All-star panel reinvents upfront

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TV upfront veteran and Advertising Age Media Maven David Verklin says, "There's only one way to change the market, and that's for the advertisers to get together. The sellers aren't going to change anything. Nor should they." This year's upfront follows a fall prime-time season in which high price increases combined with ratings slide and the rise of marketing alternatives to bring advertiser dissatisfaction to a head. To sort out this year's upfront, Ad Age brought together marketers, media buyers and analysts with representatives of network, cable, syndicated and Hispanic TV. This is an edited transcript of the roundtable moderated by Ad Age's Richard Linnett; Multicultural Editor Laurel Wentz also participated.

ADVERTISING AGE: What does the TV upfront market look like this year to you? Is this the year that the upfront changes? And what's so wrong about the upfront in the first place?

DAVID VERKLIN: I don't think we'll see the kind of demand increases that we've seen in the past few years. ... But it'll be a solid year.

I don't think this is the year that the upfront will go into massive change. This will be the beginning of a number of changes evolved over the next five years.

I don't know if there's as much wrong with the upfront as that there are a few realities that we should talk about. The one that is very real is advertiser unhappiness and anger. I believe we have some very angry clients at the price increases over the last two years. Angry. In terms of what needs to be changed, clients are mobilizing for some change.

AA: Michael, how's syndication? And what do you think is going to happen this year?

MICHAEL TEICHER: Any predictions are usually fairly disingenuous because we really don't know until budgets are registered. Having said that, I too have traveled around, and I am a strong believer in television in totality. And I think until the day comes when advertisers believe that television doesn't play a central role in their marketing plans, the upfront will likely stay and remain virtually intact.

I don't think there's too much terribly wrong with the upfront. While the process may be a bit bizarre, admittedly, when compared with other industries, in general it tends to work for both sides. The advertiser gets a guarantee, they get to select the programs that they're seeking and they have the opportunity to actually cancel something they own, which I think is unusual by most business standards.

The seller, on the other hand--and particularly if you're in the business of creating programs, like Warner Bros. for syndication--you really run a tremendous risk because your front-end deficits are huge.

So for the seller, the upfront represents some visibility into the type of investments that'll be made into your programs. So you know how well and how far and deep you can go to produce and market those shows. ... It's an integral part of our business plan. Having said that, we are doing business 52 weeks a year. But I don't think that's any different from the networks or cable.

AA: How do you split that?

Mr. TEICHER: It's certainly dominated by the upfront. But, again, we're doing business all year. My hunch--and Joe [Abruzzese] can confirm this--is that the upfront is still a very substantial portion of cable's business, but I tend to believe they do more scatter throughout the year.

JOE ABRUZZESE: Cable is a little different from network. When I was in network, we did 90% of our business, 85% of our business upfront. Cable's a lot smaller. Our business is basically broken up into different pieces. The upfront is probably around 35% or 40% of our business. So we rely less on it. The other piece of it is our solutions deal, which is another 25% of our business. The other piece is scatter.

And also we do a calendar year upfront. When I was in broadcasting, we really didn't do calendar year upfronts. So it really is very different; we don't rely totally on the upfront.

But the initial question was, is [upfront] broken or not? I don't think the upfront is broken because it works for both parties. Do I think it needs refining? Yeah, I do think it needs refining.

The strength of the upfront--I'm not so sure it's going to be that strong. What usually leads into a real strong upfront is a scatter market, and scatter market has been at best OK.

BILL MCOWEN: It's going to be strong. I think a lot representing the marketing side, the agency side here, what we saw was a lot of business that moved to the upfront this past year because of fear. Purely fear of knowing what were the networks offering to the latter end of second and third quarter? What were we going to see with the available product that we desire for our marketing plans to be there? It was unknown. It's become a much better environment today, much more accepted.

I see a lot of the money falling back, frankly. Marginal increases. Maybe it starts with the GDP. Who knows? But to the extent where it continues to escalate or have the halo effect of 2%-3% over traditional economic cycles, I don't see it. I really don't.

