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Broadcast TV’s Upfront Glory Days May Be Gone

TV Analysis: The medium's ability to reach $9.5B in advance ad pacts seems less certain

When Randy Falco worked at NBC, one of his jobs was to supervise the “upfront,”that annual summer ad-sales session during which the major TV networks try sell the bulk of their ad time for their fall and winter shows. In 2003, with NBC securing around $3 billion in advance ad commitments, the executive had reason to crow.

Advertisers, he told any news outlet that cared to listen, “are voting with their dollars.”

Fast-forward a decade, and Falco would likely tell you the same thing – except these days, he is CEO of Univision, the Spanish-language media concern that has begun to vaccum up some of the ad money once accorded broadcast. Univision saw an increase in the amount of ad dollars devoted to its next season of programming, as have several cable players, including Turner, Discovery Communications and Fox Cable. English-language broadcast, however, has not – and 2013 results mark the third consecutive year in which the medium’s upfront take did not rise.

A New Picture

This new financial portrait could be the definitive one in years to come, when a host of new and emerging video-content players intensify their pitches to an ad market that has seemed less expansive in recent months. TV continues to dominate the picture for advertisers, who love the medium’s ability to attract the biggest audience for entreaties from Subway, Apple and Unilever. But other media venues – most notably mobile outlets and other digital providers – are growing more quickly.

Things have come to such a head that ZenithOptimedia, a large ad-buying company owned by France’s Publicis Groupe, expects TV’s share of global ad spend to peak in 2013 at 40.1%, then fall to 39.5% by 2015.

Meantime, media outlets of all stripes seem to be grappling with an ad market that may no longer be expanding by leaps and bounds. Automakers seem to be shifting more of their ad money to digital techniques, such as having would-be car buyers sign up for a test drive online. Movie studios are getting more mileage from letting trailers for their tentpole films go viral. Slowly, the precision available from digital promtions is eroding some – not all- of the power TV has from its ability to reel in the masses.

With that in mind, the results from this year’s upfront seem telling. The five English-language broadcast networks secured between $8.6 billion and $9.2 billion in the 2013 upfront, according to Variety estimates, slightly down from the $8.8 billion to $9.3 billion they attracted last year, depending upon whose fuzzy math you utilize.

Who cares about losing a couple of hundred million dollars? Well, consider the combined upfront take of CBS, Fox, NBC, ABC and the CW has been flat for the last two years, has edged down in this one and has yet to match the record $9.5 billion secured by six English-languge networks in 2004 (before UPN and the WB found the ad market could not support both of them at once). The idea that emerges is that ad-spending patterns are in flux, and whether they return to their previous norms is anyone’s guess.

Peacock Pick-Up

Among the English-language broadcasters, only NBC has been able to increase its advance advertising commitments from last year, according to people familiar with the situation. The Peacock was able to secure between $1.9 billion and $2 billion in advance advertising commitments for its prime-time entertainment schedule, excluding football. In 2012, NBC secured commitments between $1.72 billion and $1.74 billion in its 2012 upfront effort.

CBS and the CW both secured advertising commitmentat that were flat with performance in both 2011 and 2012, when CBS negotiated about $2.5 billion to $2.75 billion in commitments and the CW negotiated between $400 million and $420 million. Fox saw volume decrease by about 10%, falling to between $1.78 billion and $1.79 billion, compared with the $1.98 billion to $1.99 billion the News Corp. network secured in 2012, owing to ratings shortfalls at its flagship property, “American Idol.” And ABC saw volume come in anywhere with flat to down from last year’s $2.2 billion, according to people familiar with the process. In 2013, ABC secured between $2 billion and $2.2 billion in ad commitments.

This year’s upfront was also marked by most networks’ willingness to accept moderate price increases – typically less than what they negotiated last year. CBS set the tone of the market, showing a willingness to do business with an average increase in the cost of reaching 1,000 viewers – a measure also known as a CPM – of around 7.5%. In the 2012 upfront, CBS had pushed for CPM increases of 5% to 6%, compared with 5.5% to 6.5% in last year’s haggle. Fox did deals with CPM increases of between 5% and 7%, compared with 7% to 9% a year earlier.

ABC and NBC, meanwhile, pushed for greater increases. And while the true outcome of upfront talks is difficult to determine, it’s clear those networks’ desire prolonged negotiations. NBC sought CPM increases of between 7% and 8%, compared with 5% to 7% in 2012. ABC also held out for CPM hikes of 7% to 8%, compared with 6% to 8% in 2012. According to ad buyers, the network didn’t always get its price. These buyers said ABC likely held more inventory for sale later in the season, when it can command a premium if demand is high and economic conditions allow. But if things don’t go well, ABC could face a tougher challenge.

The Push For New Revenue

Little wonder, then, that CBS is wrestling with Time Warner Cable for an increase in distribution fees. And no surprise that revenue from digital streaming was noticeable last week in earnings reports from both CBS and Viacom. These cash flows will become more important to TV outlets as cable gains even more traction among couch potatoes, as Spanish-language TV sees a growing audience with more consumer power and as more consumers feel greater ease in watching video entertainment on tablets, video phones, laptops and other modern-day substitutes for the once-traditional living-room screen.

Upfront numbers are shadow figures that have little bearing on the ultimate revenue flowing into CBS Corp. , Comcast, Walt Disney, News Corp. or Time Warner. They represent reservations for ad time, not actual revenue being placed into corporate coffers. And the reservations can be cancelled for any number of reasons before the advertising it represents is supposed to air. The numbers should really be taken as a proxy for how Madison Avenue feels about its chief means of promotion, TV. And what the upfront tells us in 2013 is that the broadcast networks’ domination of the ad market looks as if it is about to ebb.