This is advertising war, after all. But does it have to be this way? Some wonder whether there isn't a more humane way of handling this process, especially in the age of computer-sophisticated executives.
For this upfront, the economy again looks to be strong overall, despite recent turbulence among Internet and technology companies. There's also a question of Internet companies themselves, as TV advertisers, and what factor could they play in future TV upfront advertising markets.
Advertising Age reporter Wayne Friedman sat down with six TV media executives to sort out some of these issues. On the panel were: Bob Cesa, exec VP-advertising and cable sales for Twentieth Television; Joe Abruzzese, president of sales for CBS Television; Erwin Ephron, partner in media consultancy Ephron, Papazian, Ephron; Peter Chrisanthopoulos, president of national broadcast and programming for MindShare USA; Rino Scanzoni, exec VP-managing director of MediaVest Worldwide Entertainment Group; and Larry Goodman, president of CNN sales and marketing. An edited transcript of that discussion follows.
Advertising Age: Every year, the upfront market takes on a life of its own. This year, TV advertising is coming off a wild, crazy, hot economy. Despite recent problems, the market seems to be soaring. Just how is the upfront market looking now?
Bob Cesa: We have a very strong economy. The [stock] market is still strong in spite of the fact that it's down recently.
We've had a very strong scatter market in the fourth, first and second quarters. Options were held to a minimum over the last couple of quarters. So I see nothing but clear sailing ahead. It should be a relatively strong marketplace in the upfront.
Joe Abruzzese: It's been gangbusters for fourth, first and second -- tailing off a little bit in the second, but still very strong.
Erwin Ephron: There is strong, and there is strong. Everybody agrees it's going to be a bullish market. The issue is whether it's going to be plus 10 or plus 15.
I personally think the dot-coms are wilting. A lot of the packaged goods are starting to look elsewhere. There's an awful lot of inventory because of "Who Wants to Be a Millionaire." It may not be as strong as some of the sellers hope.
Mr. Abruzzese: One of the factors for the upfront is how far sold you want to be. For ABC, upfront is only a part of the war. It's only a battle. ABC would have been over-sold in the second, third quarter if it didn't have "Millionaire." And [ABC] would have denied itself a lot of revenue on premieres because "Millionaire" threw the ratings up 30%. It was found inventory.
But I don't think that's the factor that's going to lead to less of a strong upfront. It's how far sold you want to be. I wouldn't want to put myself where ABC was going into last year, being oversold in the second and third quarters. You are denying yourselves premiums of 25%, 30%, 40%.
Larry Goodman: This is a bigger philosophical question. Do we continue with an upfront where media companies like CBS Viacom or AOL Time Warner have multiple media platforms, data-mining capabilities and e-commerce capabilities, fulfillment capabilities and all kinds of stuff that advertisers now want to tap into? Do you negotiate your TV stuff separately from everything else you want to do with these major media companies that are consolidated across media? Or do you save your biggest chunk of leverage, which is your TV budget, and try to combine it with everything else you want to do?
My vision would be that in the future, it gets combined. But that's pure speculation.
Peter Chrisanthopoulos: As the year 2000 came along, in the first week of the stock market, there was incredible volatility. It actually scared off a lot of dot-com advertisers. We also saw more rating points in the marketplace in January and February because of the "Millionaire" situation. That gave a bump to network TV in general.
Cable didn't grow as much or maybe was flat. Some cable networks had significant declines in the first quarter, which they hadn't seen in years.
Therefore, supply is not going to be as big an issue this year as it was in prior years because, generally, the four networks have introduced some pretty strong shows in the fall.
When you look at demand -- as Erwin said -- the packaged goods clients, some of them, have cut back drastically. Telcos seem to buy less upfront and save more for scatter. Those are two very large categories.
Financials have surfaced, so they've filled the balance the other way. Pharmaceuticals have added money to the marketplace. But the automotives, I don't think they're going to add more money to the networks.
In general, there should be more demand. But not as much as we had anticipated in December, and clearly [it's] because supply is relatively flat. That should help moderate the pricing for the upfront.
Mr. Goodman: For the past five years, the revenue has grown substantially faster than the available rating points, whether you isolate upfront or you isolate scatter or you put it all together.