It's going to be a much more palatable period in which we all need to be intelligent when we enter this thing. And, hopefully, from our end of the equation we don't protect our interest again and oversubmit. Because, again, all we're doing is driving up the prices for the rest of us.

We both lose in [the current] process. We make decisions at 2 and 3 in the morning that maybe come 6:00 the next morning we wish we hadn't made. The same for Mike's side, or Joe's side or anyone else here. You don't like to see those things happen, but, again, given the pressure of the situation--pressure that really isn't marketplace driven, it's just the dynamic of the working environment that we've created for ourselves.

I mean the upfront is what we've created; certainly we have the ability of creating something vastly different for ourselves and that's more rewarding for all of us.

AA: Tom, let's talk about your business, not usually included in one of these roundtables.

TOM MCGARRITY: We get a very strong read [from advertisers]. We're in a very growing environment so our situation may be a little different. We're in our eighth upfront this year, and it almost seems like just when we're getting used to the dance, the dance is going to change.

But over the last six or seven years, it seems like each of the upfronts has their own kind of persona. The word that seems to be thrown out a lot now is alternatives--looking for alternatives in the marketplace. And if that's the case, I think and hope advertisers look at Univision or Spanish-language television as a great place to go for an alternative in terms of growing market, efficiencies, mass reach, all the things you want for a network buy. We're in a little different situation because regardless of the mechanism, we're still very much growing our advertiser base.

AA: Mark, last year you guys were saying, "We didn't have the kind of double-digit increases in revenue that television had; why are we paying this much?" Is this going to be the year of a reaction to what happened last year?

MARK KALINE: In all the upfronts I've been through, this is probably the year that television has been the most scrutinized against other alternatives in the media landscape. And it's been scrutinized within itself as far as the mix between syndication and cable and network goes.

What you read is that ratings are going down and that rates are going up. It's a big glaring "Well, how come we're doing this?" type of a question.

So there's a lot of internal pressure--not just at Ford but at most major companies--to re-evaluate the total communication plan and say is this the right investment that we're making on behalf of our company?

You explain the upfront to these people, and you say OK now this is done several months in advance of when we're going to air our advertising. And in many cases it's done ahead of the total plan being finalized because it's a bit ahead of the curve.

In many past years, television has been the benefactor of the planning perhaps not being 100% solid. And a lot of that has to do with the timing. But a lot of that is going to change because it's a zero sum game for advertisers. There's no one I'm aware of who has budgets going, without a new brand or a new product to launch, that is going up significantly. We need to make sure that our resources are being placed efficiently.

AA: You guys are looking for an audit company right now, aren't you? And that seems to be a phenomenon in your side of the business. Some TV people have said, "Hey, this isn't our fault, we deliver exposures, we don't deliver engagement."

MR. KALINE: We've had experience with this in Europe and in Canada. And what we've found as a result of the auditing there--and I'm sure this is the case for many other companies that also do this in Europe--is that we are the driver of cost in many cases.

It's the clients in some cases whose behaviors--not approving things on time, not getting things through the system the way they should, making changes at the last minute--a lot of times that's a bigger cost.

AA: Mike, probably in talking to some clients, you find they're doing these audits. I remember at the Association of National Advertisers conference you said we're not in the business of delivering commercial ...

MIKE SHAW: Yeah. And I'd like to amend that because after being booed and hissed, I don't think it's happened too many times at too many panels. What I was really getting at was the notion of how we run the network and how we schedule our dayparts and how we have programs that lead in one and leading into another.

And that by going to a commercial delivery system, I'm going to want to program the commercials. I'm going to want to cancel bad commercials. Because after I've seen the thing run five times and I've seen that it doesn't deliver, I'm going to stick it in the last position in the pod.

When I said I wasn't in the commercial delivery business, I meant it as a businessman. Because I am in the program business, and I cancel entire programs. So the notion that I'm going to start programming commercials--is that what these guys want?

