Why Broadcasters Didn't Tune in More Dollars at the TV Upfront
Something funny happened on the way to this year's upfront. Advertisers who were expected to demonstrate their love for TV by again committing to spend even more money there wound up distracted by a competing concern: a shaky economy.
The gyrating stock market and disappointing employment figures gave TV's biggest sponsors an urge to keep their money in their pockets, where they knew it would be safe, rather than agreeing to use it on TV-network ad time -- at least for now.
Yes, it's true, advertisers committed a staggering amount of wampum to this year's upfront, that annual process through which the big TV networks try to sell the bulk of their ad inventory for the upcoming season. And they agreed to increases in ad rates. But they didn't let their overall dollar commitments surpass those agreed to last year.
This year, the five English-speaking broadcast networks won a total of between $8.8 billion and $9.3 billion, depending on whose fuzzy math you use. And while that sounds like a lot, it's about the same amount secured last year by the Big Four-And-A-Half (The CW is too small a revenue generator to make a Big Five).
More telling, perhaps, the amounts secured this year fall short -- once again -- of the $9.5 billion attracted by six networks (CW had yet to form from the ashes of WB and UPN) in 2004, re-energizing that old debate, the one about whether marketers will maintain their devotion to the TV set when new technology creates such a dizzying array of new media venues to examine.
This year's upfront was crimped by a number of factors, not the least of which was massive price increases agreed to last year by advertisers. In last year's negotiations, CBS won CPM increases (or hikes in the cost of reaching 1,000 viewers, a common measure in the annual talks) between 13% and 15%. Fox won CPM hikes between 9.5% and 12%, ABC won increases between 10% and 12%, NBC's CPMs rose around 9% and the CW notched price increases between 10% and 12%.
After such whopping increases, could growth continue along the same trajectory in 2012 -- especially amid a still-sour economy and troubling financial news overseas? The answer was no. This year, CPM increases came in at 8% to 9% at CBS, 7% to 9% at Fox, 6% to 8% at ABC, 5% to 7% at NBC and 5.5% to 6.5% at the CW.
Marketers were looking for a bargain. Last year, cable networks didn't really start writing business until after the broadcasters were done. In 2012, however, Viacom scored lots of volume by pulling back on its CPM demands, scoring deals with General Motors, the automaker that has been hell-bent on cutting ad costs in recent months, as well as Unilever. Univision was also able to score an early deal with Publicis Groupe's Starcom; some ad buyers speculated that the Spanish-language broadcaster had demonstrated a willingness to be flexible on price in order to broker an early deal.
The General Motors question
GM added even more uncertainty to the general mix. The third-biggest spender of ad dollars on TV came to this year's haggling session with an outsize mandate, telling TV networks it wanted them to roll back its prices by as much as 20%. Most TV networks refused to do business with the company at the outset, according to ad buyers, saving talks with GM and its media agency, Carat, until the very end, when they could point to deals made with other veteran TV advertisers like Procter & Gamble, Kraft or Ford as evidence that rollbacks would be unsustainable.
Whether or not GM did any deals with the big networks remains uncertain. As the broadcast upfront wore on, speculation emerged that the automaker was doing some business by allowing for "remixing," or the purchase of less-desirable ad inventory. "GM deals are getting done," said one ad buyer, but there was "lots of remixing to get to the number" the automaker called for.
For some big media concerns, the solution may have been selling GM ad time on smaller cable channels and less-desirable TV properties. During negotiations, GM was "giving enough leg room to work out what you needed to accomplish," said one executive familiar with the pace of talks.
The corporate owners of the networks "are all so big," the executive added. "They will allow everyone to use whatever is in their portfolio to do what you need to do."
Most telling, however, is that the networks' individual volumes of ad dollars were all basically flat with last year's totals. CBS secured an estimated $2.5 billion to $2.75 billion in commitments, on par with its 2011 efforts. Fox secured an estimated $1.98 billion to $1.99 billion, equal to the amount of ad-dollar commitments it notched last year. ABC's 2012 volume fell slightly, to an estimated $2.2 billion to $2.3 billion, compared with the $2.3 billion to $2.4 billion it secured last year. CW kept pace despite significant ratings shortfalls in the recently completed season, notching between $400 million and $420 million -- the same as it did in 2011.
Only NBC was able to eke out a small gain, seeing its total upfront commitments rise to between $1.7 billion and $1.8 billion, compared with $1.7 billion last year. Whether the Comcast network, which has been struggling in the ratings for several seasons, was able to use a few new bright spots like "The Voice" to steal share from ABC remains to be seen.
Holding for scatter
To generate such figures, most of the networks held back more inventory than last year to sell as "scatter," or advertising that is purchased much closer to air dates, usually for higher prices. GM could be a sizable scatter buyer if the networks were indeed able to resist doing upfront deals with it. And the market for scatter for the past several years has tended to rise above pricing established during upfront talks.
In the end, CBS held back a little more inventory than it did last year, when it sold about 80% of its available ad time. Fox sold as much as it did last year, when it distributed 80%. ABC appears to have sold less time this year, though concrete figures could not be immediately determined. NBC sold about 78% to 79% of its ad time this year; in 2011, it sold around 80%. And the CW held back a sliver this year, selling 75% of its inventory; in 2011, it sold between 75% and 80%.
Some investors and Wall Street analysts seem to mistake upfront figures for cold cash that moves directly into the coffers of media conglomerates such as News Corp., Time Warner , CBS Corp., Comcast Corp., Viacom and Walt Disney Co.Nothing could be further from reality. Indeed, if the numbers were intended to help investors figure out how these companies' stocks would perform, the CEO would shout the numbers in a big press release. Instead the numbers are leaked to reporters in clandestine fashion, and the process becomes less transparent every year.
In the upfront, the networks win agreements from their advertisers that they will spend a certain amount of money in the coming season. And they even go so far as to work out schedules to accommodate commercials. But the simple facts are these: Advertisers can cancel a portion of their upfront commitments each quarter, and can even pull their money if a show they agreed to support is canceled and no substitute can be agreed upon.
In the end, the upfront totals are merely directional indicators telling us how much advertisers value TV when many other factors and predictions about their own businesses are taken into account. In 2012, the understanding is that marketers still value TV, but only as much as they did last year -- and not by a penny more.