Madison Avenue is flirting with TV more seriously than it has in years, but behind the winks and kisses are signs of a relationship that continues to fray.
The nation’s five big English-language broadcast networks secured between $8.41 billion and $9.25 billion in advance ad commitments for primetime as part of the annual “upfront” market, according to Variety estimates. It’s the first time in three years they’ve managed to break the $9 billion mark. The upfront finish is a clear signal that Madison Avenue is putting more faith in TV even as digital-video options abound. Last year, the volume of advance ad commitments totaled between $8.02 billion and $8.69 billion, a noticeable decline from the previous year.
2010: $8.1B to $8.7B
2011: $8.8B to $9.3B
2012: $8.8B to $9.3B
2013: $8.6B to $9.2B
2014: $8.17B to $8.94B
2015: $8.02B to $8.69B
2016: $8.41B to $9.25B
Source: Variety estimates
Beneath the impressive hikes and the happy talks they will likely spur with investors, however, is a new wrinkle in these annual talks between U.S. TV networks and the advertisers who support them. The networks demonstrated a new aggressive streak, according to several ad buyers familiar with the 2016 haggling, pressing back against previously established deals that guaranteed lower rate increases and favoring sponsors who would do more business at higher rates.
“We turned away a lot of volume. We’re working on mix on the cable side to try to get higher, more profitable advertising into our mix in some of our cable channels,” said Steve Burke, chief executive of Comcast’s NBCUniversal Wednesday during a conference call with investors. “But there was plenty of volume. And we could have sold more if we wanted to.” Other networks may have suggested that clients who didn’t want to pay the bigger increases wait until the “scatter” market, when ad time is sold closer to air date – and is usually more expensive.
In the modern era of TV, so beset by competition from new streaming-video rivals, some ad dollars are better than others. During upfront haggling in 2016, executives at the nation’s big broadcast TV networks placed new pressure on agreements that guarantee sponsors low or moderate rate hikes over a multi-year period. In some cases, the networks threatened to do more business with a marketer in a particular category that would favor the highest rate hikes, leaving rivals scrambling. Imagine, for a moment, what sponsors like Verizon or AT&T might do if they were told T-Mobile could have more and better inventory because it had agreed to rates that favored the network. Or consider how a marketer like Procter & Gamble might react upon being informed a multi-year deal it signed in the past promising low rate increases would continue to be honored, but that others who were willing to pay what the market might bear would have better access to ad time. Those are aggressive maneuvers, to be sure.
At a time when TV advertising is under duress, however, the gloves have to come off. “I’m a little bit surprised, frankly, that they didn’t do this two or three years ago,” said one buying executive. “The networks were really optimizing bad money out this year.”
There are reasons to be bold. Ad dollars devoted to mobile advertising are expected to be greater than those allocated to TV around the world by 2018, according to a June report from Publicis Groupe ad buyer ZenithOptimedia. “Mobile advertising is growing at a blistering pace: it grew 95% in 2015, and we forecast 46% growth for 2016, followed by 29% growth in both 2017 and 2018,” the report said. “Mobile is already the primary means of accessing the internet.”
With TV’s video viewership migrating to other screens, the networks can’t just parcel out 30-second ad berths and TV-show product placement willy-nilly. They have to squeeze the most out of each commercial slot.
This was the year to tighten the clutch. As much as viewers have embraced mobile tablets and on-demand streaming, there is a growing sense that high-quality programming helps commercials stand out best. Executives on both sides of the table reported that some of the nation’s big consumer packaged goods giants were taking ad money away from content created by new digital players in favor of stuff from the networks in which they have more faith. Pharmaceutical manufacturers and consumer-electronics makers were also big spenders in this year’s market, these buyers said.
Some of the proof came in the haggle. The networks were able to press for the broadest rate increases they’ve seen in years. NBC sought a whopping 12.5% hike in the cost of reaching 1,000 viewers, a measure also known as a CPM that is central to these annual discussions for commercial time. Last year, NBC was able to command rate hikes of just 5%.
CBS pressed for CPM hikes in the 9% to 11% range, compared with increases of just 3% to 5% in 2015. ABC and Fox each pushed for CPM raises of between 8.5% to 10%. In 2015, ABC worked for increases of 45 to 5% and Fox had to offer rollbacks of as much as 2%. The CW this year pressed for rate hikes of between 12% and 14%, compared with just 4% in 2015.
The numbers can be deceiving. TV audiences continue to dwindle, meaning the networks have fewer ratings points to sell. With demand increasing due to a move of money back from digital, the economics are simple: Rates go up. One major ad-buying shop, WPP’s GroupM, pushed against the hikes, particularly with NBCUniversal and Turner, delaying the close of the upfront.
Ultimately, TV won more money than it has in some time. NBC is believed to have secured around $2.53 billion in advance commitments, compared with about $2.3 billion in 2015. CBS is seen securing between $2.26 billion and $2.6 billion for its primetime schedule, according to Variety estimates, compared with between $2.19 billion and $.248 billion last year.
ABC, meanwhile, is expected to secure between$1.7 billion and $1.96 billion, compared with $1.67 billion to $1.88 billion last year. Fox secured $1.47 billion and $1.64 billion, according to Variety estimates, compared with$1.43 billion and $1.56 billion in 2015. The CW is seen securing between $476.6 million and $523.2 million, compared with between $425.6 million and $458.9 million last year.
The numbers represent commitments, not cold, hard cash. Advertisers can yank a portion of their dollars for a variety of reasons, including cancelled programs or a desire to claw back money for business operations. What the flow of money this year says is that Madison Avenue is relying more heavily on TV this year, even as a wealth of new video options proliferate.
Even with this year’s boost, the relationship between sponsors and TV isn’t as strong as it once was. In 2004, six broadcast TV networks – remember UPN and the WB? – lined up around $9.5 billion in advance ad commitments, and it remains to be seen if, in a world filled with new video rivals, whether that figure will be regained in years to come. TV and Madison Avenue have tightened their embrace, but the marketers’ eyes are wandering. TV needs to keep working to make sure its screen stays in focus.