed about half of the upfront business it expected to do, according to Falco. ABC did about 75% of its upfront business last week, said sources familiar with the situation.
After NBC made its move, ABC and Fox began making price concessions as well. ABC was said to be offering CPM rate decreases in the 6%-to-7% range while Fox was holding the price in some cases and offering 1% discounts on others, particularly when the client was willing to buy baseball, several buyers said last week. "The more baseball you buy, the more minus [in price] you get," said one buyer familiar with the situation.
The WB was claiming to do business at 4% to 5% price increases and was turning down offers that didn't come close to that, sources said.
And then there was CBS—the lone holdout among the Big Four unwilling to make any concessions last week. It had the industry buzzing as to whether Mel Karmazin was overplaying his hand with the risk that it might be standing at the end of the market with a huge drop in market share because buyers simply decided to do business elsewhere.
"I am confused as to CBS' strategy, and I do think it's a flawed strategy," said Dan Rank, who heads national broadcast buying at OMD, which will account for $1 billion of the roughly $7 billion expected to be spent in the network prime time upfront this year. "If they don't want my money, I've got plenty of other places to park it."
CBS noted that it was not granting price concessions because it feels the quality of its schedule and the favorable reviews of its development warrant increases, not decreases.
Meanwhile, buyers reported little if any activity on the cable front, and rampant rumors had cable executives offering discounts (as high as 30%) in exchange for a greater share of spending. And the rumors made sense to Tom Wolzien, media analyst at Sanford Bernstein: "If the cable networks want to gain market share, then they've got to cut price a ton."
ESPN and USA Network are seen as vulnerable because of sharp ratings drops this year. But the major Turner Networks, TNT and TBS Superstation, are seen as vulnerable because their audiences and programming look most like the broadcast networks. But if the broadcasters are cutting, the Turner nets will be dropping as well.
That's particularly harsh for Turner Broadcasting parent AOL Time Warner. Wolzien estimates that a 10% drop in upfront CPM on TNT and TBS will cost AOL Time Warner $325 million next year.