Rino Scanzoni: It depends on how you look at it. If you add all the rating points in network, look at all the syndication inventory that's available on a national basis and look at the proliferation of cable, there's actually an increase in rating points.
Looking at the upfront, one of the things we always try to do is focus on the total market. The upfront has obviously become the major component, and it keeps growing every year. But at the end of the day, it's going to be the total market that's going to determine what actually happens. When you have an upfront market now, it probably encompasses about 85% of the dollars on the network side, but significantly less on the cable side. A miscalculation of a percentage point in terms of [cost-per-thousand] increase, up or down, creates tremendous volatility on the short-term basis.
Mr. Ephron: When you're sold out 85%, and 30% of that is cancelable, there's a lot of play in all this. So it depends on what the economy does.
Mr. Cesa: It all gets back to the fact that advertisers want to sell their products and their services. And the economy is strong now. If you don't advertise now, and you don't sell your products and services now, when are you going to do it?
AA: When you look at the whole mechanism of the upfront market, a system which has been in place for some 25, 30 years, does it make sense now to spend $10 billion in three days?
Mr. Chrisanthopoulos: Yeah, it's Dodge City media. You pull the trigger.
Mr. Abruzzese: It goes back to whether it would be an upfront if it didn't work for the clients.
Mr. Scanzoni: I think it works for both. If an upfront allows us to have access to programming and to secure programming, and we also have an idea of what our pricing is going to be, it creates a predictability for the advertiser. Predictability allows for revenue to be spent.
When you're dealing with an unpredictable world and there aren't commitments made, there's more of a chance of money evaporating to other areas. What it's done is create a steady flow of dollars.
Mr. Abruzzese: We lock in revenue even though some of it's optional. We lock in revenue for a year. But we're also held accountable to the ratings. We live on pretty small margins. If we drop 5%, that's a pretty big number to live up to. So we put a lot on the line also for guaranteeing our clients.
How's it going to change? With Viacom, with CBS Plus, we're going to construct much more long-term deals. And we're going to rely less and less on the upfront in years to come. I really believe that.
Mr. Chrisanthopoulos: It does seem irrational to spend $10 billion in four business days. That's just for the networks. And then we've got cable and syndication, with syndication usually breaking first.
The other issue is timing: May is premature for 95% of clients. They're making decisions seven months, eight months in advance of knowing where they need to plan for in the following year.
If the upfront were on the calendar basis, as many cable network deals still are, clients would be dealing with realistic budgets. The networks would be dealing with much more realistic budgets, and actually feeling more comfortable that clients aren't going to be exercising these options in the three out-quarters.
The problem is the new TV season starts in September, and the networks only have 22, 24, 26 original episodes per series. If they went more toward 52 weeks and at least a 40-week original series commitment, introducing shows throughout the year, then all of a sudden it would change the timing of the upfront.
Mr. Ephron: We don't have an upfront the way we had in the '60s and '70s when it was introduced, when all the networks issued new schedules and put them in place the week after Labor Day. Now, programs are being introduced all year long. So that argument for the upfront no longer holds.
Mr. Scanzoni: Twenty years ago, we were basically in a world where we were buying three networks. There was probably a handful of syndicated shows and very little cable to speak of. The upfront would start probably in May, and we would get done in September. Now we probably have more than 70 options, when you add it all together. And it happens in four weeks.
Granted, I think it's a little bit misleading because our preparation starts back in the fall. So there's a lot that goes into it.
Mr. Abruzzese: If we went to a calendar year, if we all had to announce our shows Jan. 1, do you think there would be more money in the marketplace or less?
Mr. Scanzoni: I don't think it would change.
Mr. Chrisanthopoulos: Oh, it might. The money would be more accurate. I can't tell you if it would be higher or lower; it might even be higher.
Mr. Cesa: Would you put more dollars firm? Seriously?
Mr. Chrisanthopoulos: In a negotiation, there are tradeoffs. If somebody gives up something, they want something in return. Right now we're talking about very healthy economic times. But those times will not continue forever.
