Networks Ask for Steep Increases to Make Up for Ratings Shortfall

Upfront Negotiations Starting With Two Sides Far Apart on Pricing

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NEW YORK (AdAge.com) -- At least one major media-buying agency has started upfront negotiations in earnest with the broadcast-TV networks, but with the networks asking for steeper-than-usual price increases, the two sides are starting the talks further apart than ever before.
Some broadcast networks are demanding double-digit price increases in the 11% to 12% range, a huge difference from the mid-single-digit percentages networks were able to eke out in last year's market.
Some broadcast networks are demanding double-digit price increases in the 11% to 12% range, a huge difference from the mid-single-digit percentages networks were able to eke out in last year's market.

Lower ratings
Because Nielsen's new commercial-ratings data are being used in negotiations, according to one executive familiar with the situation, networks are dealing with lower ratings than they might have if ratings for programs were the standard.

Media buyers have long expected that commercial ratings would be lower than program ratings, because viewers naturally use ad breaks to change channels, leave the room and, increasingly for those viewers with digital-video recorders, zap through ads. Expectations by media buyers have been that commercial ratings would be 5% to 10% lower than those for broadcast-TV programs, and even worse for cable, where the loss could be 15% or more, owing to the fact that cable outlets often have more commercial breaks and longer commercial breaks than broadcast.

To make up for the shortfall, some broadcast networks are demanding double-digit price increases in the cost of reaching 1,000 viewers, also known as CPMs, a common metric in these sorts of negotiations. The increases being sought are in the 11% to 12% range, a huge difference from the mid-single-digit percentages networks were able to eke out in last year's market. Buyers are holding fast, offering to pay only low-single-digit increases.

Tight scatter market
WPP Group's Group M agencies have registered clients' budgets with the networks, and Publicis Groupe's Starcom has also given budget information to networks, according to executives familiar with the matter.

More interesting, perhaps, is the notion that networks are asking for price increases when they have even fewer ratings points in their arsenal. But networks do have some factors in their favor.

The "scatter" market, where advertisers purchase commercial time much closer to the time it airs, and therefore pay a premium, has been extremely tight. That means advertisers may be more inclined to put money down in the upfront, and secure ad time now, rather than wait to see what inventory is left in the fall and winter. Typically, a tight scatter market prompts buyers to put more money down in upfront negotiations. Additionally, broadcast TV continues to draw the biggest audiences to a single media format, an appealing idea to advertisers.

But commercial ratings have not been part of the proceedings before. Some buyers are disappointed with the broadcast networks' new programs, one executive said, and can't justify paying a double-digit price increase when viewers are increasingly able to watch programs days later and avoid the ads with use of a DVR. New technology is also giving marketers other venues in which to place their ads, including blogs and e-mail. Due in part to some of these factors, last year's upfront take was one of the lowest in several years, estimated at $8.5 billion to $9 billion, and marked the second straight year where networks took in declining volumes.
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