Businesslike and cautious, national TV advertising is poised to recover from the depths of last year's fallout--which witnessed the first declines in TV program pricing in nearly 10 years--and return to a more normal market.
Predictable low-single-digit program price increases are in store for next season, say media executives. What is in debate is how much new money will come in the following weeks, considering the still iffy economy.
This coming season's upfront issues also include evaluating the increase in cross-platform deals, value of product placement and how "holds"--the process in which an advertiser puts on hold an order for network commercial time--could change.
To discuss these issues, Advertising Age convened a roundtable of experts: Mel Berning, president of U.S. broadcast for Bcom3 Group's MediaVest Worldwide, New York; Jon Nesvig, president of advertising sales for News Corp.'s Fox Broadcasting Co.; Peggy Green, president of national broadcast for Zenith Media Services, jointly owned by Publicis Groupe and Cordiant Communications Group; Jeff Lucas, president of advertising sales for Vivendi Universal's USA Cable; Marc Hirsch, president of Viacom's Paramount Advertiser Services; and Marc Goldstein, president-CEO of WPP Group-owned MindShare North America.
What follows is an edited transcript:
Advertising Age: Currently, there exists a mixed-message marketplace: The TV ad market seems to be on the upturn. A lot has been made of the fact that two networks, Fox and ABC, which are in steep rating declines, have given up a lot of rating points due to make-good situations. And that is decreasing supply and artificially lifting prices.
Other people say it doesn't make any difference--this is the market right now. With this uncertainty how can media buyers and media sellers best prepare for this upfront?
Jon Nesvig: There is no question there are fewer rating points out there right now, but there's also more real money in the marketplace. Absolute dollars are up, and it's not an artificial demand. A number of significant ad categories are spending pretty heavily vs. last year. You're only seeing a couple that haven't come back, and those mostly being the financial services and technology.
But certainly telecommunications is strong. You're seeing pretty good automotive spending. The movies continue to spend real well. I assume from what I hear the spot business is pretty good, which usually means that everything's pretty strong.
AA: Do you agree the market is getting better?
Mel Berning: There's no question that there's a little more vitality in the marketplace. But several issues remain. I don't think anyone sees us returning to boom growth periods. Some of the categories have rebounded, but as Jon said, there are a couple of categories, particularly financials and technology. But they are not where they were in this marketplace. You always need a new category to drive it on.
AA: Marc, last year the business was hit pretty hard for the first time in 10 years--network, syndication and cable. Are you seeing the same improvements going on right now?
Marc Hirsch: Yes. I'd add one more category to what Jon said, which is that retail spending seems to be up as well. ... This bodes well for what we're going to see this year.
AA: Jeff, cable networks were in the same boat. Perhaps along with syndication, cable was hit harder than broadcast networks. In your short time at USA, a lot of people are already predicting that cable is going to be up a lot. Where do you see the market?
Jeff Lucas: The economic indicators show that the economy is improving slightly. They say people are being cautious on their spending. This translates into what we do in terms of the rating points that have fallen out on the major networks. Where are they going to find those rating points? [That's] where I think cable looks good.
Peggy Green: I submit that when this year is all over with, we might not see enough tick in revenues because [you need to look at] all the network dayparts. You talk about prime, you talk about late night; those probably will continue to be robust dayparts because that's where your competitive categories spend money. If you track by daypart, revenues will not be up with this broadcast year.
AA: That might bring up another subject--doing multi-daypart deals at the same time. Marc, are more of those deals happening at the same time?
Marc Goldstein: We've been doing multi-daypart deals for about five to 10 years. The next stage you're probably referring to is really the inclusion with, a Viacom, for example, of their cable properties or with WB and their cable networks. There will probably be some increase in that there will be advertisers seeking those deals as a way of negotiating [cost-per-thousand] advantages.
AA: The question is how many of these deals are we going to see? There are some people talking about how in a couple of years, in 2005 or 2006, you might have 40% or 50% of deals being cross-platform deals. Is that possible?
Mr. Nesvig: I mean it's possible. Marc [Goldstein] used a time frame of five or 10 years. Agencies have been doing multiplatform deals for 50 years. I mean that's what agencies do. Now we're going to focus on common ownership of platforms. If you've got a good idea from the seller's side, which will help a client's business, then you can put it together and you get rid of a lot of the hurdles. If we're packaging it purely from the buyer's side to drive the price lower or purely from the seller's side to drive more media, then you're not going to get much done. I don't think this is a year where we should do that.
Ms. Green: My concern is a lot of buzz right now about cross-platform. What we would like to understand: What is the proof that all of these things work?
