Television upfronts

Analysis: Broadcast prime market falls as much as 5% to 10%, according to Variety estimates, but new ratings deals with advertisers could rebuild strength

You might think Madison Avenue’s intense ardor for TV was in danger of cooling. Advertisers appear to have committed as much as 5% to 10% less to broadcast-television primetime in this year’s “upfront” market, according to Variety estimates – dips in ad support that bring to mind the recession-plagued haggle of 2009.

And yet, there’s a quiet surprise to be found amidst this annual session during which U.S. TV networks try to sell the bulk of their ad inventory for the coming season: Advertisers and TV networks are quietly agreeing to help TV build back its audience.

Madison Avenue’ s support for English-language broadcast primetime is down significantly in 2014, falling to between $8.2 billion and $9 billion, according to Variety estimates, compared with between $8.6 billion and $9.2 billion in 2013. The shortfalls are not to be ignored. They mark the second year of diminished support for TV’s most-watched programs after two years in which the ad cash remained the same.

As this happens, the two sides appear to be surreptitiously crafting a means of helping broadcast TV grow its viewership, after several seasons of shrinkage. Fox has crafted deals with multiple ad buyers, according to a person familiar with the matter, that would give the network credit for audiences who watch commercials (and the TV shows they support) up to a week after they initially air. That follows large media firm GroupM doing deals with all five English-language broadcasters that also establish credit for so-called “C7” ratings.

Thanks to the deals, Fox, NBC, CBS, ABC and the CW will be able to tout audiences who watch their shows days after they run on the old-fashioned boob-tube. As more viewers grow comfortable using their cable system’s video-on-demand library to check out a new serialized drama from CBS or access a kooky CW show about a teenage zombie (one is coming soon) from a mobile tablet, the networks will have more of a chance to maintain their status as the one stripe of media that can still assemble a mass audience when so many of the crowds flocking to entertainment these days are splintered around a particular subject (cooking, drama or reality) or demographic (pre-schoolers or young women).

The foundation is in place, but will audiences surge back to the levels of days gone by?  Questions about that outcome  may be why advertisers tamped down the money they normally commit to the fall season.

Volume Shortfalls

For four out of the five networks, the story was the same: the volume of ad dollars contributed toward the fall season fell in comparison with last year. At ABC, ad commitments fell 5% to 10%, according to ad buyers, meaning that ABC may have secured between $1.8 billion and $2 billion, compared with $2 billion to $2.2 billion in 2013. Ad buyers estimate a similar dynamic took place at CBS, which could have secured between $2.25 billion and $2.61 billion in ad commitments in 2014 for its primetime entertainment schedule, compared with between $2.5 billion and $2.75 billion in 2013. The numbers would not include support for the network’s new slate of Thursday-night football games slated to launch this fall.

At Fox, a ratings tumble due largely to the performance of the aging “American Idol” took its toll. The network’s volume of advance ad commitments fell as much as 10% to 15%, according to ad buyers, meaning that Fox may have secured between $1.51 billion and $1.61 billion in 2014, compared with $1.78 billion and $1.79 billion last year. The CW saw ad commitments dip by as much as 5%, according to buyers, meaning the network, jointly owned by CBS Corp. and Time Warner Inc. may have secured between $380 million and $399 million, compared with between $400 million and $420 million in 2013.

Pricing Pressure

The networks also had to consent to take lower price hikes as well. For the third year in a row, the TV outlets were under pressure to reduce the rate of increase in the cost of reaching 1,000 viewers, a measure known as a CPM that is integral to these annual talks between Madison Avenue and advertisers.

ABC did many deals with CPM increases of between 4% and 5%, according to people familiar with the talks. In 2013, ABC held out for CPM hikes of 7%. CBS did many deals seeking a CPM increase of around 6%. In 2013, CBS did many deals that called for a CPM hike of around 7.5%. The CW did deals in 2014 calling for a CPM increase of between 3% and 4%, compared with 5% and 6% in 2013. Fox did deals calling for a CPM increase of between 2.5% and 3.5% this year, according to people familiar with the talks, compared with 5% and 7% in 2013.

Even NBC, which has seen a resurgence in the audience advertisers covet – viewers between 18 and 49 – had to take a tempered approach. The network largely sought deals that called for a CPM hike of between 7.5% and 8% – largely flat with what it sought last year.

Unlike its competitors, NBC saw the ad commitments placed against its fall schedule rise, rather than fall. The Peacock was able to secure around $2.3 billion for its primetime entertainment schedule, excluding sports, according to people familiar with the situation, compared with about $2 billion in 2013.

All of the networks are likely to put more emphasis on the so-called “scatter” market, when advertisers purchase commercial time closer to the date it airs – and, if market conditions are favorable, pay a premium for doing so.

Murky Data

Take the above numbers with several grains of salt. If they were bona fide, you’d see SEC statements filed by Comcast, CBS, 21st Century Fox, Time Warner and Walt Disney saying as much. The figures represent money that is promised, not paid. Advertisers could choose to pull back on their commitments depending on the economy and the fate of the programming that drew them to the TV networks in the first place. As a result, the numbers have little correlation with actual revenue figures you might see at the end of the year or the season.

Guesswork has been rampant in 2014, as a down market often forces those who whisper proposed upfront numerals to reporters to keep such guidance to themselves.

But the directional indicators seem sure enough. With new kinds of video, as well as mobile and social opportunities beckoning, advertisers are taking some small portion of the dollars they normally reserve for TV and spending it somewhere else.
Online video ad revenue is expected to total $6 billion this year, up nearly 42% from 2013, according to market-research firm eMarketer, while television ad revenue in 2014 will come to $68.5 billion, up just 3.3%. In 2015, eMarketer expects online video ad spending to grow 30.4% to $7.77 billion, and television ad spending to grow 3% to $70.6 billion.

Marketers spend the overwhelming portion of their ad dollars on TV and will do so for the forseeable future. With those growth rates, however, it’s only a matter of time before the gap between the media narrows in some fashion.

The “upfront” is less about tracking hard and fast numbers as it is measuring Madison Avenue’s faith in the medium that has helped fuel so much of its growth over the decades. What the 2014 upfront tells us is that Madison Avenue is developing a wandering eye. The TV networks are betting their new “C7” deals help rein it in.

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