MR. VERKLIN: Three factors are driving change in the media business: new technology, consolidation and globalization. And we live in a world that's much smaller, and I think we can take a look at the way things are done in Europe or in Asia, and see if we can learn from it and be less kind of puritanical and less parochial in our view. So I actually think [commercial] ratings are, again, what the clients are asking for. And it does work in Europe.

MR. ABRUZZESE: I'd love to see commercial ratings. I'd love to see what's moving or what's not moving. Why not find out which one delivers the most impact?

AA: But are you going to be held accountable for that?

MR. ABRUZZESE: Within a position--if you could take the pod ... Say, the first pod in "Millionaire" or the first pod in "American Chopper," God--it was the most recall. Wouldn't you want to know that? I'd rather know that. Your price is higher. If the stuff's not moving, you price it lower. Because it all has to do with value. It doesn't have to do with "the medium doesn't work anymore." There are going to be some things that are up in value and some that are low in value.

MR. SHAW: If you know Mark's brand new Ford GT ad goes through the roof vs.--and I won't mention another product's name. It doesn't work because you have the empirical evidence that that commercial does not work. Will you continue to put that position in the A pod and get paid for the rest of the commercials in that pod? I'd be putting that Ford GT in the A position of every pod.

MR. ABRUZZESE: You could rejigger the pods, but I'm concerned with what shows deliver the highest impact for the commercials. That's what you're looking for. You're not looking for an A pod vs. a C pod or a D pod.

MR. SHAW: But we're talking about commoditizing commercials based on the rating the commercial delivers. We truly are. And we're going to get down to negotiating pods and pod positions. I don't think that's where we want to go just yet.

MR. TEICHER: I agree that the data that can be mined from understanding what commercials work and don't work is highly valuable. It can be both lucrative and risky for the distributor of those commercials.

Having said that, though, I do get a little bit concerned about our liability, which is growing from creating a television show, which is our primary business, to ensuring that when we have no hand whatsoever in the creation of the commercial--if it doesn't engage the consumer at all, and an advertiser decides to run it 4,000 times and people are sick of seeing it, that's a liability I'm not sure it's fair for the seller to assume.

MR. ABRUZZESE: We shortchange the commercial process. Some of the commercials are better than the programs. Look at the Super Bowl.

MR. MCOWEN: The agencies need to be part of this process. Those [commercials] that are the biggest drain on viewership tend to be those clientele who have been there the longest, have the best bases that are most difficult for you to swallow. But they also cause your greatest audience turnover rate potentially. The clients that are putting the better messages out there that keep the viewer engaged should be rewarded in a way ...

MR. TEICHER: The reality is--given what David said about new technology--the pressure is squarely on the shoulders of the creative agencies right now to deliver ads that avoid any form of commercial avoidance syndrome. I do see a time where we see commercials that are a lot more engaging, that are a lot more interesting, and they may take the form of longer than a 30-second unit. Clearly, this puts the pressure also back on the creators at the agencies to deliver something that is Super Bowl-esque on a regular basis.

MICHAEL GALLANT: It almost doesn't matter, though. I mean if I TiVo a show, I'm never going to watch a commercial anyway--it doesn't matter how engaging it is. Next year when Nielsen comes out with their tracking system, I would think that's going to put a lot of pressure on the networks, when we get data that really show how much people skip commercials as [personal video recorder] penetration rates go up. The cable operators are going to give away PVRs. Rupert Murdoch is in a game of differentiating his pipe. He's going to give it away--it's going to put a lot of pressure on the ratings.

MR. TEICHER: That's true, but I have a slightly different take on the new technology, actually having been there at one point in my career. As the cable companies start to deploy their own mechanisms, including DirecTV--and I can't speak for Rupert Murdoch's business plan--destiny is somewhat within our own hands.

And there's a lot of functionality that a PVR has that is very attractive to consumers in addition to skipping commercials. And if we own the capability, and Comcast and Time Warner and Cox and DirecTV are creating PVR-like functionality, who says it has to include commercial skipping capabilities? Why would we bite off our own hand?