Mr. Goodman: I agree with you. I think it's going to happen, but I think there's one mitigating factor. Promotion today is three and a half times the amount for advertising. Promotion five years from now will be twice the size. All that money that was going into promotion is going to branding.
Mr. Abruzzese: You're always going to have a commodity. Our job is to make it less of a commodity and more of a value. [Consider CBS'] "The Survivor" series. It had nothing to do with the upfront. Nine advertisers bought it -- bought the protection, the placement, the series. This is not part of the commoditization of network TV, but about value.
The more you get clients involved in shows, whatever your network, the less it is a commodity, the more it is value.
AA: Whatever happened to the big advertiser deals that occur before the upfront, the so-called concept deals, the pre-upfront deals?
Mr. Cesa: The pre-upfront deals happened in the past because the market was soft, and [syndicators] wanted to get deals done early to secure a certain amount of revenue in house. What Larry and Joe are referring to are cross-media type deals. They may take some money out of your upfront budget to do so, but you're certainly going to lay in your upfront budget with those vendors that help you do those types of multimedia platforms deals.
Mr. Abruzzese: I'll give you an example. We made a deal with Hartford Insurance Co. to sponsor "60 Minutes II." It had nothing to do with the upfront. The more of those you do, the less dependent you are on the commoditization of the upfront.
Mr. Chrisanthopoulos: We were fortunate enough to do one with American Express, with News Corp. and Fox on a concert. It was a programming deal that ran on the Fox network. It was a tri-multicast: It was live on the Internet, there was network radio live exposure, and there was a cross-media deal all in one. That was a wonderful example of media that worked.
In the future, we'll have more -- perhaps cable network, Internet, print deals pooled together. But that money's got to come from somewhere. It's not an unlimited pocket of money. [That's so] particularly for the smaller clients who only buy cable and can't even afford network TV or a print budget. For every dollar that goes to the Internet, that's going to come right out of a cable network budget.
Mr. Goodman: The forecasts say exactly the opposite. Jupiter [Communications] says exactly the opposite; Forrester [Research] says it's exactly the opposite.
Mr. Scanzoni: What also happened is that the cost of entry to national TV was reduced. And as a result, that did create more money. But at the end of the day, it comes from an overall marketing promotion budget. Maybe it comes from print.
Mr. Abruzzese: The key is when the Internet starts competing with TV for a fixed media budget. Then you'll start seeing changes. You don't see it now; it's additional money.
AA: What about the Internet? Discovery Communications is pushing the idea of an Internet upfront. Shouldn't that business follow its own model?
Mr. Goodman: First of all, you can't force the idea of an upfront. That doesn't work. Second, an Internet upfront works if it's done so the content and the branding and the traffic patterns are all logically set up so you walk into an advertiser agency and say, "Here's what we've done. Here's why it makes sense to you."
AA: I want to get back to timing. Syndication goes first every year. This year it seemed to pull in healthy 9%-15% increases for its top tier shows. Is it a disadvantage because it always starts first and doesn't know where the market is going to be?
Mr. Cesa: It's a double-edged sword. We are the smaller of the three options in volume of dollars. So it's good for us that we can assure ourselves of getting the money in-house that we need.
What's difficult about it is we have to set the pricing. We do the battles, and then we become a benchmark.
I think one out of the last four years, we managed to outperform the networks. But otherwise, cable and network have been getting larger increases.
Mr. Abruzzese: When you enter into a syndication marketplace, network marketplace and cable marketplace, do you shift money around while it's going on? Is there a flexibility?
Mr. Chrisanthopoulos: Absolutely. The biggest reason for that is clients have consolidated their media spending at one media specialist. So the buyer now has, at his disposal, the ability to shift dollars from venue to venue.
Fifteen years ago, not only was not all of the national TV situated in one place for most of the clients, they even had dayparts at different agencies. Because of the consolidation that's taken place both on the media side and on the media specialist side, everyone's trying to maximize their leverage by putting their dollars together.
Mr. Ephron: This grew out of the fact that there were such disparate pricing levels.
Mr. Chrisanthopoulos: That's also been a reason why the upfront has accelerated and become a two-week phenomenon or whatever.