I will tell you right now, and it's not yet released for the trade, we just consummated a major package with Viacom Plus [the cross-selling unit of Viacom]. And this is where we had a very distinct objective of what we wanted to accomplish. The agency had the objective, not the vendor. Viacom had the assets within their portfolio that made sense; that was a win-win.
Cross-platform will be a way to go as content is repurposed. If we can understand how that property works in both venues, why would you not want to follow that show wherever that show is distributed?
AA: So how do you justify it now?
Ms. Green: Cost is a very big part of your barometer. A lot is just intellectual capital, what you think works.
Mr. Berning: We did a cross-media deal for Procter [& Gamble Co.] around a lot of different concepts. One of the concepts was the "People's Choice Awards," which airs on the CBS television network. We were able to use other assets in the Viacom empire to promote it--pre-awards shows, post-award shows. The one element that we can all monopolize or take advantage of is to use those assets within a seller's empire to make the sum bigger than the individual parts.
AA: Does it bother you that the Monster deal with Viacom Plus didn't include Paramount Advertiser Sales but did include King World Media Sales?
Mr. Hirsch: Well, it was a very specific goal that they had and the type of programming that they used. And what they used on King World was "CBS MarketWatch." We have no property like it. But that's exactly the point--there's something very specific that a client wanted.
Mr. Goldstein: But let's put some of this in perspective if we can. Last year's upfront revenue across all venues--network, all dayparts, cable and syndication--is somewhere in the neighborhood of about $14 billion give or take a little bit. Now we're talking about the totality and for the following reason. The Monster deal, if I read it correctly, across multiple platforms within Viacom, totals $15 million.
AA: Increasingly bigger media buying groups are dealing with more upfront clients--50 to 100 such clients. Last year things may have been easier because it was a slow market. This year things could conceivably be more of a normal type market. To the buyers, do you see any things changing?
Mr. Goldstein: Two years ago the prime-time marketplace went in a reported four days. We all believe that the ability and the time that we had last year really gave us an opportunity to analyze, to evaluate. We are all more than capable of doing exactly that whether it's four days--and by the way, I don't think it's going to be four days--or 21/2 months.
AA: I'm speaking about the newer media agencies that have formed. Did this have any effect on sellers last year?
Mr. Hirsch: It ruined my summer. But I'm not alone in this room. None of us had a summer. Where I disagree, however, is that a lot of sellers last year, especially initially, had a problem dealing with the marketplace--which ultimately turned out to be down. Just that entire concept of pricing not going up was a difficult one, and I think this year, what we all learned last year is when money was missing from the marketplace, prices went down.
And I don't think that anyone's expecting prices to go up along the lines the way that they went up two and three years ago. If we were to ask everyone at this table to write a number down--you know, the number that's going to be published in the trade press--at the end of the day, all of us would be fairly close to that number. Last year at this time there would have been enormous differences.
AA: Jeff, do you agree that basically prices are firmer for cable networks?
Mr. Lucas: This year we're being cautious. Last year the marketplace stretched out over 93 days or whatever it was. This year I don't think it has to go in four days, but it can take longer. On the buying side, they have to be comfortable with where things are going and that they're getting the right value.
Ms. Green: I think the issue is how you define the word "marketplace." You get certain clients who want to be on "Moneyline" on CNN, they think that that's the best thing for them. That's a different marketplace then buying a broad-based entertainment network on a rotation basis.
The one thing I think I'd like to bring up is we are all very dependent on the pharmaceutical categories.
There's a concern the pharmaceuticals do not want to be visible. They do not want to spend a lot of [ad] money [which could drive up consumer drug prices] and get a bad reaction from the government. You might see that category going down.
AA: Two years ago a lot of "holds" were dropped before they became orders. Holds, I've been told, are sacrosanct--virtually just like an order. Do you think that could happen again?
Mr. Berning: Two years ago there was $8.1 billion tossed into the network marketplace, and the only phrase that comes to my mind is the Greenspan term "irrational exuberance." There was just way too much money committed that year, and it wasn't borne out in the real budgets as they developed.
Mr. Goldstein: We didn't, as a community, plan to go into the marketplace, to cumulatively spend, to Mel's point, $8.1 billion, and then arbitrarily pull back from the period between hold and order. If you go back and look at what happened to our economy from a four-day buying window in May to the point in time in July and August, we had a significant falloff. Corporations tighten belts and reduce the amount of money that was committed to advertising because advertising can be viewed as money that can be flexible. There was anywhere from $300 million to $400 million in prime alone that was lost out of that marketplace between the period of hold and order.
Mr. Nesvig: Now we're getting to something important. You've got to start charging for holds. We can't let you hold inventory for four months and say, "Oh. [I'm not buying.] The economy has changed."
