NEW YORK (AdAge.com) -- Marketers love TV -- just not at these prices. And so hopes for a neat wrap to an already stalled upfront marketplace have begun to fizzle as advertisers dig in their heels a while longer.
"I would look at it as buying a house," said Ed Gold, advertising director, State Farm Insurance, in an interview last week. "Would you pay the price someone is asking for, or do you wait them out? With the marketplace and with the recession and with the situation that we're in, this is not going to be an up market, so the opportunity to participate in the upfront still is valuable to us, but you know, it's only July 9," he added. "Why do I need to buy today when it's going to be there tomorrow?"
In a typical year, the TV upfront -- when the broadcast networks sell nearly 80% of their inventory for the coming fall season, to be followed by cable outlets and syndicators -- would largely be finished by now. But normalcy is out the window along with the economy, and advertisers say they'll wait, much like Goldilocks -- until conditions are just right.
"Negotiations are getting a little better. We have to nail ourselves down by mid-September," said Steve Neder, general manager-brand strategy, Volkswagen of America, expressing confidence that deadline would be reached. While a broad group of Volkswagen prospects are spending more time on the internet, social-media sites and mobile devices, he said, the automaker still needs for TV, although "we can probably reduce it a bit."
Buyers say retailers and movie studios are likely to be strong players in this year's market, though movies and other filmed entertainment will not match the volume of previous years. Telecom, however, will likely remain among the networks' best customers.
Filling the gap
T-Mobile, for one, plans to keep its broadcast allocation level with past years. "We are a 52-weeks-a-year advertiser, as our customers tend to be in the marketplace buying phones every week of the year," said Brett Dennis, director-media, T-Mobile. He said the telecom has not yet done any deals but is in discussion with the networks about integration deals.
"The slowness is really the divide between what we as advertisers are coming to the table with in terms of pricing relative to what the networks are looking for. So there's still a bit of a gap in that space. Frankly, we don't have a timetable. We'll take as long as it takes to get the gap closed. We are less interested in wrapping things up vs. really putting together upfront plans that make sense for us," he said. "We see this every five years or so when the market tends to reset itself. And this is definitely one of those years."
Package-goods players have made no bones about their interest in driving down rates and getting better all-around deals in the upfront. Rob Master, director-North American media for Unilever, said going into the upfront in May, "Ultimately, media companies who don't have a realistic view of the marketplace are going to be very challenged during this upfront." Unilever is reducing the number of media companies it looks to do deals with, in part because of the complexity of the deals, in part to get better ones.
The veiled threat of shifting to digital media has long been a gambit by package-goods players seeking to soften up media negotiators going into the upfront. This year, the threat has considerably more credibility because some big marketers have proved they're willing to follow through, and they're not bothering with the veils. Procter & Gamble Co. more than doubled measured spending on internet display ads in the calendar first quarter and hiked magazine spending 12% while slashing network TV spending 44%. The relatively lower CPMs of those other media appeared to play a role in P&G's claim of increasing media impressions 5% while cutting marketing spending $440 million globally.
Andrew Lacik, general manager-marketing for U.S. household at Reckitt Benckiser, said in May that getting better upfront deals was one expected side benefit of the company's shift of roughly 5% of its TV budget into online video ads. "When you don't have alternatives, there's a different balance in the negotiation," he said. "We think we have an alternative, so of course that kind of strengthens our hand."
Pricing still key
The impasse can't just be pinned on buyers and sellers locking horns on prices. In some cases, media agencies made lower TV prices a selling point in new-business pitches and feel they can't go back to certain clients without solid discounts in hand. In other cases, marketers have been late in determining the amount of money they have to spend this year, since the recession makes it that much more difficult to figure out expenses and available money for the next several months. And of course, everyone is cognizant of the opportunity to buy video advertising in venues that aren't the living-room TV set.
But when you get right down to it, pricing is a central issue. "The amount of savings companies are telling us they might see from media rates used to be 10%, then 15%, now 20% to 25%," said Sanford C. Bernstein analyst Ali Dibadj. "It seems like they keep upping the ante. Part of it is perhaps negotiation, but part of it is likely that they are trying to prepare investors for reduced advertising spend and increased promotional spend when they report over the next few quarters."
Advertisers and their buying representatives marched into discussions with strong talk that, with overall ad-dollar volume down by as much as 15% to 20%, they were going to notch double-digit decreases in the cost of reaching 1,000 viewers, also known as CPM, a common measure in upfront talks. Most buyers have backed off of those demands. Instead, they are seeking CPM decreases in the mid-to-high-single-digit percentage range from ratings-challenged NBC and decreases in the low-to-mid-single-digit range from ABC, CBS and Fox.
The gap has narrowed, buyers said, but the two sides haven't yet come to terms. "Even though the broadcast nets have eased their demands on pricing, the current bid/ask spread will likely mean upfront negotiations will continue to drag well into July. CBS continues to ask for flat to up [on pricing], but a more negotiable stance from Fox [and] ABC may make that a challenge," said a research note from Wells Fargo Securities issued last week. Only NBC Universal is making progress in public, negotiating with WPP's Group M and notching upfront sales for its cable properties, according to a buyer familiar with the situation. NBC Universal declined to comment.
On the whole, said one media buyer, "Agencies are sticking strong to what they want, and no one is moving. The gaps are still wide enough that there is no incentive to move. There might be agreement between the sellers and us on the negative, but the gap between our numbers on the negative is the disagreement. They think we are holding money back and that more money is coming."
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Contributing: Michael Bush, Rita Chang, Jean Halliday, Jack Neff