High prices, competish pump a record upfront

Market boosted $1 billion from last year

NEW YORK — While network execs’ jaws dropped last week at the record $9.2 billion they racked up from advertisers in this year’s upfront market, Madison Avenue was less taken aback.

The final tally was up more than $1 billion from last year’s $8.1 billion market. In the midst of a lackluster economy, where did that extra billion dollars come from?

Advertisers pointed to high prices in the scatter market, increasing competition among retailers and entertainment franchises and a fractured media universe. Either way, they said the boost was not entirely surprising.

“The upfront wasn’t totally unusual,” said Andrew Donchin, national broadcast director for Carat North America. “It was stronger than people thought it would be, but all past indications — last year was strong and the scatter markets have been strong –pointed to a robust upfront market.”

Still, others admitted that breaking the $9 billion barrier was still a feat.

“We all knew budgets were up, but no one with a straight face could have said $9.2 (billion),” said Ray Warren, managing director of OMD USA. “We all expected the high 8’s.”

Will it hold?

Now, industry observers wonder how much of those pledges will translate to real dollars over the next few months. Advertisers can still opt out of deals until the season launches in September.

“It will be surprising if it all stays,” Warren said. “As advertisers digest those numbers and see them on paper, there’s likely to be some slippage. Business changes between May and July.”

Of the 12% increase in dollars, advertisers say about 40% is not new money but rather cash moved over from scatter (the non-upfront purchasing market).

That market, which fluctuates based on supply and demand — but rarely rises more than 15% above upfront pricing — this year spiked to as much as 50% thanks to a flood of dollars in the marketplace and few cancellations by advertisers.

As a result, advertisers shifted their budgets this season.

“Many marketers found an already expensive marketplace even more challenging with a scatter surge in 2003 and have moved monies to the upfront to avoid a repeat jolt,” said John Rash, director of broadcast negotiations at Campbell Mithun.

Advertisers generally reserve 15% of their budgets for scatter.

Competition up

Another reason for the blockbuster week was growing competition in industries like retail. Although retailers are traditionally big spenders at the upfront, they have grown particularly aggressive due to increased competition between megastores like Wal-Mart and Target.

“Advertising is a very powerful way to grow your share within a category,” said Tim Spengler, director of national broadcast at Initiative Media. “It’s a way to move the needle.”

Similar trends were evident in the entertainment and fast-food categories.

Then there’s the cultural phenomenon of a paradoxically sprawling and fracturing media model.

“Advertisers want to reach everybody and that requires more money,” said Warren. “When you’ve got 50-plus cable channels and six broadcast networks, there are so many places that people have to view television. Every marketer that wants to have a voice has to spread their money around, and marketing budgets are going to get bigger. That said, I don’t think the broadcast networks are making good long-term decisions with this year’s CPM increase.”

Whatever the reason, industryites neglected to attribute much of the boost to the economy, which they said can only get better.

Even Wall Street agreed.

“Is this an indicator of an economic improvement?” asked one analyst. “I think this is a unique event driven by scarcity value and the high value of primetime advertising. It does not imply that the rest of the industry will follow suit.”

(Jill Goldsmith contributed to this report.)

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