Ms. Green: But a hold is sacrosanct. All of us are going to the marketplace, go with an approved negotiating budget with the anticipation that a client is going to transfer the hold and put that hold into order.
If I were a vendor I would look at the long-term history of that buyer who's placing the business and the client. If this were a problem that happened all the time, I would say there is a bad relationship. But if you have a client who has problems and it's a one time only situation, you'll have to live with it.
Mr. Goldstein: Look what happened last year. Last year when everybody was more cautious in the upfront--certainly more prudent in their spending--the conversion from hold to order, or the amount of money that was dropped, returned to what would be considered normal levels.
Mr. Nesvig: So what are you saying? When it suits your purposes and nothing changes, we'll do it, and if things change, we'll change.
Mr. Goldstein: I don't know that there had ever been a year where that much money fell out of the marketplace between hold and order. I think that was truly an anomaly.
Mr. Berning: Part of the problem is that $8.1 billion of business was transacted in about 12 hours--from midnight to 3 a.m. on four consecutive nights--as the result of a frenzy of selling and buying.
Mr. Hirsch: But wait a second. You already have built-in guarantees through options. So even when it goes to order, you haven't really ordered it. You've placed 70% of your inventory and we've placed it on hold. But realistically you still have the ability to get out of 30% of it.
It may be an aberration. But just don't dismiss it and say, "Well, you know there was a frenzy going on." I think there needs to be a more responsible outlook on how money is spent.
We're the ones who are reserving it for you, and there's nothing that we can do about it. So if the economy gets stronger, we could say, "Oh boy, don't we wish that we had sold this at higher prices" or "Don't we wish that we could help our corporate entities make more money and report to Wall Street." But we don't get that option. What happened was, quite frankly, somewhat shameful. But no one came to me and said it won't happen again.
Instead what we heard--clear across the board--wasn't even that we're sorry. A hold, someone told me flat out, a hold is not an order, "Whatever made you think it was?"
Mr. Berning: I suspect that if we look at where that money fell out of the marketplace two years ago, it probably fell out in the more speculative categories, where you did business with a lot of categories that were new and didn't have those longstanding relationships.
Mr. Goldstein: If I may, I think it also fell out largely in the fourth quarter.
Ms. Green: Correct, which is what hurts you the most.
Mr. Goldstein: Which is 100% firm. There is no flexibility in that part of an upfront buy. And that, in fact, is what drove it more than first, second and third quarter.
Ms. Green: What's most important to us as an organization right now is to treat the vendors with respect. So if that happened with one of our clients, we would do due diligence, we would explain this is not the way to operate, because that does cost you money because you cannot expand the inventory.
Mr. Lucas: It's a business of relationships, and the next time around if things move really fast or a small number of days and the exact same thing plays out, I think people will notice it.
Ms. Green: Twenty-four-hour turnaround to go to order.
Mr. Lucas: That's right. They'll make decisions on who they're doing business with, how they're doing business. You know, they'll hold some people to a different standard.
Mr. Hirsch: We've gone to some people and just said, "There are no holds, there's only order."
AA: Jon, have you done that , too?
Mr. Nesvig: Where we have a property that is competitive in a category, we say we can't accept holds, we can only accept orders. For the upfront there is a serious issue now that things start as early as they do.
Whether it starts in a few days in May or June or whether it stretches out all summer, we're getting to the point now where they can't get their presentations done until damn near Labor Day. This is a four-month period. This used to be 24 hours when we got client confirmation.
What concerns me when I listen to you guys talk now is saying we never negotiate without an approved budget--whether it's from the ad director or whoever. But what does that mean then? I don't have an answer for it. The head of advertising at the client can't control a hundred brand managers. But the idea of freezing our prices and freezing our inventory for four months without having anything other than "Oops, it changed" is something that's pretty scary.
AA: Product placement. How do you factor that in when you are doing upfront deals?
Ms. Green: If you're going to integrate a product into a show, that makes you have to make that commitment to that program much earlier. This is all part of an integrated effort. We get a media plan that is our roadmap. You have to take everything together--so you're absolutely right.
AA: So why are we seeing so much product placement stuff? Is that because of the cross-platform stuff that's going along with it?
Mr. Hirsch: Advertisers are looking for more, and I don't think there's anything wrong with them looking for more. This is one way to get it. At the [Association of National Advertisers] convention [in April] there was a panel and one of the questions concerned Replay and TiVo--an ongoing concern about how does an advertiser's advertisement get seen. One way to at least protect yourself, to some degree, is to be more integrated into the program environment itself.
