NBC Deal Sets Up Nets to Pry Rise Out of Upfront

Group M's Peacock Pact Irks Shops by Forcing Up Prices Despite Ratings Fall

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NEW YORK (AdAge.com) -- A wide-ranging upfront pact between NBC Universal and Group M has set the tone for the entire TV upfront, forcing others on Madison Avenue to agree to price increases for broadcast ads -- despite eroding viewership -- and pay for viewers who watch ads days later.
'Heros': NBC announced a wide-ranging deal with Nissan, which renewed a strong program the automaker has with the hit show.
'Heros': NBC announced a wide-ranging deal with Nissan, which renewed a strong program the automaker has with the hit show. Credit: Chris Haston

The deal surprised and, in some cases, angered other agencies and marketers last week by unveiling an arrangement that adopted a number of new measurement standards. The pact, worth more than $800 million in advertising inventory across NBC Universal's cable, broadcast and digital properties, is the first to make use of Nielsen's commercial-ratings data, letting advertisers set rates based on how many people watch their ads. In the past, ad rates were set based on viewership of the programs those spots sponsored.

But to get that agreement, many of Group M's clients had to sign off on using commercial ratings on a live-plus-three basis. Nielsen this May introduced the metric, which measures average viewership of commercial breaks during a certain time period rather than viewership of the show the ads appear in. Live-plus-three means viewers who watch the ads as many as three days after they air through use of a digital video recorder will be counted. (The ratings don't count the estimated 60% of DVR viewers who zap past the ads entirely.) To top it all off, NBC was able to secure price increases of around 5% in the cost of reaching 1,000 people in prime time. Last year, NBC, the fourth-rated network, was unable to increase in its CPM rate and, in fact, rolled back the rate by as much as 6%.

Buyers expect other agencies and networks to follow the Group M deal's parameters -- even if some parties aren't in love with the terms. "To some degree, it may be shoved down our throat," one media buyer said.

CBS and Fox are already in discussions with clients, and Fox has been able to secure CPM percentage increases in the high-single-digit range, according to buyers. A Fox spokeswoman said, "We've come to terms with many of our clients, and negotiations are under way with the rest." A CBS spokeswoman declined to comment on the substance of the network's negotiations with clients.

Bigger increases
Networks came out aggressively with demands of CPM increases of 10% to 15%. But media buyers say they are trying to hold close to the hikes NBC was able to achieve, and grudgingly so; buyers were prepared to pay only a slight increase, and in some cases envisioned forcing rollbacks. Last year, none of the networks increased CPM rates by more than 3.5%.

The networks' ability to secure increases is surprising, since the upfront market has been flat to down in recent years and there was a noticeable decline in live ratings in the recently completed TV season, owing to DVR usage. Even so, networks appear to be following a standard strategy for media outlets that are seeing audiences dissipate due to new technology. Like newspapers, another media sector grappling with change in the face of new technology, the TV networks are touting their ability to reach broad audiences in an increasingly fragmenting media landscape and asking for more money.

The ratings decline is forcing networks to be more aggressive on the pricing front, said Michael Nathanson, a media analyst with Sanford C. Bernstein, in a research note issued Friday. "This massive decline in ratings underscores why most broadcast networks have started their negotiations with offers of 12%-to-15% price inflation. Double-digit pricing is required just to keep revenue flat given the double-digit decline in audience delivery. Time will tell if the market develops in their favor," he said in the note.

Audiences still massive
Marketers believe they have little recourse if they want to reach tens or hundreds of thousands of people in a single swoop. On TV, "the numbers are still huge," said Tony Pace, chief marketing officer of the Subway Franchisee Advertising Fund Trust, which is represented by Group M's MediaCom. "We have to put 26 million people through Subway restaurants a week. There are an awful lot of smart digital properties that wouldn't reach that number."
Group M Chief Investment Officer Rino Scanzoni was one of the champions of a switch to commercial ratings, so striking the first deal using the new metric is a major victory for him.
Group M Chief Investment Officer Rino Scanzoni was one of the champions of a switch to commercial ratings, so striking the first deal using the new metric is a major victory for him.

"If you are mass-marketing products, TV still represents that big number," he added. "It doesn't mean that it's not changing. It is changing. You have a lot of other factors, but the fact of the matter is, it's still the biggest audience that you can get to quickly."

Given NBC's weaker position in the market compared with rivals such as ABC and Fox, which have hot shows such as "Grey's Anatomy" and "American Idol" to sell, the deal was not what people thought would be the upfront curtain raiser. Nevertheless, the agreement establishes a foundation for the upfront in a number of ways. It puts pressure on other big buyers to accept live-plus-three commercial ratings when some marketers are on the fence about whether viewers who see ads days later are worth the trouble. Group M Chief Investment Officer Rino Scanzoni was one of the champions of a switch to commercial ratings, so striking the first deal using the new metric is a bit of a coup for him. The deal also puts pressure on other cable networks to accept commercial ratings. Cable executives have issues with the methodology for collecting the data, and buyers believe ads will perform worse on cable outlets, which often sport more frequent and longer-lasting ad breaks than their broadcast counterparts.

Marketers and their media buyers may not agree to all the terms immediately. In fact, some networks are offering deals that include a shorter window of DVR viewership for advertisers whose commercials are more time-sensitive. In return, however, advertisers may have to pay a small premium, media buyers said.

Ongoing discussions
Others are just taking more time to consider the complexities. NBC announced a wide-ranging upfront pact last week with Nissan North America, which renewed a strong program the automaker has with the network's breakout hit "Heroes." And while the deal calls for placing Nissan's new Rogue in the program itself and sponsorship of a "Heroes" DVD release, not to mention traditional TV and web ads, discussions about commercial-ratings guarantees "are still continuing," said Steve Kerho, Nissan's North America's director of interactive media.

Subway's Mr. Pace says he was willing to agree to live-plus-three in the NBC deal because he was guaranteed commercial ratings in exchange. "For as long as there has been television, people have known that the attentiveness to commercials was less than the attentiveness to programs. Now we are finally going to get the audience that actually sees our commercials," he said.

The debate about how to handle DVR viewers is far from over. News Corp. has already announced that it intends to test technology that will allow digital insertion of ads and promos on Fox network and cable programs that people watch days later on a DVR, which would allow marketers to update their ads so they are relevant on the day they are seen. New technology and new measurements abound, but as the start to this year's upfront shows, no one has found a final solution. Nissan is "trying to figure out what the appropriate role is going to be for advertising in a world, whether it's two years from now or four years from now, where DVRs are incredibly ubiquitous," Mr. Kerho said. "What does that world look like, and how do we find space in it?"
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