Ad sales for fall are down but not as dire as thought

TV execs have finally exhaled.

The long-stalled upfront advertising sales process has sputtered into action, and the dealmaking is not as brutal for broadcast and cable as some had predicted. Ad rates are down on average for all nets, even on the cable side, but the dire forecasts of 10%-15% declines from last year’s spot prices have not come to pass.

Despite the challenging business climate, the major nets dug their heels in and fended off the effort to extract enormous price concessions in a depressed marketplace. They were aided in the fight by the glimmers of a rebound in the short-term scatter ad sales market, which helped prod ad buyers into making upfront deals out of concern that they might wind up paying higher prices down the road.

The stalemate over pricing meant that upfront wheeling and dealing — the period when the networks book commitments for as much as 75%-80% of their ad inventory for the coming season — began later than in any other year in recent memory. Usually the bulk of upfront biz is completed within a few weeks of the nets’ mid-May fall sked presentations. This year, upfront sales started to gain traction only in mid-July. And now the nets are battling one another to grab the largest slices of a shrinking upfront ad pie.

It’s clear that overall upfront coin for ABC, CBS, NBC, Fox and CW will be down from last year’s estimated $9.2 billion haul, though it’s too soon to tell by how much. Basic cable in aggregate will take a hit from last year’s estimated $7.5 billion, but it’s expected to be a smaller hit than broadcasters face.

Complicating the year-to-year comparisons is the fact that biggies in broadcast and cable are expected to hold back more inventory from the upfront than in the recent past — perhaps as much as 30%-35% — in the hopes that scatter prices will continue to rise.

The upfront impasse has been chalked up to skittishness among major advertisers caused by the recession and the global pullback in ad spending. But some see it as a watershed moment for the traditional upfront sales process. Even if the economy rebounds strongly, it’s unlikely that the biz will revert to the frenzy of years past.

“I think the days of 3 a.m. dealmaking over a two- or three-day period are over for good,” says Steve Sternberg, TV analyst and a former exec with media buying agency Magna Global.

The upfront process is changing because, of course, the TV landscape continues to change dramatically. Before the recession put the brakes on ad spending, top basic cablers including USA, TNT, TBS and FX were expected to clean up in the upfront this year as a result of the inroads made with original programming.

But as much as cable has grown, the fragmentation of the viewing aud has made it virtually impossible for any net to have the kind of heft that motivated advertisers to line up during the upfront to reserve their spots.

“There’s no more NBC Thursday night to help stampede the market because people were afraid they’d miss out,” Sternberg says. “There is simply no reason for advertisers to jump in early and move the marketplace.”

This year, however, the length of the standoff worked in favor of the sellers.

As the clock ticked closer to the fall season launch in September, buyers became antsy about ensuring that media plans would be put in place, especially for the fast-approaching fourth quarter. The advantage for buyers of cutting long-lead-time deals in the upfront is guaranteed placement in desired shows at pre-set prices; in the scatter market, prices fluctuate according to demand, and deals are cut much closer to the air date.

In recent weeks, amid hopeful signs that the economic decline has hit bottom, the scatter market has been fairly robust, net execs say, with spots selling at prices that are flat or just slightly above last year’s upfront benchmarks. The longer the upfront standoff dragged on, the more likely buyers would be faced with paying higher prices throughout the season for scatter purchases — after all the tough talk of securing big discounts for their blue-chip advertiser clients.

Amid these positive signs, ABC was said to be taking the toughest stance against writing business at decreased cost-per-thousand viewer (CPM) rates. CBS, which had the strongest ratings story of the Big Four nets last season as well as the hottest newcomer in “The Mentalist,” has also been taking its time on deals to hold out for flat pricing on its most prominent properties.

In a research note issued last month, JPMorgan analyst Michael Meltz was bullish on the Eye’s prospects, opining that “it seems increasingly clear that ratings leader CBS will ultimately command the best pricing and be the upfront ‘winner.’ ”

Although the delayed start to the upfront caused heartburn for execs, dealmaking has nonetheless been slow and methodical, with plenty of haggling over small details. There’s time for that this year because there are fewer dollars flooding the market.

But both sides of the ad sales table say a more meticulous approach is preferable to trying to hammer out agreements during marathon sessions. It’s especially important as ad sales have become much more complex with the inclusion of product integration deals and multiplatform bundling of ad opportunities within far-flung congloms like News Corp. and the Walt Disney Co.

The largest upfront deals are “not just about how many (30-second spots) can you give me for what CPM,” says a longtime ad buyer. While this year has been tough all around, the more reasonable pace of negotiating is a change that should stick.

“This is how we’ve always said business should be done,” the buyer says.

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