TV Networks Resist Discount Requests From Advertisers

Demand Stays Strong for Now but Second Quarter Could See Cancellations

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CHICAGO (AdAge.com) -- Prodded by clients struggling with the recession, media buyers are asking TV networks to roll back advertising prices, both in the current scatter market and for ad time booked during the 2008 upfront.

Andy Donchin
Andy Donchin Credit: Hoag Levins
Network executives, while sympathetic to their clients' problems, say there's enough demand in the market to keep prices near where they have been since the May upfront. But if the economy worsens, that could change in the second quarter and affect next year's upfront market.

Ad pricing is certainly a subject that's being discussed as companies look to cut costs. And media spending is a major expense for marketers.

"Every client in town is trying to push every network to see if they can get lower pricing," said Andy Donchin, director-national broadcast at media buyer Carat. "Everyone's having discussions and we'll see what the market bears."

But so far there's been little movement.

'No renegotiations'
"While we recognize the concern in the marketplace, our clients continue to receive excellent value from our partnership and their upfront deals," said Jon Nesvig, Fox Broadcasting's president-sales. "There have been no renegotiations. In fact, our scatter market in fourth and first quarters has been at or above upfront pricing."

Cable sales executives say in recent weeks they have been able to complete calendar upfront deals -- four-quarter ad buys that begin in January -- at prices in a similar range as the broadcast upfront in June.

"There's no need to address clients that are on the books," said Joe Abruzzese, president-sales for Discovery Networks, which completed several calendar deals with clients recently.

He said pricing has been well above upfront levels, but budgets are coming in very close to airdates.

"That's what we're going to be faced with, clients releasing budgets later and later. But we learned to live with that last year, and we'll live with it this year," Mr. Abruzzese said.

Money in scatter
Buyers and sellers say that after a fairly slow fourth quarter, there is money in the scatter market now for the first few weeks of January, usually a quiet post-holiday period for many marketers.

"The fact of the matter is the market in cable has been solid," said Mel Berning, exec VP-ad sales at A&E Television Networks. After the strong upfront, "I have a higher sellout right now for first quarter than we did a year ago."

Mel Berning
Mel Berning
Mr. Berning said the network is talking to buyers about ways to help clients. "There's no question that there's a lot of pressure on those buyers to deliver savings, but at the end of the day, the marketplace has got to justify that. The concept of just lowering prices has got to be justified in the supply and demand that we all see," he said.

Indeed, national TV appears to be holding up better than many other media. "I still think advertisers gravitate back toward national TV," Mr. Donchin said. "People realize that national TV is still the most effective and efficient way to achieve mass reach and awareness."

Upgrades and guarantees
Beyond pricing, buyers are looking for other ways to show their clients they are getting more bang for the marketing bucks they still have to spend. In some cases, clients might be satisfied with upgrades to where their spots run, or by higher audience guarantees, one buyer said.

At the same time, buyers are telling ad sales executives that if they provide a lower price now for scatter buys, there's a better chance that when the next upfront rolls around, they won't be looking at a lower budget.

"Flat is the new up," one buyer said.

Broadcast and cable networks sold about $17 billion in advertising commitments in the 2008 upfront, a 4% increase from the year before. Projections for TV ad spending in 2009 expect about overall revenue decreases of 7%-10%.

While some discussions have become heated, most buyers and sellers acknowledge that they're in this together.

"The agencies and the networks, be it broadcast, cable or syndication, we have to work toward the common good of the industry," Mr. Donchin said. "Nobody's immune from the pressures of the economy."

"A lot of what we hear is when the market's strong and scatter prices are high, we don't go back and adjust your upfront," said one media buyer. "Clients have longstanding relationships with these networks. They're not going to blow that up to save a nickel over the next six to eight months."

Second-quarter buys
Figuring out what happens next is anyone's guess. One key marker will be when clients decide whether to exercise their options to cut back second-quarter upfront buys. Some buyers are dangling those options as a negotiating tool.

"There is the occasional veiled threat thrown," Mr. Berning said. "We've got a little bit of time before we hear on the options."

One buyer says he's hearing that the second quarter is going to be a "disaster," with many clients exercising their options to cut back upfront buys by as much as 50%.

One sales executive points to lower oil prices and the recent cut in interest rates by the Federal Reserve, saying he expects the economy will improve relatively soon. Meanwhile, another ad executive, recalling 20% drops in pricing in 2001, fretted about what that might mean for the upfront.

"Their point of view is that pricing has been through the roof in scatter and they need an adjustment," one ad sales executive at a cable network said. "But they need to be realistic. If they cut too much, we can't make original shows, we can't buy theatrical movies, we can't market the right way. For the business, these trends are very unhealthy, but join the club. Three-quarters of the economy is in the exact same spot."

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Jon Lafayette is senior editor for Crain Publications' Television Week.
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