Mr. Goodman: Peter's daypart analogies are an interesting way to look at what's going to happen with TV and the Internet. Right now, go down the top 10 agencies and look at where the TV buying is and where the Internet buying is. The likelihood for an agency with 20 accounts that has one of those accounts in the same place -- Ogilvy seems to be an exception. You guys are, in my opinion, doing more integrated deals than any other shop.
But what Peter said about dayparts and how dayparts consolidated from four or five different agencies to one agency, the same thing's going to happen with Internet buying because the technology and the delivery and the creative mechanisms and everything else, whether it's interactive TV on the PC and the Internet on the TV, it's all coming together.
And it's all going to have to be bought and configured through one group. It's kind of a super-group. It expands the definition of what Rino does, it expands the definition of what Peter does. But sooner or later, I don't see any way for that to work together.
Mr. Cesa: As the options expand instead of contract, how do you, on the agency side, navigate through that? Do you have enough experienced people? Timing-wise, how do you handle it? There are a lot of issues. The same issues are on us for the major vendors. It's more difficult for us to try and coordinate that stuff.
Mr. Scanzoni: The clients are driving it. They're consolidating, but they also realize it's a lot easier to make changes and take advantage of opportunities and move money and so forth if it's in only one place [with one buyer], as opposed to having it in different places where your their money is competing against itself.
Mr. Scanzoni: At the end of the day, if anybody believes that on our side of the business it's a matter of just assembling these vast amounts of dollars, and bringing them to you guys, and then we pretty much get what we want, is a fool.
The reality is, the more you have, the more intelligent you have to be about how you use it; the more you need to know about how things are going to play out because you need to know what strategy's going to be most effective. Not just in a marketplace, but with each particular vendor that you're doing business with.
So it's a hell of a lot more about intelligence and information. Size basically lets you play at the bigger table. If you're smart, you can probably have an effect on the marketplace. And potentially, you can create a scenario that benefits your client. But it's not just size. Size alone can get you in a lot of trouble.
AA: Do you think in hot markets like this the growing media dollar leverage of media agencies can be a factor in slowing down sharp price increases?
Mr. Abruzzese: In a hot market like this is can work against you.
Mr. Ephron: There seems to be, for this upfront, an awful lot of emphasis on the quality of exposure, the quality of rating points, because there are a half-dozen studies that are just being released on the effects of different kinds of programs on recall.
Mr. Cesa: You're seeing it with certain sporting events, certain prime-time shows, certain specials, premiere movies and special events, and whatnot. Those shows tend to have higher recall levels, there's no question about it. And there's a reason why daytime is the lower CPM vs. prime time or even late fringe.
It's going to become even more important in the future.
Mr. Scanzoni: What's happening is that we're always converging. Everything's becoming more and more of the same. Cable is achieving a critical mass. And everyone is operating sooner as opposed to later on the same basis points.
On the cable side, it's just a mass of a lot of smaller ratings. At the end of the day, the only way you're going to be able to make the right kind of decisions is that you have to know a lot more about who's watching and how predisposed they are to buy the product that you're advertising because at the end of the day, we're trying to move product.
Mr. Abruzzese: It's got to work for everybody. Let's get away from the upfront for a second. We do business with the same people mostly over and over, even though we did a lot of new business this year. But 75% are returning business. So if it's not working for one year with a particular network, it's not going to be back next year.
When cable started out, the reason cable was so hot is because it was very efficient. Now it's going into a much more of a value relationship. Eventually, there's going to be value and value and whatever works for the client and the product. If it's not working in one year for us or for cable, it won't be back next year.
Mr. Goodman: The flatter the national landscape gets [might result in a scenario where say] "Who Wants to Be a Millionaire" is Mount Everest, and there's a couple of peaks underneath it and there are a bunch of mountains that are about 2,000 feet. Some of those mountains are broadcast and some of them are cable, but they're all at that same plateau. The flatter that landscape gets, the more likely it is that you're going to have one business.
Peter talked about how he can shift from broadcast to syndication to cable as needed. So in order to facilitate that, I would imagine that markets would move in the future much more simultaneously than they ever had in the past.
