No True Winner in TV Upfront: Both Nets, Buyers Give Ground

Sellers 'Go Negative,' While Major Marketers Yield on Big Drops in CPMs

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NEW YORK (AdAge.com) -- Welcome to the unhappiest upfront market in recent memory: No one involved seems to be walking away with exactly what they want.

Earlier this summer, marketers indicated they'd stay on the sidelines until they achieved significant double-digit declines in CPM rates (the cost of reaching 1,000 viewers). Instead, they're settling for givebacks in the range of 1% to 3% -- maybe a little more, according to media executives.

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TV networks, touting their ability to reach the biggest audiences of any media outlet, were steadfast in their resistance to rolling back prices, starting out demanding a 1% or 2% increase in CPM rates. Instead, everyone -- broadcast and cable -- is "going negative," according to media buyers.

Media-buying agencies, armed with direct marching orders from their clients, went to the haggling tables determined to secure the decreases necessitated by an uncertain economy. Instead, they have to go back to advertisers with less than promised.

The upfront, during which the big TV networks typically sell 70% to 80% of their available inventory for the fall season, has always been grueling, arduous and harsh. But this year, it's also likely to be an affair that leaves bruises and scars, with everyone making concessions they swore they wouldn't make back in May.

Thaw
After weeks of delays, the market finally began in earnest late last week. NBC and Fox are both said to be a little more than half complete with their upfront negotiations. ABC and the CW have also completed some business, according to buyers and people familiar with the situation, while CBS has completed deals with at least two major agencies, according to buyers. (The networks all declined to comment on the status of their negotiations.)

While ABC, CBS and Fox have been doing deals with price drops in the low-to-mid-single-digit percentage range, according to buyers, NBC has offered rollbacks in the mid-to-high-single-digit range. Fourth-place NBC faced steeper ratings drops than its rivals this season.

"This is the week where the first deals are happening and there's activity," said one media-buying executive. "It's not a frenzy, and they won't all get done overnight, obviously, but the activity has begun. Cable and network are moving, and everyone is doing their quiet little deals. It's sluggish, but everyone started moving at the same time."

NBC Universal's USA seems to be leading the cable upfront, on the strength of strong summer ratings for shows such as "Burn Notice" and "Royal Pains." The rest of the top-tier cable networks remain at a standstill. Turner Entertainment networks continue to have "healthy and active conversations" with their agency partners, according to an executive familiar with negotiations, as do network groups such as Discovery and Scripps. USA kicked off with deals written at CPM rates 1% to 3% lower than last year, according to multiple executives, and higher-rated networks are expected to be priced similarly. The syndication upfront is said to be ready to kick off next, with deals expected to be written in earnest this week.

Online-video upfront dollars remain in flux. Jordan Levin, CEO of Generate, a prominent online-video producer, told Ad Age, "Budgets certainly seem to be up in the air. Everything's relatively tight in the dog days of summer. At the same time, we're seeing brand leaders take some risks."

All sides will shake hands and move on to other things, of course, but some disappointment could linger. Advertisers had hoped this would be the year when the upfront process -- long ridiculed for being out of step with the more precise way in which TV-ad buying is evolving -- would reset. With overall ratings eroding every year and technology allowing consumers to avoid ads more deliberately, there's a sense that a TV spot isn't worth what it was when three broadcast networks dominated. The upfront typically wraps before July 4, but this year it seems likely to extend into late July or even August, largely because buyers thought they'd be able to pass through double-digit decreases (one school of thought has deeper pricing declines becoming available in non-prime-time inventory, particularly during early-morning and daytime schedules).

Missed goals
TV networks were bracing for some unrest this year, owing to the roiling economy. And many of them acknowledged that the total volume of ad-dollar commitments they secured -- about $9.23 billion for prime time last year -- would be down. The betting on Wall Street is that the broadcast networks will see a 10% to 20% decline from last year, which could mean the networks will be lucky to notch a take between $7.4 billion and $8.2 billion.

But many networks still thought they'd be able to push through increases, or, failing that, stay flat. During a May conference call with investors, CBS Corp. CEO Leslie Moonves predicted his network's ability to increase ratings in selected categories would win CBS price increases from advertisers. But buyers say that just hasn't been the case.

The market will force TV networks to make up any slack in the "scatter" market, when advertisers purchase commercial time just days, even hours, before it's slated to run on air. In good times, scatter can be a boon to any network ad-sales executive; as the economy rises, the cost of a scatter ad can rise well above that of time purchased during the upfront. But with overall upfront volume expected to be down, scatter will represent a way to generate missing dollars, not just sell additional ad time at a higher price. And with ratings down in general, some of that time will have to be set aside for "make goods," or ad time given to a client when ratings fall short of upfront guarantees.

Then there are the media agencies. Many were ordered to clamp down severely on pricing, according to agency executives, and in some cases told not to come back to their clients without achieving deep discounts. In other cases, large media-buying agencies were able to lure new clients with the promise of securing significant upfront discounting, and have been loath to leave the bargaining table without it. An inability to notch better rollbacks could cause pain elsewhere -- not only over the course of the client relationship but also in terms of compensation. And in a year when it seems some marketer handholding is definitely warranted, the long, drawn-out negotiations mean agencies will have less time to walk clients through the ins and outs of the deals. Urgency to sign off on the network buys will mean less time to explain strategy to marketers, and could prove to be a source of tension.

One analyst suggested the networks were better suited to come out of the process with leverage. Should the economy improve, the networks "will win again, as advertisers will have to scramble to catch up and buy time in the third quarter and fourth quarter," said Ed Atorino of Benchmark Co. "The only way the networks lose is if economic recovery lags and ad demand stays weak."

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Andrew Hampp and Michael Bush contributed to this report.

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