AA: So, Michael, as an analyst what would happen to you if these guys started doing business based on commercial ratings? You do your proprietary calculation on make-goods. And you did one recently on ABC. And it was based on program ratings, right? So you look at these things, don't you? How would you--can you tell us how you do this?

MR. GALLANT: From my standpoint, I just try to understand what each network guaranteed. How much inventory they presold in the upfront, what the scatter rates are, get a number and then try to just look at the ratings to say are they delivering the ratings that they said they would? And what do I think a make-good is worth--how much should I take out of the revenue number that we thought they had in the upfront?

This past year, you're seeing an awful lot of make-good scatter is not great. If there are not a lot of deals that are cut early, it would seem that the upfront isn't going to be as good as it needs to be for broadcast.

All the networks are owned by bigger companies. ABC is owned by Disney, which has ESPN. What they're going to hope to do, I would suspect, is lead with their best inventory. ABC [will want to] get the price as high as they can get because they want to make it up on the cable network side. From where I sit, my sense is broadcast [costs per thousand] are going to be OK, revenues aren't going to be great because deliveries are down. So maybe revenues are flat, but they're going to make up for it, because most of the ratings of the big cable networks are up. On the cable side these companies are all going to be very happy.

AA: David, you're shaking your head at the mention of cable.

MR. VERKLIN: Much better this year. You're going to see syndication do very well, and you're going to see a shift into cable. Cable also is a multitiered thing. Actually, the market is more multidimensional than we often talk about. But we're going to see the beginning--you can see the stress factors in the marketplace, and you can feel the crackle of change in the air.

AA: You've been saying this for the past, how many years?

MR. VERKLIN: Long time, long time.

AA: Some years it sounds like there will be tectonic change when you're talking. This is the year everyone said to me, "If it's going to change, it's got to be this year, because we got wasted last year. We spent so much money last year on television. The numbers never came back, we had make-goods that weren't really any good. This would be the year to change."

MR. VERKLIN: There's only one way to effect change in this marketplace, and it's for a couple of things to happen. One is for the large clients who control the market to make a decision and to make some change. And we are seeing that with the rise of the ANA forum that's about to be created.

The second thing is the consolidation in the marketplace, where seven of us control 70% of the market. And that factor has evolved over the last five years.

And those two factors--along with some concerns about the rating system and some real kind of wobbliness on the data side, and finally client frustration about price increases--are going to conspire to create change this year.

AA: Now, you guys from the media buying side could put all the money together from all your advertisers and say, "We're going to have some clout." Why didn't that happen last year?

MR. VERKLIN: None of us has that kind of clout individually still. We're getting it, though--we're getting close. I'm not suggesting that we get rid of the upfront. I'm suggesting what are extremely minor changes in the process.

When the CEO of a Fortune 500 company looks you in the eye and says to you, "Please help me understand why you are doing business on my account at 3:00 in the morning," what am I supposed to say? What's my answer on why that's a rational way to spend hundreds of millions of dollars?

MR. ABRUZZESE: I believe that the answer to your clients is "At 3:00 in the morning, I've beaten the networks down, I've gotten the prices down, I've done the best--I stayed up till 3:00 in the morning and I've done it for you. I beat the market" or whatever the standard is. That has always been what's gotten back to the clients.

MR. TEICHER: I would say two things, really. One is--and this addresses your world, on which you're a far greater expert than I--if it's seven or eight agencies placing about 80% of the money, your ability to really differentiate yourself vs. the others is getting more and more difficult. I'm sure you have tools and I'm sure you have different processes that can help you guys differentiate yourself. But I also think your ability to beat one another or to outsmart one another is part of the process as well.

If creating an edge for yourself means picking up the phone in April or picking up the phone at 11:00 at night, you're going to do it.