AA: Optimizers were a big issue two years ago with the thought that these computer media systems would shift dollars for one television venue to another. How do optimizers factor into the upfront market in the year 2000.
Mr. Ephron: Optimizers shook up the concept of dayparts. We're not losing that concept at this point, but still, people understand that to specify 35% of the budget in prime time is to give license for prime time to increase 40%.
Mr. Goodman: In other words, you can pre-configure an optimizer to give you just about anything you want.
Mr. Ephron: In a sense you can if you put in the right weights, but that's not what it's about. What it's about is trying to be flexible.
AA: We used to think optimizers were going to favor one media over the other, what you are saying now is that optimizers were never intended to work that way?
Mr. Ephron: Optimizers, if you look back over the last three years, have hurt daytime, helped cable and helped prime time. You can see that. That's an effect of looking at reach patterns.
Mr. Scanzoni: Erwin, I would agree it hurt daytime. But in the other dayparts, there's so many other factors that come into play. Cable growth would have been there, regardless, and I think its prime time growth that we saw this year would have been there because it's being driven by the financial category, Internet category, the telecommunications category, which obviously need to get out there very, very quickly and get exposure for their advertising.
Mr. Ephron: Prime time was a surprise, though, because nobody thought optimizers were going to help prime time.
AA: In syndication, there is a major question about guarantees versus actual ratingsthat the gap is greater here than on cable or network. Let's start with Bob Cesa. Recently, a major competitor of yours, Warner Bros., decided to institute "pay on delivery" to correct this problem. How do you view this problem this year?
Mr. Cesa: We have to get better. People buy on delivery. There are people who buy with a floor and a ceiling; there are people that want to be guaranteed because they want the money spent with you. We want to give the best value to the advertiser that we possibly can. So sometimes they negotiate really hard on the price. And if you're going to give a lower price than you wanted to, you certainly want to collect everything. So you're a little more aggressive on the ratings.
But we are getting better, and we're trying to address those problems. So naturally we do offer this menu to the agencies and clients on how they want to buy. And we'll work with them any way that works with them.
AA: Rino, do you sense syndication is getting better overall in hitting its promised ratings?
Mr. Scanzoni: The problem with syndication is it's very program-driven. With a network, at least you know what your lineup is. If you put a show on a particular time period, you can pretty much estimate with a fair degree of accuracy what your delivery's going to be.
In syndication, it's more of a crap shoot because programs are sold to stations and there are some basic parameters. But the stations don't necessarily commit to a specific time period. If the show doesn't perform, they usually have options to make those changes.
So it becomes very, very difficult, I think, to predict with a lot of accuracy what a specific program is going to do.
Mr. Cesa: You don't have the same issues in broadcast and cable.
Mr. Chrisanthopoulos: I don't think you can generalize and just call it syndication because some suppliers are better at monitoring their delivery and forecasting their performance than others. But the worst thing in the world is for Dec. 31 to come and all of a sudden you get $50,000cash back for a particular brand and nowhere to spend it. So there are mechanisms in place to protect our brands from that type of under-delivery.
AA: Isn't this something that many multimedia companies like CBS could do? For instance, where in the future you offer one guarantee rating for syndication, cable and network shows?
Mr. Scanzoni: The trick is valuation. I think if you look at the network business, any network over the last 15 years would probably have loved to structure a deal where it's multiple daypart against one number.
Mr. Cesa: I don't think Joe's saying that. I think he's saying, "We'd still sell to you, our syndication would come to see you, our network people would come to see you, our cable people would come to see you. However, we would be able to offer you the ability to move within those areas and would be a great amount of flexibility for you."
Mr. Ephron: But it's not picking programs, it is picking a target and trying to reach that target. If you have that, it makes a great deal of sense to think about it as a message delivery system, not individual dayparts, because then you can have a real market.
Mr. Chrisanthopoulos: Having worked at a network, there are bigger walls than that. Every division is decentralized. Even individual dayparts are decentralized. And to give one at the expense of another just doesn't work.