Ms. Green: There are two kinds of product placement. One is a talent agent can come to you, and one is a network can come to you. The networks have relationships with studios, and because nobody knows what the prime-time marketplace is, they can induce you to make commitments by offering you the ability of product placement in one of their series. It all goes back to the success of the CBS "Survivor" because that really was the first experience where a lot of advertisers had a successful relationship.
Mr. Berning: Consumers are pretty savvy. If you do this in the wrong way, there is probably negative impact that comes back both to our clients, the advertisers, and to your viewers. You have to be careful. If the end effect is just to increase the clutter, we've probably all blown off a foot.
AA: One question that came up last year was a complaint that media buyers are getting less and less information from clients right up to the point of getting to the upfront. Is this an increasing problem?
Mr. Berning: I take the other view. Just-in-time inventory management and financial management is the way we all live. It's the way our clients live. They get parts delivered the moment before they actually need them. Sellers manage their inventory to maximize the profit. We're all held to a higher standard of producing financial results, and I think that this is one of the inevitable results of better information, more information and a pressure to produce results.
Mr. Goldstein: I feel like a contrarian. We had lots of information about what our clients wanted to do last year. We knew virtually down to the week and the rating point by daypart in network, syndication and cable. If there was one thing we chose was not to share that with the selling community.
Now there's a roadblock for the vendors "to count the house," which is ultimately what they would love to do. But there is nothing like knowing how much money you're going to spend next year. If I choose to share that information ...
Mr. Nesvig: Anarchist. [Laughter.]
Mr. Goldstein: ... it slows down the process.
Mr. Hirsch: Am I wrong or wasn't the condition of our attending this to get that information? [Laughter.]
AA: This is for cable and syndication: For many years both cable and syndication prices have been at a significant discount to network, perhaps 15% to 20% of the CPMs. This is obviously a gap you guys want to close. Will cable and syndication always be purchased at a discount to network?
Mr. Hirsch: The truth of the matter is, surprisingly, it hasn't always been absolutely the case. Case in point, we actually got higher CPMs for us in "Arsenio Hall" than NBC was getting for "The Tonight Show" or "Letterman"--albeit that was quite a few years ago. For the most part there are differences in between. Each media type has its own advantage in some cases.
AA: But let's say for "Frasier," maybe, in syndication vs. "Frasier" on NBC.
Mr. Hirsch: Clearly, there are areas of growing price difference. If I'm an advertiser right now and I'm looking for price-value relationships between prime time, with shrinking ratings, and what values exist in good syndication, running at 7 p.m. and 7:30 p.m. as opposed to networks running at 8 p.m., I'm saying why does this enormous difference exist? In time we need to close that gap.
AA: Let's go around the room and analyze the market. If you were calling the market today, what would it be in terms of dollars and CPMs?
Mr. Hirsch: Overall dollars are going to be up. CPMs are going to be up. It's going to vary by network. It's going to be varied by daypart. I think you see some networks up. I'm not going to speak for CBS. I think syndication is going to be up.
Mr. Goldstein: There will be a tactical shift in the way advertisers spend their money, and they will move scatter money into the upfront. In all likelihood there will be more money available in the upfront. We probably disagree in that. I believe the vendor community will then misread that as a total increase in advertiser spending. The whole pie is not going up.
Mr. Berning: As the economy is healing in fits and starts, the media economy will parallel that. [But] full-year growth will be very moderate.
Mr. Nesvig: I guess nobody's going to answer your question. I'm certainly not either. Why would anybody answer that question? Counting the house is us trying to help you [laughter] so that we as market makers can try to bring the supply and demand into balance. We've got a booming scatter market right now with very expensive pricing. "Aha," you say. "What am I going to do? I'm going to move it up to upfront where it's cheaper." We keep talking about the economy in present terms. But when the inventory runs over the next 15 months to 20 months--who knows what that economy is going to be?
Ms. Green: More dollars might move [to] upfront. [But] we don't know whether a translation of dollars into the upfront will mean that CPMs will go up. I know from our clients they're concerned about long-term commitment, because flexibility is a very, very important issue for all of them. The reason why back-end options were not exercised this year is because people were more realistic in their upfront commitments. [Options are] going to be [done] less than it was two years ago.
Mr. Lucas: There's more money in the immediate upfront that faces us right now. That's going to have an effect on price, and more to the people around this table, where that price goes will affect how much money comes in.
Mr. Berning: It's real scary to say that the network marketplace is going to be up or down by a certain percentage or the cable is going up or down by a certain percentage, as if they're totally independent. Because if any manager at a cable network or a broadcast network or a syndicator takes a position in the marketplace that isn't borne out by the supply and demand factors, we have the ability and responsibility to shop a bit and find value.