It's a dual function between the advertiser and the agency controlling the upfront from this standpoint. I don't think it'll change until you reach a point where advertisers and their agencies believe that television isn't the most effective medium to help build and sell a lot of their products and brands. However, sitting out the upfront is an enormous business risk that you have to be willing to do.

MR. VERKLIN: But we're not sitting out in the upfront. The upfront process is not something that should be taken away. It's a good process. We're talking about making the first significant changes since it was invented in 1966. We've suggested two changes, not sitting out. What we suggested is that we move to a closing bell so at some point we stop, and reprice and take a break.

When you were on the broadcast side of the desk, Joe, you would tell me that it wasn't good on your side of the desk doing deals at 3:00 in the morning either. People make mistakes, people are tired. It would be a change to talk to the clients and say, "The stock market has a closing bell, the commodities market has a closing bell--all markets have a closing bell. Let's stop at a certain time and then pick it up." That's one change.

And the second change is to move the market to a calendar year. All of the clients, 90% of the clients in the U.S. use a calendar year for their fiscal planning. All I'm suggesting is that the timing of the market be moved from May to September.

The only way those two changes will be effected is with agencies and clients coming together to force that change.

MR. SHAW: Just a couple of things, because I could care less whether we have a closing bell or not as long as we really, truly can reprice. If you guys want to pick up the conversation, I get to go back and look at what we've done--and we truly start with a blank slate the next day. I have absolutely no issue with it. I have the issue with, well, we'll just pick it up where we're leaving it off. That I have an issue with because it is a marketplace.

In relationship to the timing, guys, the agencies aren't calling us back until 7 or 8 at night. You're doing your regular business during the day. This isn't like this starts at 8 a.m. and we keep it going for 16 hours. ... We don't stop for the upfront for four, five weeks for all of network, syndication and cable to be negotiated. That's not what's happening. You're doing your regular work during the day.

And No. 2, moving it to September without involving the production community, without sitting down with our guys who are actually producing these television programs--when that cycle begins, when we're getting those scripts, when we're taking that script to pilot, when we're going to the pilot and deciding what to schedule, and then producing those television shows--if you don't like what you're buying now on a September-through-October basis, start buying on a calendar, when I come to you and tell you the entire fourth quarter is 50% unknown. And what will you guys be buying then? Time periods? Reality TBA? Sitcom TBA? Drama TBA? You've got an incredible production cycle that is lockstep with the upfront right now.

MR. VERKLIN: Eighty percent of what we buy is gone anyway.

MR. SHAW: We fix failure. Go to the other television venues, and tell me what they do when a first-run syndicated show fails. They take it off the air. They don't even offer you a make-good. And what does cable do with program failure? They live with it till the following September.

"The Practice," "George Lopez," "My Wife & Kids," "The Bachelor," "America's Funniest Home Videos" were all launched midseason. Replacing programs that weren't working, guys. Because they hadn't lived up to our expectations.

We come to you and say, "OK, you can leave your money in that failed program, in this new program at the same CPM or you can take your money back." That's as good as it gets. That works in your favor. And networks have replaced failed programming for 40 years. This isn't a new thing.

AA: Mark, how do you feel as a client when you invest in programming and the programming doesn't make it? And you don't see it. And then they're telling you, we've got this other thing that we're going to slip in there?

MR. KALINE: There's a certain confidence element that is kind of rearing its head a little bit. And that is, well, the shows never seem to make it anyway. And, unfortunately, that prevailing thought is starting to creep in along with the "ratings are going down and the prices are going up" kind of thinking. All those are starting to converge in an area that says, "Well, maybe we ought to re-evaluate how much we're putting into television overall."

Now, we may not change things at the end of the day, because television is still a very important medium to launch brands and create awareness and establish the kind of reach you want. But it's getting more and more scrutiny. And there will be a tide change at some point in time. Because one-to-one communication is becoming more important, and, like I said, it's a zero sum game. It's "either or," it's not "and in most cases."

