Ad pacts percolate for networks

NBC strikes first with upfront activity

NBC Universal and media investment holding company Group M have inked the first megadeal of this year’s upfronts, breaking a three-week stalemate between advertisers and the networks.

The $1 billion deal comes nearly a month after the broadcast nets concluded their annual upfront fall-season presentations to advertisers. After a few weeks of jockeying among buyers and sellers, industry sources say talks among the Big Four are heating up significantly this week.

The slower start to what in past years has been a whirlwind of round-the-clock sales erupting days after the upfront presentations are concluded reflects the new complexity of ad sales, as nets and media buyers grapple with the effects of increased DVR usage, the networks’ expansion into ad-supported digital platforms and the shift from program to commercial ratings as the basis for setting ad rates.

Last year, despite a showdown between advertisers and the nets over the incorporation of DVR viewing into program ratings, the annual post-upfronts ad sales frenzy was mostly concluded by Memorial Day.

The NBC U pact, finalized Wednesday, is said to be worth just under $1 billion and covers nearly all of NBC U’s advertising-supported properties, including the NBC television network, Bravo, USA Network, Sci Fi Channel, Telemundo, digital and product integration deals.

All the TV elements of the NBC U-Group M deal — both broadcast and cable — were based on Nielsen’s “Live Plus Three” commercial ratings, which means advertisers pay for viewers that watch the commercials within three days of live broadcast using DVR playbacks.

The deal is significant for its scale as well as its timing. Typically, the network with the highest ratings in the key adults 18-49 demo and the most desirable primetime hits generally kicks off the upfront sales derby. The kingpin net also usually sets a ceiling price that advertisers pay per thousand viewers, known as CPM rates.

NBC comes into the upfronts as the fourth-rated network, having suffered a disastrous spring ratings season.

“Usually pricing is set by the leader in 18-49, but I don’t think there’s a blueprint for this season,” said Brad Adgate, director of research at media buying firm Horizon Media.

Network sources speculated that Group M, which manages ad budgets for Burger King, Warner Bros. and Volkswagen, saw an opportunity to get in and lock up scarce inventory on NBC shows like “The Office” and “Heroes” at attractive prices.

“They have the least number of strong returning shows and the least amount of inventory, so there’s a first-mover advantage in locking up some of NBC’s best shows,” said advertising biz analyst Jack Myers.

In addition, it’s the first upfront for newly appointed NBC U sales chief Michael Pilot, an import from parent company GE. Pilot has limited media sales experience, but Wednesday’s announcement indicates he’s taking an aggressive tack to leverage all of NBC Universal’s assets beyond network TV.

NBC’s schedule is a bit of a wildcard next season. NBC Entertainment prexy Kevin Reilly was forced out just weeks after presenting the net’s fall sked, which drew lukewarm response at best from advertisers. Reilly was replaced last month by producer Ben Silverman.

NBC U and Group M execs would not discuss specific terms or how much of the deal included primetime network shows, the most valuable and expensive commodities in the deal.

Miller Tabak media analyst David Joyce estimated NBC would sell $1.94 billion in the upfronts this year, a 3.9% increase, but said he considered reducing that estimate after seeing the new shows NBC plans to introduce in the fall, coupled with the hit the Peacock took in the second half of the 2006-07 season. Merrill Lynch estimates total broadcast primetime sales in this year’s upfront will be $8.69 billion, up 3% from last year. The Big Four nets typically book commitments for 75%-85% of their ad inventory for the coming season during the upfront sales period.

The broadcast nets are said to be seeking double-digit CPM increases for rates based on the new commercial rating system introduced earlier this year by Nielsen Media Research. Advertisers have sought for years to base advertising rates on the average viewership during commercial breaks, as opposed to the average viewership across the entire program. New technologies, and much politicking among TV biz and Madison Avenue constituencies, paved the way for Nielsen to recently begin issuing commercial spot ratings. Commercials tend to have 5% fewer viewers than the programs, as auds flip channels, skip ads on their DVRs or step away from the TV.

But if three days of DVR viewing are included, the nets recoup much of that gap and even gain ratings points overall. Among the shows with significant delayed viewing include NBC’s “The Office,” Fox’s “Family Guy” and ABC’s “Grey’s Anatomy.”

The NBC U deal was brokered on the ad side by Rino Scanzoni, chief investment officer of Group M, a unit of WPP and the biggest aggregator of TV ad dollars. It included all three of Group M’s buying agencies: Mindshare, Mediaedge: CIA and Mediacom.

Because Scanzoni has the biggest budget and has been a champion of commercial ratings, rival buyers have been waiting for him to make a move before cutting their own deals.

Among the advertisers participating are Unilever, Sprint, IBM, American Express and Audi. Entertainment clients in the deal include Warner Bros. and Paramount Pictures. Hollywood’s majors had been reluctant to accept the “Live-plus-three” standard because of the time-sensitive nature of TV advertising to promote the opening of a film. It’s unclear how NBC U surmounted those concerns for Warners and Par in the new pact.

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