TV Upfront

TV Upfronts Lurch to Life, but at a Walk, Not a Sprint

Buyers Say Clients' Budgets Aren't as Big as Expected

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Jimmy Fallon performs in a 'Hamilton' spoof during NBC's upfront presentation in May.
Jimmy Fallon performs in a 'Hamilton' spoof during NBC's upfront presentation in May. Credit: Paul Drinkwater/NBCUniversal

TV's upfront negotiations are moving from Manhattan offices to luxury yachts in Cannes next week, with network sellers hoping a few glasses of rosé at the ad industry's annual festival of creativity will help move things along.

There is expected to be an increased presence of TV executives at Cannes, which comes smack in the middle of the annual upfront negotiations, when networks look to sell the bulk of their commercial inventory for the new fall season.

It's perhaps no coincidence then that this week saw the start to more active negotiations for the Big Four broadcasters, or at least talk of such, along with one network already publicly claiming significant progress and Viacom appearing to have finished.

Much of the conversation ahead of the upfronts revolved around advertisers' turn back to TV as they questioned the efficacy of digital, as well as the strong demand for commercial time in the recent so-called scatter market.

But media buyers cautioned that some of the assertions now circulating are likely exaggerated, part of efforts to drum up attention ahead of Cannes.

One buyer called news out this week "lots of fabrication."

This time of year it becomes easy to feed into the bullish sentiment from network executives, as well as media buyers' efforts to temper the market, and much at this stage of negotiations should be presumed posturing.

What we do know is that most of broadcast is moving at least some business. While sales execs are no doubt seeking double-digit percentage increases in the cost to reach 1,000 viewers, the price metric known as the CPM, advertisers aren't flocking to pay those prices.

Marketers' TV budgets are not as robust as many had anticipated heading into the upfront, with several media buyers saying budgets came in flat to up slightly over last year.

Still, NBC Universal and CBS are likely writing some business with CPM increases in the low double-digits.

NBCU, in particular, has greater leverage because it has a deep roster of broadcast, cable and digital properties that it discounts in bundles that help boost prime time pricing, according to a second buyer. NBC is also working off a lower CPM base than its broadcast rivals.

NBCU CEO Steve Burke publicly said at the Guggenheim Partners TMT Symposium this week that the company is "more than halfway done" with its upfront talks and seeing very strong sales.

Media buyers and other people close to the situation say a chunk of that business likely includes some multi-year deals that had been struck in previous upfronts, and that NBCU hasn't actually done as much business in the current talks as Mr. Burke implied.

Still, there's a consensus that an aggressive NBCU was setting the tone, leaving broadcast rivals "happy to sit back and let NBC do the hard work to try and get a high increase then draft in behind," as the first buyer said.

Conversely, other broadcast sellers were cautious about writing deals before NBCU for fear that they would get smaller price hikes and be seen by bosses as not doing "as well as they should have," a third media buyer said.

That dynamic caused a logjam at the start, but trepidation seems to be subsiding somwhat. CBS wrote some business this week, according to buyers and another person familiar with negotiations, pressing for deals with a double-digit price hike. Fox is doing deals with price increases in the high-single and low-double digits, according to a person familiar with those talks, though buyers said they were skeptical Fox would achieve double digits.

And then there's ABC, which media buyers had said is quietly trying to write business at a slightly lower rate of change. But recent word of other networks securing double-digit hikes has potentially made the network re-evaluate, and a person close to the situation said the alphabet network is writing deals at double-digit CPM increases.

It could be good for ABC to walk back some of the outsized increases it demanded last summer for the Thursday night "TGIT" lineup.

"If Geri [Wang, the ABC sales chief] is smart she will take volume where she needs it and not go after double-digits," the second buyer said. Of course, it is in buyers' best interest to try to talk down price hikes.

Outside of Viacom, which tends to be an earlier mover, and some lower-tier and independent cable network, most of cable hasn't started writing business in earnest.

But it could be a strong upfront for big cable networks, according to a person familiar with negotiations, depending on how you view a landscape with smaller audiences to sell. A severe lack of inventory due to ratings declines means some of the biggest players will run out of stock while there's still money in play, the person said.

"Top-tier cable is literally turning money away," the third buyer said. "They have enough dollars working that they can say the number is the number and if we don't want to pay it, we can take it back."

Viacom has closed its upfront negotiations, securing a 10% increase in dollar volume with a majority of its deals reflecting a roughly 8% CPM hike, according to one person familiar with the situation.

Amid its legal battle that has ousted Viacom CEO Philippe Dauman from the board, the company's strategy was to essentially let broadcasters fight it out for double-digit price hikes and come in lower with the hope of driving dollar volume. Viacom is typically an earlier mover because its audience is relatively young, if steadily shrinking.

Viacom sold about 60% of its inventory aside from "Nashville," which will move to CMT from ABC next season but wasn't nailed down in time for initial upfront talks. The company plans to use "Nashville" to steal dollars from broadcast, a personal familiar with the situation said.

Viacom's internal power struggle did not seem play a role in negotiations. "It doesn't really matter to the marketplace," the second buyer said.

The market had been anticipating that upfront negotiations would move quickly based upon the robust recent demand for commercials in the so-called scatter market. Shrinking supply due to ratings declines and some marketers' move back toward TV from digital put control more firmly in sellers' hands than in at least several years.

But buyers say their clients' unexpectedly modest budgets have made it harder to justify paying double-digit price hikes simply because ratings are down.

Auto marketers and movie studios, in particular, are pulling back their upfront ad spend, while consumer packaged goods and pharmaceuticals are upping their TV budgets, according to a person familiar with the situation.

One of the themes emerging from this year's upfront haggle is TV networks trying to weed out "low-base" business, or long-time clients that pay lower prices, in favor of new advertisers that can be asked to pay higher CPMs.

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