It may appear to be all shrimp and celebrities, but the real business of the upfronts, when TV networks look to secure the bulk of their ad dollars for the fall season, doesn't take place on the stages of Carnegie Hall and the Beacon Theatre. Instead, deals are made during private discussions leading up to the dog-and-pony show, and over the course of long nights and piles of pizza boxes in the weeks following.
The basis of conversations tend to be the same every year: how much of advertisers' budgets will be allocated to upfronts vs. the "scatter" market where prices can fluctuate; how inventory will be packaged; potential integrations; and, of course, arguments over price hikes. But in any given year there are hot-button issues -- last year's included audience measurement and how NBC Universal priced reruns of "Modern Family" on USA.
This year's broad conversations will be similar to those of a year ago with many of the same challenges, like ratings erosion and cross-platform measurement, still a concern. But words like "data," "research" and "programmatic" will be the new wildcards.
Here's what you should know as TV negotiations get underway.
Forecast deja vu
Estimates for this year's ad haggle look a whole lot like last year. The volume of dollars advertisers will allocate to broadcast is expected to decrease about 2% to 3%, according to analysts' and media-buyers' forecasts, while cable is expected to grow by about 5%.
In last year's deal-making, broadcasters secured anywhere from $8.7 billion to $9.3 billion, depending on who you believe. Either way, it was flat compared with 2012. Cable secured about $10.2 billion, a 4.3% increase from the year prior.
When it comes to the cost to reach 1,000 viewers, an industry standard known as CPMs, forecasts range from a low-single digit increase to as much as a 7% hike for broadcast, and an approximate 5% uptick for cable.
As has been the case in recent years, it will continue to cost advertisers more to reach a smaller audience. With fewer ratings points to sell, as total viewership on broadcast continues to wane, marketers will need to buy more TV time to reach the same size audience, typically allowing networks to raise prices.
Expect another drag
Historically, upfronts were all about speed, with broadcast deal-making kicking off right after Memorial Day and wrapping up by July 4. First-tier cable networks followed close behind. But last year the pace slowed. The restructuring of NBC Universal's ad-sales teams to bring broadcast, cable and digital under one umbrella delayed negotiations, as did some TV ad execs' perseverance in pushing for CPM increases. With several other network groups, like Turner Broadcasting, adopting a similar model of going to market as one portfolio, negotiations are once again expected to drag into the summer.
It's all about data
Advertisers aren't getting away from the Nielsen age-and-gender demographic guarantees, but data from the likes of Rentrak and Acxiom, as well as internal data, will be used to plan budgets and more efficiently target audiences. In some cases this data will be used to set additional guarantees, too. TV networks will also offer new data-centric ad products. NBC Universal will help clients make more data-informed media buys through its NBCU+ Powered by Comcast product, while Turner Broadcasting will offer products like ROI Now and Target Now that show the impact of integrated-marketing partnerships and measure viewers' engagement through social media and other digital platforms.
C3 vs. C7
TV-network execs have been clamoring for advertisers to pay for on-demand and DVR viewing that occurs in the seven days after an episode's initial airing. Currently, marketers pay for the ads viewed within three days of live airing, known as "C3." But TV executives argue marketers are essentially getting extra views free. To facilitate the shift from C3 to C7, networks have been adopting dynamic ad insertion, which allows networks to swap out commercials in on-demand programs and replace them with new spots. While the bulk of deals are still expected to be negotiated on a C3 basis, more will be done this year for C7, Pivotal Research analyst Brian Wieser predicts.
While little is expected to materialize in the way of programmatic buying for TV in upfronts, there will certainly be lots of noise. NBC Universal head of ad sales Linda Yaccarino said last month that the company is prepared to make inventory available to be sold using automated software and tools on private exchanges. It is possible some unsold inventory on third-tier cable networks might be made available in exchange-like environments. However, Mr. Wieser notes it's unlikely NBCU or any major TV network will provide premium inventory to be sold in anything resembling real-time bidding anytime soon.