ABC Closes Out Upfront, Locks In Broadcast's Highest CPM Hikes

Overall Dollar Volume Picture Remains Murky

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ABC on Tuesday confirmed that it has completed its 2015-16 upfront negotiations, thereby drawing to a close the broadcast portion of TV's annual summer sell-off.

Speaking to investors during Walt Disney Co.'s third-quarter earnings call, COO Tom Staggs said the Mouse House was "optimistic about ABC's fall lineup," adding that "advertisers have responded [to the new schedule] by agreeing to give ABC industry-leading pricing gains in our just-completed upfront."

As has been the case since Geri Wang succeeded Mike Shaw as president of ABC ad sales back in 2010, the network held the line on its targeted CPM increases, commanding rate increases between 5% and 6% higher than those Ms. Wang negotiated a year ago.

Mr. Staggs suggested that ABC enjoyed enviable positioning in the upfront bazaar, thanks to its world-beating Thursday night Shondaland block -- showrunner Shonda Rhimes is the creative force behind all three hours of programming, shepherding the hits "Grey's Anatomy," "Scandal" and "How to Get Away with Murder" -- and the fact that ABC was the "only TV network with year-to-year prime-time ratings growth this past season."

ABC ended the 2014-15 campaign with an average 2.2 rating in the adults 18-49, up 5% vs. the year-ago period. The network finished two-tenths of a ratings point behind NBC, which slipped 11% to a 2.4, and a tenth shy of CBS, down 4% to a 2.3. Fox plummeted 21% to a 1.9 on the season.

While Mr. Staggs was the first to acknowledge that ABC had closed out the last of its upfront business, analysts on the call did not follow up with queries as to whether the network was able to increase its overall dollar volume. Buyers last year estimated that ABC's upfront haul drooped 8% to around $1.85 billion.

Once again, a primer on the validity and general usefulness of the numbers bandied about during the upfront season can be found here.

For all the efficiencies afforded by ABC's female-friendly Thursday nights, the network isn't a one-trick pony. Despite inevitable ratings erosion, "Modern Family" remains the No. 2 comedy on TV, behind only CBS's nerdy juggernaut "The Big Bang Theory." In fact, the entire Wednesday night family comedy block is particularly strong, thanks to the workhorse sitcom "The Middle" and relative newcomers "The Goldbergs" and "Black-ish."

ABC also boasts what may well be the fall's most anticipated new series in "The Muppets," and buyers have reacted favorably to the sudsy terror procedural "Quantico."

Despite earlier projections that the broadcast upfront would be down as much as 6% in overall dollar volume, insiders now suggest that the market may not turn out to be nearly as soft as all that. A 3% decline would bring the total haul to around $8.7 billion -- not bad for an industry weathering historic ratings declines, the abdication of young viewers and incursions on all sides by scores of digital platforms.

Historically, this is believed to be the latest that ABC has ventured into summer before closing out its upfront business. Two years ago, in a markedly stronger market, Ms. Wang held out for 7% and 8% price hikes, writing her last agency deal on August 1.

According to newly minted Disney CFO Christine McCarthy, current scatter pricing at ABC is "pacing moderately above upfront levels." Ad sales execs across the TV landscape believe that a much more robust fall and winter scatter market will help make up any shortfalls related to clients who slimmed down their upfront budgets. That said, a number of big spenders that had been expected to spend fewer dollars in this year's bazaar (Ford and Kraft spring to mind) were said to have revised their TV budgets upward once the first deals were being written back in June.

While Disney did not break out its quarterly advertising revenue, the company reported that sales were down at the broadcast and cable units. ABC declines were said to be a function of lower ratings for news and daytime programming, while ESPN suffered from tough comps to the year-ago period, when the 2014 FIFA World Cup generated a whopping $529 million in ad sales.

All told, ad sales and affiliate fees conspired to lift revenues at Disney's media networks segment 5% to $5.77 billion. Cable accounted for the lion's share ($4.14 billion, up 5% vs. $3.94 billion in Q3 '14), while broadcast was up 4% in the period to $1.63 billion.

Analysts who dialed in to the Disney earnings call peppered execs with questions about ESPN's recent subscriber losses. CEO Bob Iger characterized the sub churn as "modest," before adding that he wasn't particularly worried about the impact cord-cutting is having on the pay-TV infrastructure, as ESPN is perhaps one of the last "must-have" cable brands.

Mr. Iger also said that should distributors get more combative during future carriage negotiations, the sports network and its corporate siblings are "well positioned" for a theoretical transition to a dedicated over-the-top/internet-streaming service.

Per SNL Kagan estimates, ESPN boasts the most pricey carriage fee in the business, with an average take of $6.61 per sub per month. That's a 405% premium compared to what the second-most expensive sports channel, NFL Network commands ($1.31/sub/month).

Nielsen estimates that ESPN in the last year has lost 3.2 million subscribers, which would bring its overall penetration to some 92.9 million. By that reckoning, ESPN this year alone will generate a staggering $7.37 billion in affiliate fees, a sum that reflects the $812.2 million it will have missed out on as a result of that reported subscriber churn.

For his part, Mr. Iger took issue with the Nielsen estimates, telling investors that the ratings giant "doesn't necessarily track the number of subs we get paid on."

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