Market forces stir upfront ads

Industry bullish on upfront volume, pricing

As the TV biz enters the feeding frenzy of the upfront advertising market, questions are swirling about prices, targeted messages and even the definition and parameters of TV advertising.

First, the U.S. economy may be improving but many wonder whether this warrants the soaring TV advertising prices projected for the upcoming season.

According to early estimates, after the market begins at the end of this month, there’ll be aggressive price hikes in the cost per thousand viewers, probably in the 12% to 15% range over last year’s upfront market.

Overall TV upfront volume could grow some 10% to around $22.5 billion for broadcast network, cable network and syndication for the 2011-2012 season, according to a number of projections.

These bullish numbers are based on the conditions in the current short-term quarterly “scatter” market, where the cost per thousand viewers is up 20% to 40% over last year’s upfront market; traditionally, the strength of second-quarter TV has been an indicator of the next upfront market’s performance.

Now, just weeks before the upfront dealmaking is set to start, media execs concede that CPMs will be healthy to strong, but maybe not wildly bullish.

“National television overall seems on track in general to go up by high single digits to low double digit (percentage) increases, maybe 7% to 11%,” says Gary Carr, senior VP and exec director of national broadcast for New York-based media agency TargetCast tcm.

Other veteran media buying execs are less enthusiastic. “I’m not on the side that this is a runaway marketplace,” says Aaron Cohen, chief media negotiating officer for Horizon Media. Cohen says rising commodity pricing could be an indication of an economy slowing down its improvement. “We need to look at the price of oil.”

Higher oil prices means not only higher consumer gasoline prices, but increased production costs for U.S.-based marketers. In turn, this could slow down TV advertising growth, according to Cohen. Electronics and food sales are other categories that are looking potentially weak, he says, indicators of possible TV ad malaise.

Among the broadcasters, CBS looks to be on the top of heap, getting 12% price hikes, according to one projection.

Through the first week in May — the season to date — the network has lost the least amount of ratings points of all networks among 18-49 viewers, down 3% for primetime entertainment programming to a Nielsen 2.9 average rating versus a 3.0 rating for the same time period a year ago.

Among key 18-49 viewers, through the first week in May, Fox is down 5.4% to 3.2 rating versus a 3.6 a year ago; ABC is down 8.8% to a 2.4 rating; NBC, is 14.9% to a 2.3 rating (but taking out the Winter Olympics of a year ago, the network is virtually flat); and CW is down 8.3% to a 0.9 rating. Univision is now the only network up, 8.9% to a 1.5 rating.

Overall, broadcasters are down in average 18-49 primetime ratings points 9.3% versus a year ago.

Though other major networks are down much more, media executives say many will get some CPM price improvements: ABC and Fox, each up an estimated 10%, and NBC, 8% higher. CW is also poised to do better for its younger targeted 18-34 viewers, anywhere from 8% to 10%.

Cable networks will continue to make gains in actual TV dollar volume, pricing hikes and overall ratings points. But increasingly, analysts say, marketers needs to filter these numbers. Major TV advertisers, for the most part, just buy the top 10-rated cable networks. But those big established cablers, just like the broadcast nets, have increasingly seen ratings declines.

Media analyst Anthony DiClemente of Barclays Capital says broadcast and cable will each get a little over $9.2 billion this upfront, with broadcast up 7.5% from a year ago and cable rising by 15%. Other estimates say national TV syndication will remain flat or slightly down to around $4 billion.

Many media agency execs say the upfront is still a “futures” market — one where marketers need to make a bet that buying TV commercials for a full season, in some cases extending 18 months after the deal has been made, makes sense. That process continues to be valued by marketers.

Is digital video a factor? Not yet — but just wait.

That entire market of $1.2 billion is a sliver of the overall $60 billion national TV advertising market, with only about $400 million to $500 million directly attributable to “premium video” — that is, full-length TV episodes running on sites like Hulu.

But digital marketing has given traditional TV added viewership — and more advertising.

Many TV ad executives say digital extensions — social, search, digital video, display — have added to the value of TV shows, pushing up higher overall television viewing — and in return — better advertising revenues.

Heavy TV viewers are also heavy online TV viewers.

“It works in tandem,” says Brad Adgate, senior VP and corporate media director for Horizon Media. “You are reaching the same people. It’s not like you are getting different viewers.”

Social media, in particular, has been known to help TV advertising market it programs. Bigger ratings, and more engagement with TV shows is something all advertisers say is important. David Cassaro, president, cable entertainment & digital advertising sales for NBCUniversal says: “It is a nice circle that can provide more granular data and return on investment.”

But there are still problems — especially with some digital video platforms and video ad networks.

“All these CPMs are not created equal,” says Mel Berning, executive VP of advertising sales for A&E Networks. “Some represent real value; other represent real over-charging.”

Still, media execs are factoring in whatever useful digital inventory is around.

“Online video is being looked at as part of the entire video supply pool,” said Donna Speciale, president, investment & activation and agency operations of MediaVest USA, at a recent upfront industry event. “Is there a lot of it? No. But every year there’s more. It will be part of the upfront dialogue.”

Until then, Speciale says, future TV metrics — especially on traditional TV platforms — still need to evolve, to drill down to specific viewers, past the current practices of buying big, broad viewer groups.

“We are still buying on 18-49,” she says. “There isn’t an 18-year-old and a 40-year-old that are watching the same shows, that have the same behaviors, or doing the same things in life.”

Additionally, the relationship between marketers and TV networks will soon evolve into dealmaking around more new, addressable advertising technologies that will, according to proponents, send pet food commercials to homes with viewers who have pets, and car commercials into homes of those looking to buy a new automobile.

Tracey Scheppach, senior VP and video innovation director for Publicis Groupe’s VivaKi unit, believes the future of TV advertising can get bigger. Addressable efforts have been slow-growing, she says, but they would add much to the mix now if they were up and fully running.

“I’m sure this will be a healthy market,” says Scheppach. “But I’m wondering why it isn’t more? TV has plenty of opportunity to help itself.”