We try to see it the way the consumer sees it. The consumer doesn't make a huge differentiation between network and cable and syndication and spot and so forth. It's really trying to sit down and understand the total impact of your communications. And, furthermore, understand how that mix plays into the total communication pie with what you're doing online and what you're doing in print and what you're doing in other media.

And that, for me, is one of the reasons why commercial ratings are very interesting--because it's consumer behavior. It's understanding what the consumer is doing, not so much necessarily the rate we'll negotiate, because the marketplace will take care of that. But it's really understanding should I be buying more of the enhanced TV options from ABC at the same time I'm buying the network programs that they have? Should I be buying Discovery enhancements online at the same time I'm purchasing some of their specials during the course of the week?

Really trying to engage what the consumer is doing and be able to leverage that from a total communications standpoint are what I think having commercial ratings will allow us to do more of.

MR. TEICHER: The sense that I have [is] that the confluence of declining ratings, inconsistent schedules and replacement shows that aren't perceived to be of the same value don't necessarily reach the same target, or of the same environment than originally purchased, is raising the frustration level probably to a fever pitch on the client and agency side. So you do replace programs, but you don't necessarily replace them with what the advertiser had originally planned based on their strategy to buy.

And with respect to syndication or Warner Bros., at least I can say that an advertiser can go to sleep at night knowing that the schedule they purchase is the schedule that will run for 52 weeks. And that there is some strength to that, that an advertiser can feel secure with that.

I understand that you fix problems. Most people tend to do that. But it's the consistency that we deliver throughout the year that advertisers are starting to appreciate and getting more frustrated with on the network side.

AA: Everybody talks about shows that are coming and dropping off. But Tom, you've got "Sabado Gigante," which has been around for 41 years. Can others learn about the lessons of "Sabado Gigante"?

MR. MCGARRITY: The reason probably, like many great shows, is the gentleman who is the host of it, whose name is Mario Kreutzberger, or in the show his persona is Don Francisco. And it's a combination--you could probably throw out any great show, "Tonight Show"--there's a host, there are musical segments. A lot of audience participation in it.

And the reason it works is because he keeps reinventing himself in the show.

Inside the show there is the ability for advertisers to have the host talk about the product. You have the audience singing the jingles. It really is an incredibly interactive environment where if you're an advertiser you get some tremendous program exposure. So it is a phenomenon.

AA: A lot of people are saying that the program quality is responsible for the loss of numbers, especially among young men. The rise of reality TV--what's going on in the world? The programs are changing.

MR. MCOWEN: Even reality plays to different audiences, much like a drama or a sitcom will. So there are some NBC is offering right now that are appealing to a very upscale individual. "Survivor" [on CBS] similarly. But then you have some of the Fox offerings that play elsewhere.

That category, though, is very hot with our clients right now, because as a unit they have largely abstained from participating. But the reality is it's bringing in better profiles, and the shows are largely replacing the news magazines. This works better. It is water cooler conversation. We have to step back and look at it. There might be an opportunity here.

But at the same time, for making those switches in your upfront type of configurations, there should be a benefit for these clients as well. One has to believe that from a production end this is a better margin proposition for the network. So pass along some of these statements to your clients.

What I hate to see is when you go down these roads the indexes against these properties are cost-prohibitive and therefore, why change? And then you're accused of not embracing the new realities of the marketplace, which is reality. But reality and your step forward with that genre should come at a benefit to the client. Otherwise why not stay with what you know has proved itself through time?

MR. ABRUZZESE: Are you saying that because there's a cost saving in production, would you pass it along to the clients?

MR. MCOWEN: Absolutely.

MR. ABRUZZESE: That's totally out of the realm. Clients should not care how much we pay for product. That's our stupidity or our good fortune. I mean if that's the case, NFL or you name it it'd be cost-prohibitive. That should not go along with anything. It's the value put on the air.

But the reality stuff, it's there. I mean Donald Trump's show, income-wise it's way up here. It's one of the first shows that my daughter called me from college and said--the last 15 minutes--said, "Let's watch this, I think he's going to fire the fat kid."

