Networks Hold Firm on Ad Deals

Many Refuse to Negotiate Upfront Terms, Fearing Marketers Will Pull Back

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NEW YORK ( -- Despite troubled times and ratings erosion, many of the broadcast networks are holding firm to the terms of their upfront ad deals, and are unwilling to offer price concessions, according to ad buyers and network executives.

This comes as marketers face a deadline for reaffirming the second-quarter TV ad time they committed to during the upfront. The fear is that advertisers could pull back some of the money they previously earmarked for the period. Indeed, buyers and some network executives suggest TV outlets will be flexible in setting deadlines for final orders to accommodate economic concerns.

"Everybody's a little bit edgy" as the options window opens in mid-January, said Steve Kalb, senior VP-director of broadcast at Interpublic Group of Cos.' Mullen. "Some clients are spending the same or a little bit more. Some have been pulling back a little bit," he said, adding: "Broadcast is trying to hold the line on their upfront increases."

The networks have more leverage than one might think during such a difficult period. Pricing for "scatter" ad inventory, which is purchased closer to air time and usually for a premium, now is similar to or somewhat higher than upfront pricing at CBS, Fox and ABC, according to executives from those networks. Still, volume seems down at most of the networks. If marketers were thinking they might drop their network TV orders and get better prices in the scatter market, chances are they won't.

Additionally, networks don't seem inclined to offer any concessions on price. "We have deals in place, and we are comfortable with those deals," said Mike Shaw, president-sales and marketing at ABC. When dealing with the writers strike last year, when dozens of original episodes were lost, he said, ABC made sure to give all clients the make-goods they were owed, "and a year later, for someone to come and say they need to have price concessions -- that rings hollow. No, we're not considering that."

Bargain hunters
Even so, no one is dismissing the economic climate and what it could mean in the months ahead. "The outlook for [the second and third quarters of 2009] remains murky, with cancellations ramping up and pressure on pricing ongoing," according to a report issued by Wachovia Capital Markets. "With autos, retail and financials weak, buyers continue to look for discounts relative to upfront rates, though it's too soon to know to what extent the networks will acquiesce."

Advertisers typically cancel a small portion of their upfront buys during each options window, a dynamic known in the industry as "leakage." Buyers and sellers say first-quarter activity in this area was at or slightly above normal, but that was expected given the financial situation. Fox saw about 2.5% of options reclaimed, said Tony Vinciquerra, chairman-CEO, Fox Networks Group, at a recent investor conference, which is "below historic levels" of about 3% to 3.5%. When it comes to the second quarter, he said, "we are hoping we won't see a tremendous amount of options reclaimed, but we may." Some advertisers are telling Fox they want to extend their deadlines for considering options so they can be more certain about "what's happening in the marketplace," he said.

The big broadcast networks have been pressing ahead while beset by a worsening industry. Live ratings continue to erode as viewers use the web and DVRs. According to Wachovia, live-plus-same-day household ratings are down in the double-digit percentage range for all the networks save CBS, which is seeing only single-digit declines.

Mike Shaw, president-sales and marketing at ABC
Mike Shaw, president-sales and marketing at ABC Credit: ABC/Donna Svennevik
Media buyers, however, aren't advising pullbacks. Taking money off network TV gives a rival the chance to get in -- a difficult play to stomach when many marketers are using ads to take potshots at rivals and snatch away market share, said one buying executive. What's more, network TV still reaches the largest audience at a single moment, despite increased fragmentation among audiences. "The money that moved off the books in the first quarter was nothing of significance. I think there's going to be more money moving off the books in the second quarter, but advertisers are going to try to hold on to as much as they can," said another buying executive.

The real battle over TV ads in 2009 may come at its regularly scheduled time: May's upfront season. One broadcast-network executive said the reason most TV outlets are reluctant to give price concessions now is because they know they'll be getting similar requests when it comes time to deal for next season. Why give price concessions twice, if you have to give any at all?

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