Since Bob is here, let's just take Bob as an example. If there's an issue atTwentieth Television that now [his counterpart] needs to solve at Fox, that impacts his bottom line and performance for that network, and, then taking it a step further, his personal bonus. Then there are issues that prevent that close collaboration and tradeoff between divisions. Then the CEO needs to create yet another level of value that says, "You know what? If one division is helping another, I'm going to make sure that your division is not hurt and that you personally are not hurt."
Mr. Goodman: The other thing is: look at how an agency is structured and look how sales organizations are structured. I hold us up as a good sales organization today. We've had a marketing solutions group since '95. We're certainly out in front of the cable industry.
But for tomorrow, we're going to have to change. There's no question. We all are. We're going to have to figure out if it's a super group of salespeople that are empowered to sell across all these platforms and have access to the inventory and the pricing and can pull the trigger like that, or whether there's a super group of planner or buyers that are empowered to buy across all these platforms.
But you don't have any internecine budget rivalries, you don't have any internecine rivalries in terms of the agency in terms of who does what, or who sells it or who gets credit for it, or who buys it or who gets credit for it. Because right now, some of the difficulty in cross-platform selling occurs within media companies where we're all trying to figure out who gets what chunk of what budget, which is a bad thing, and some of the difficulties occur inside agencies where every group is vying for, "Wait a minute, what am I getting out of this?" as opposed to "What's the totality of it?"
So somebody's going to have to look at the totality of it and say, "This is a good thing."
It may be thematic, it may be CPM driven, it may be that the print deal is phenomenal, the TV deal is not so good, but in the aggregate it works better for the agency. But no one is in place today to make those calls, and on the sales side, I can assure you nobody's in place to do that except for these solutions groups which are beginning to get their feet in place.
Mr. Abruzzese: Larry's 100% right. But it comes together. We've done six or seven of these deals, probably in the $100 million range. It all focuses on the client.
The client has to be the driving force. And it's got to be the people who head up CBS, Fox, Turner, saying this is going to work. Totality works for both clients and the media companies, then it will explode. We've been very successful.
Mr. Goodman: One other thing I'd add to that is if the agency is not co-opted up front, the renewal is almost certainly dead. So I agree with you the client has to be in it, but if the agency is not co-opted on the initial buy, it's the widow model.
Mr. Chrisanthopoulos: Larry's right because the agency has to be involved. The lines are blurring, and the media, the strategic planning people, and the negotiators and those in the digital or online groups have to be at that meeting at the same time assessing the proposal and then taking it a step forward. But these are very time-consuming. They're not turnkey, quick decision-making types of proposals.
AA: It sounds like to avert these problems of buying across different media, you must go, as Larry says, directly right to the client. Then you can bring the agency in to sort out the problems.
Mr. Abruzzese: What I meant was the agencies are all in support of this because they want the clients to be successful. But it takes a strong client to push the button. And you're right, Larry, if you get the agencies on board with you, which they have to be, you have one year.
Mr. Scanzoni: My experience is that the agencies are ready to do this, especially since there's been consolidation and there's a level of expertise that's available across all disciplines. My experience has been that it's very difficult to do on the seeing side. But it's been very difficult because of the fact that everyone's got to get together and somebody's got to decide, "OK, we need to you to do this so that this works," and it's very, very time-consuming because it's a consensus that has to be built.
Mr. Abruzzese: That's why this is not going to be upfront, that's why this is done all year round.
AA: It sounds like if you give clients the value they want, more than just straight commercial time, the whole premise of buying upfront advertising spots as commodities goes away.
Mr. Scanzoni: If history's taught us anything, it's that things just don't evolve completely from one thing to another. Radio's still around; now we have TV, and we have the Internet. What's going to happen will be a combination of things.
It's not even that one client is going to do it one way and another client's going to do it another. Within clients, there are going to be deals that are going to be very brand-based, very business unit-based, where there's a terrific idea that creates this added value. Because it's never going to work if someone's just adding up the pieces and saying, "OK, what I'm looking for is a lower price." It's got to be a comparable price, and then you're getting some incremental value.
Mr. Chrisanthopoulos: We're talking about the convergence of media selling, which is really a byproduct of the technological convergence we're seeing. It does make sense. When cable first came along, we all applauded it. There was yet another stalking horse, another real competitor down the road to the broadcast networks. At that point, there were just three, until Fox came around in '87.