So, anything that's cross-generational, it's fabulous. There are different spectrums of reality. I won't pick on NBC, but "Fear Factor" is one end of the spectrum, "Survivor" is probably on the other end, and there's everything in between. So, I think it's here to stay. And I also think there are real positive reality shows. We've made a whole company on reality shows. Discovery has a lot of reality shows, "American Chopper," you name it, it's reality shows, it's just edited well.

MR. KALINE: From an advertiser's perspective, the concern is: Is reality the default to quality scripted programming? And how do we find a formula to create an injection of more well-written programs throughout the year?

Some of the midseason replacements are good, and some of the summertime programs are good; they stick. But how do we do that throughout the year more often so that perhaps we become a little less reliant on the--if you want to call it--a drug called reality? It doesn't play in repeat markets and so forth.

If you take a look at what's done over on Univision and Telemundo as well, the novelas, they're close-ended. They run for six months or some period of time and they have a beginning and an end. Characters come back in another story, but are those type of chapter, a la "Lord of the Rings" types of things another idea that could live in television? You look at "24" [on Fox], and "24" has that beginning and an end. And then it comes back the next year, and it's a different story but many of the cast members are the same.

As far as reality goes, yes, there's a place for it. And there's a place for it for certain advertisers perhaps more than others. But it's really an interesting landscape. We're looking for places where we can engage the viewers in our brands, and try and make the biggest impact we can--reality, if it's the brand of [Fox's] "American Idol," is something that's worked very well for us.

AA: Spanish-language TV is growing fast. Is it taking ad dollars from English-language TV? How many advertisers are new to Spanish-language TV?

MR. MCGARRITY: This is our eighth upfront, and the first upfront we did, which was '97-98, we had 39 upfront advertisers. And last year we did about 130. The good news is we've added about 100 folks. The bad news is we need to add another 100-and-something folks to get to our English-language partners. Every year we add about the same number, about 10 or 15. Again, talking to a lot of the advertisers we've been around to see, I don't imagine it's going to be terribly different this year. We're going to add about that same number, and we're going to have a good, healthy marketplace.

MR. TEICHER: One of the most interesting dynamics, and I'm not a historian on the upfront, is the fact that we have a Wall Street analyst sitting at the table. Because, apparently, and I think it's true the upfront has become, if not pop culture, it's become business pop culture. It's talked about in The Wall Street Journal, The New York Times, CNBC, "Lou Dobbs Tonight." So that in and of itself plays an unusual role in the dynamic of the upfront. Because as media companies are owned by larger and larger companies who aren't necessarily in the media business, that places a very different dynamic on the pressure and on pricing.

MR. VERKLIN: That's true. Part of it is that some people call advertising the nose cone of the American economy. I think there's probably some truth to that. Clients cut advertising spending. We would argue it's not a discretionary item, but some clients consider advertising discretionary, not a required spend.

But it's a big budget item in most clients' P&Ls, and when times are tough, advertising is one of the first things that gets cut back. And when times are good, clients either hold their budget or begin to increase it.

I think that's one of the reasons the upfront has become such an important piece, is that a lot of people look at advertising as a bit of a bellwether for how the American economy is doing. And the upfront in a sense is a bellwether of how the advertising business is doing.

AA: Is that true, Mike?

MR. GALLANT: Yeah, and this is going to be the third year in a row where we still have question marks about the economy. And to your point before about the upfront, you have to buy three to four months in advance and you still don't know what the economy is going to look like.

Was this all because the first-quarter strength we're seeing, is it because of the stimulus that President Bush has put in place and will the economy roll over in the back half of the year? It's a real question. A real question for the automakers from the standpoint you can't get left out of the broadcast upfront. And the cancellation option makes it a good business proposition for everybody involved.

From listening to you guys talk, I mean the upfront seems like it's a pretty effective event. But I do think the sellers are probably at the advantage because fear does seem to drive the upfront. But they give the cancellation options to make it fair for both sides.

