Five weeks before the broadcast upfronts, network execs and Madison Avenue agree on one thing: This will be the most chaotic struggle for ad dollars in decades.
The good news is that networks and cable are likely to match, or even surpass, their upfront tallies of last year ($9 billion and $6.5 billion, respectively).
The bad news is, those fees are not going to be resolved quickly or easily. Such innovations as DVR have changed the equation. Do networks and ad execs count only live viewers, those within the first 24 hours, or the first week? Other ratings systems measure how closely people are paying attention to a show. Others want to count the viewers not for the show but for the commercial breaks.
Bottom line: It’s likely that each major advertising deal done this year will have a vastly different set of metrics and benchmarks. Which means the wrangling over fees will be long and exhausting, and could get nasty.
For years, the upfront process was pretty simple. Nets and ad buyers would huddle for a few long days and nights to hash out time buys. And generally the networks with the best ratings ended up with the most coin.
But this year, the venerable Nielsen ratings system that has been the basis of buying TV time for 50 years is being shunted aside by a litany of new measurements. None of these new metrics is fully tested, and the risks have execs understandably nervous.
“For the first time that I know of, there is no agreement” as to what is the best way to measure audiences, says NBC Universal research prexy Alan Wurtzel. “We’re going to have to go into an upfront with a number of differing metrics on the table, and we will have to figure out how to get through it.”
In years past, the highest-rated network generally was first to set its rates, and other nets followed suit, with the deals wrapping up quickly. But with so many competing benchmarks, that may not be the case this year, and some are predicting talks that stretch to the start of the new season.
“Who’s to say we have to have an upfront (that concludes) in June? It could be an August upfront,” says Scott Haugenes, top TV negotiator for Initiative, a unit of IPG. “This is a new day and age, and we’re not doing things just because that’s how they’ve always been done.”
The upside for the networks is that the money spent in the upfronts probably won’t go down this year. Based on a slight decline in overall ratings and single-digit increases in ad rates, the broadcast networks as a group will likely match the $9 billion that was committed in last year’s upfront.
(Cable, too, is expected to collect roughly the same amount as last year: around $6.5 billion).
Some execs point to the strong spring scatter market — ads sold after the upfronts — as a sign that the nets might even eke out some gains.
“I think all the networks are going to have a good story to tell,” predicts the head of one conglom.
A key negotiating point that will impact just how well the nets do is how both sides agree to count viewers who watch a show via TiVo or other DVRs.
Last year, talks were drawn out when ABC, armed with hits “Desperate Housewives” and “Grey’s Anatomy,” stared down the agencies and refused to do deals until they agreed to pay for some viewers recording the shows on DVRs.
That gambit failed when CBS stepped in and started writing deals based on live viewing only, forcing ABC to step back from its position. This year, ironically, CBS Corp. topper Leslie Moonves is playing the heavy, telling a Bear Stearns conference in March that while the networks ended up on the short end last May, “That’s not going to happen again this year.”
One industry insider goes even further: “I don’t think a single deal will be done based just on live viewing,” the exec says. “It will at least be live plus two or three (days).”
There’s evidence Madison Avenue is willing to give the nets compensation for DVR viewing — especially if it occurs on the same day as the original broadcast.
“Our point of view is yes, a reasonable amount of delayed viewing should be part of the equation because, unfortunately, that is the way the business is going,” says Rino Scanzoni, chairman of Mediaedge: CIA, a unit of WPP.
The bad news for nets is that, while they may make progress on the DVR debate, there are plenty of other question marks that could impact their upfront tally:
Ad eyeballs: Because of DVRs, advertisers want to switch from program to commercial ratings. While a few deals were cut on those terms last year, agencies will be demanding more such pacts that guarantee ratings for the ads, not the shows, even before Nielsen makes them available in late May.
It’s generally thought that 5% of auds leave during commercials, and that is built into the system of buying and selling. But what if the commercial ratings say differently? “Even a tenth of a ratings point equates to millions of dollars,” Wurtzel notes.
Even though Nielsen hasn’t released commercial ratings data, networks and advertisers can use the second-by-second ratings to analyze what happens during commercials. While useful for analysis, that data isn’t considered reliable to serve as a “currency” like program ratings have for 50 years.
Nonetheless, ABC sales and marketing prexy Mike Shaw says he did three deals based on commercial ratings last year, and recently said he plans to cut many more this year.
Engagement: Other advertisers want more than ratings — they want the nets to guarantee “engagement,” or whether the viewers are actually paying attention.
NBC has pushed this idea particularly hard. It’s offering to guarantee a level of engagement with its shows — and pay make-goods if those benchmarks aren’t met.
“The more engaged (the) viewer is, the more likely they are to watch and recall your ad,” says Alan Gould, co-CEO of research firm IAG, which NBC has enlisted to survey viewers’ levels of engagement.
Supplements: Product placements and digital marketing doodads are replacing — or supplementing — traditional spots for many advertisers; such supplementals could comprise 5% of total spending this year.
“The networks are going to do deals on many different metrics,” says Stacey Shepatin, senior VP of national broadcast at Hill Holliday.
More than ever, the upfront is also a futures market, where advertisers weigh committing cash in advance against waiting to buy later in the year in the scatter market. This past year, scatter ad rates were up 10%, punishing those advertisers who held money out of last year’s upfront.
As for individual nets, ABC is again poised to lead the market because it controls the most in-demand shows for advertisers.
CBS has the strongest night-by-night sked and has commissioned a wide range of pilots to try to create a hit that isn’t another crime procedural, while fourth-place NBC looks to build on its success with “Heroes.”
Fox is in about the same position it was last year, with “American Idol” remaining a ratings behemoth.
The CW has thus far been a ratings disappointment. Ad buyers will probably be patient, however.
One buyer who attended the nets’ pre-upfront meetings is encouraged by the projects in line for spots on the fall skeds: “It didn’t look like too much copycatting. There was lot of stealing from the Brits, a lot of talk about digital. The shows have pretty unique voices,” he says.
While in the end, the networks will get paid for some DVR viewing, it comes at a price. The networks are paying millions for additional data from Nielsen and for the manpower to do the analysis. At the same time that the nets are being asked for more detail, the total pot is dwindling due to ratings erosion, cable’s impact and digital advertising.
In an essay that was forwarded around the sales staff at CBS, media analyst Jack Myers suggested the networks pull out of the upfronts altogether.
“The upfront as it is unfolding this year has become an unreasonable marketplace that is working against many networks’ best interests,” Myers wrote.
That’s not too far-fetched an idea. The upfront has diminished in importance as TV advertising becomes a 12-month business. The level of marketing tie-ins, product integrations and digital deals that most advertisers expect take all year to conceive, negotiate and implement.
“It is going to become a little bit more labor-intensive,” Scanzoni says, “but also a hell of a lot more interesting.”