Now we're talking about technology that could actually threaten the medium or our advertising getting seen. That's scary to many clients. With TiVo and Replay, where you can bypass a commercial completely or become your own program director, or, as I like to call it, your own affiliate in your own home, the model is changing. The balance of power is shifting. We need to really focus on that in the years to come so we can still keep our business of advertising and media strong.
Mr. Abruzzese: We could just sit here and do the upfront every year, and do 80% of business, and never change our business. But then we just go up and down with the ratings, and eventually we could be out of business. That's not what we're here for: Selling value; finding more value; as it changes, looking to find other value. Maybe it means product placement and shows you can't fast-forward.
AA: I want to talk about programming. What is the advent of seemingly non-entertainment programming -- XFL on NBC, WWF on UPN, "Millionaire" on ABC -- going to do to the pricing of entertainment shows?
Mr. Scanzoni: Media pricing doesn't have anything to do with the cost of the show or the type of show. At the end of the day, media pricing is a function of a marketplace, it's a function of the audience it brings to the table, how unique that audience is, and the demand.
Mr. Cesa: I think if you look at it a little closer, you can say to yourself, the game shows tend to spew over. The XFL some people may not mind. There's wrestling, there are a limited number of advertisers in. So what does that do? It's got to put some pressure on the shows that skew 18-34, 18-49.
Mr. Abruzzese: But there's a valuation. It depends on where the lines cross. We valuate shows within the network. All the demand [means] is that show will be the highest-priced show. Where it doesn't cross at all, that's the lowest-price show.
"Millionaire," I don't know where that's going to fit. That may fit some place in the middle because it's just so big.
Mr. Ephron: If you talk about the young audience, and everybody is after the young audience, what buyers have to do is follow the audience.
Mr. Abruzzese: There is a shift when we look at the entire landscape. I've seen a shift of a lot more money going older than younger. If not dot-coms, it's direct consumer drugs.
Mr. Scanzoni: We're talking two categories -- the financial category and the pharmaceutical, specifically the prescription drugs, which is obviously skewing older.
Mr. Abruzzese: We do see a move to the older [audience]. Think about the Internet: There's a lot of misperceptions. On CBS.com, our biggest site is daytime. We get much more hits and clicks than anywhere else. But if you're an Internet company, nobody buys daytime right now. They should be buying daytime; that's where people are hitting.
Mr. Goodman: The irony is on our Internet site, the average age is 32.
AA: And what's the average age on CNN?
Mr. Goodman: 59. Headline News is 51. CNN's 59. The Internet's at 32.
Mr. Chrisanthopoulos: Three-quarters of our clients, however, target under the age of 55. That's our primary target audience. Even though they may not have as much individual discretionary income, they've got a larger household, they've got more children, and different needs. Also, a lot of consumption patterns start at a younger age -- what toothpaste you use, what shampoo you use, things of that nature.
Mr. Abruzzese: But that's all changed.
Mr. Chrisanthopoulos: Not really. I think a lot of our clients still target younger. I'm not talking about 18-to-34, I'm taking 18-to-49, 25-to-54.
Mr. Scanzoni: When we finally get to the point where we can make a connection between where we advertise and who's buying the product, then all of this is going to go away.
Mr. Goodman: It's getting a little closer.
Mr. Chrisanthopoulos: With the new technology, we will get to that point where we will be looking at not just cost per thousands, but true cost per sales -- how many viewers have actually gone from the commercial they're watching on their TV set to the Internet site, then pressing a key to get the products or a coupon.
The only problem is, if they're going to the Internet site right after that commercial, then they tune out the following spot.
AA: The dot-coms have been getting a lot of press for advertising in high-profile events such as the Super Bowl and the Academy Awards. What effect will they have on the upfront?
Mr. Scanzoni: Minimal. For the most part, they're a short-term player. With all the turmoil going on right now in the [financial] marketplace, I don't see them stepping up to the plate.
Mr. Abruzzese: It's a small piece of our business.