AA: The nose cone thing, didn't it die last year a little bit? The market looked great in TV upfront, but that was no bellwether of the real economy. It was kind of in contradiction of the real economy. You don't think so, David?

MR. VERKLIN: It's a piece of the economic prediction--it's not going to rise and fall on the upfront. We saw people move money from scatter into upfront and they understood that. But I think people move money, some other media were negatively affected by a positive network upfront. I don't think the network upfront is great news for the magazine business, for example. I'm not saying you put all your eggs in it, but it's an indicator.

AA: Like last year because it was an indicator of fear, some people said. People were rushing to make sure they didn't miss out. Is that how people in your field felt about it?

MR. GALLANT: Yeah, that's the way they felt. But we never saw it on the local side actually translated. The local advertiser is a better indication of how they feel about the economy.

MR. TEICHER: Which is a different dynamic. If you look a few years ago when the upfront was really soft and prices were really soft and there were rollbacks because advertisers didn't spend that much money. I don't think it's a coincidence they didn't sell as much product. And it was a bad year for most corporations in selling product.

So you could argue the merits of the "50% of my advertising doesn't work, I just don't know which half." But I think by and large effective advertising does work. And in the absence of it a few years ago, clients didn't sell as much product. You then saw stronger commitments to advertising--whether it was television or across the board--clients started to sell more product.

There is a real link between the two. And clients see the opportunities--whether it's scattered or upfront, it doesn't really matter. It's the effective advertising and smart messaging that sell product at the end of the day.

AA: We've all heard today that David Verklin doesn't want to get rid of the upfront, Mike Shaw is bullish on the upfront, the upfront is a pop culture thing, which it is--people talk about it. It's also an investment nose cone. It's not going away, is it? It's going to be here for a while.

MR. ABRUZZESE: It's going to be here for a while. But is the upfront about scarcity or is it about value? That's a question I always ask. Sometimes it is scarcity. If the ratings go down, there's more money, pricing is going up, right? Or is it about value? Ratings are going up, pricing should go up. But they don't because there's more supply. It's counterintuitive to me. That's the question mark I have on the upfront.

MR. SHAW: But what's not counterintuitive is 12 of the last 13 years if you bought in the upfront you paid less for your advertising and you got a guarantee. And the fact is, as much as everybody wants to sit and talk about last year's upfront, at least where ABC is concerned, every single daypart for every single quarter and scatter the pricing's been higher this year. Every single daypart and every quarter.

And that's only picking up steam. I mean we see a very strong scatter market going on right now, getting stronger by the second. You guys are going to see pricing approaching last year in the last few weeks in networks, and you're going to see it for the rest of this year.

AA: OK, let's do a John McLaughlin moment to close it up. Let's predict the upfront this year. How high or low will the increases be in a 30-second spot? Mid-single-digit, double-digit?

MR. SHAW: We're not in the prediction business, but it's going to be a strong upfront. And for all the reasons we discussed today, the demand will once again be there.

AA: Increases or decreases?

MR. KALINE: It'll be steady.

MR. MCOWEN: I'll be somewhat vague. It'll follow the economic indicators that are largely in play right now, which are pointing all to low single-digit type of increases. You pick your medium, but that's where it's ...

AA: There we go, we got one.

MR. MCGARRITY: Spanish-language upfront dollars are going to be very strong this year.

MR. VERKLIN: It gets hard to make single number predictions because the market is more complex than that. But I would say overall volume will be a little bit less this year as people pull back from the upfront and I think reserve more for scatter. Overall you're going to see a market that's going to be low single digits in terms of increase.

MR. GALLANT: Well, I'm a numbers guy. I'm paid to make predictions. So my sense is what you'll probably see is CPM increases based on scatter, probably CPMs up 6%-8%, guarantees will probably be pretty aggressive, volume is probably a bit down to keep the prices up because they're going to try to make it up on cable networks.

And your spending is going to be up 4%-5% at cable networks. This is all prime time--cable networks will be up better than that for the tier ones.

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