Mr. Goodman: CNN last year had 54 different dot-coms on the air throughout the year. In the fourth quarter, it got to be about 12% of our revenue, so it became substantial. First quarter last year was 2%, fourth quarter was 12. So it's a nice trend.
But the point I want to make is that they were almost all scatter advertisers, very few upfront. The deals you do when you have the equity component and the big cash component, those deals are a., the consumer chunks of inventory; b., they tighten the market up even further; c., they don't show up as traditional buys because they're done outside that realm. Most of the major media companies are doing a lot of them.
AA: Dot-coms haven't been a big player in syndication yet?
Mr. Cesa: Not much. But we get the trickle-down effect.
Mr. Scanzoni: If you put a valuation on that, what would that be? $200 million dollars in those kinds of deals.
Mr. Goodman: If I told you what the valuation would be, you'd laugh at me. Honestly. It's over $1 billion.
Mr. Scanzoni: In equity deals?
Mr. Goodman: Current stock prices as of this morning are over $1 billion.
AA: Rino, have dot-coms replaced movie companies as advertisers who pay the highest advertiser rates for regular scheduled network programming?
Mr. Scanzoni: No. They've obviously had an impact on events like the Super Bowl, where their pricing got to levels that nobody would have expected a year ago. But outside the Super Bowl and maybe events where they feel they need to be, it really hasn't had much of an impact.
AA: When it comes to edgier programming, are more advertisers pulling out of risky programming that doesn't fit their values?
Mr. Abruzzese: We have shows on the air that are very family-friendly, and we can't price those high enough. But there is a disconnect. We've canceled [those type of] shows because nobody bought them high enough. If they're that valuable to advertisers, "Put your money where your mouth is." Let's support them. We don't see that.
Shows like "Touched by an Angel" should be valued 150% higher than anything else, if people meant what they said. Unfortunately, it goes to shows more like the "X-Files," things that are not as family-friendly but do great demos. You want both.
Mr. Cesa: After all said and done, they want both. But the fact is, they still have a business model they have to live with. If they pay 150% for "Touched by an Angel," at some point they have to decide how does that affects their bottom line. So, they do want both, and we'd love to give them both, but you can't tell the audience what they want to watch.
Mr. Scanzoni: But Joe, it's not that they don't support those shows. The reason you might not be seeing big premiums on those shows on an overall basis is because there's a whole bunch of other categories that are driving the market like the movie [companies]. They're not going to run in those shows because their films are primarily targeted for teens and 12 to 34s. The automotives are looking for men, or 25-to-54 adults.
Mr. Cesa: There's a huge difference in pricing between certain shows that have a content problem vs. shows that are clean as a whistle. It's just how large is the difference. At some point, it gets to be too much, and you have to walk away because there is so much more demand on those types of programs than there are on shows that have a content problem.
AA: In syndication, you notice that more?
Mr. Cesa: I think we're more successful with shows like "Cops" and "NYPD Blue." We're having more and more advertisers looking and buying. But that's a function of running in late fringe, too, as opposed to running earlier in the day when their network runs are and there are more opportunities for kids to watch. Also, let's face it, the ratings are lower in syndication than they are in network so they're not in the forefront. When you run a show on network, everyone's watching.
Mr. Ephron: They're chasing after Cosmo covers in the supermarket, too.
Mr. Goodman: If you have the WWF migrating to UPN, you've got the XFL on NBC, arguably you're taking content many people would find questionable or that some of these organizations have said is not the stuff they want to sponsor.
AA: Occasionally, some advertisers even pulled out.
Mr. Goodman: Yeah, occasionally some major advertisers pulled out. But look where it's migrating. Look at the migration and look at the popularity of it. Until the economics support the ideology, the ideology is going to continue to take a back seat.
AA: So, overall, where's the upfront market going to be? Can you give me a number?
Mr. Cesa: It's going to be higher than last year.
Mr. Abruzzese: I would put a number on the table no one would buy it (laughter). It's going to be strong again. I would not make the call before, and I think we're not ready yet.
Mr. Goodman: I'm going to be the fish out of water here. I'll throw a number out. We're forecasting broadcast at 7.7 [billion] and cable at 4.6 [billion]. That's a 10% increase for broadcast and 28% for cable.