TV Upfront: Big Nets’ Pricing Strength Seen Under Pressure

Ratings shortalls and new technology make this year's haggle a tougher one for TV ad sales

Big TV can’t seem to tune in last year’s pricing power. Or even that of the year before.

As the big English-language TV networks contend with sliding ratings and the lack of a big freshman hit among rookie programs, predictions call for them to win smaller price hikes in the coming upfront negotiations than they did in 2012. The decline in pricing power could signal advertisers growing more interested in an array of competing video alternatives, including tablets and online streaming.

Already, buyers are privately suggesting their clients will pay no more than a mid-single-digit percentage increase in the cost of a CPM, or the cost of reaching 1,000 viewers, a measure used widely in talks for the upfront. The annual spring ad-sales session is the time when broadcast networks try to sell 70% to 80% of their ad inventory for the coming season (and cable tries to sell 50% to 60%).

In last year’s haggle CBS won CPM hikes of 8% to 9%; Fox won hikes of 7% to 9%; ABC secured 6% to 8%; NBC’s was 5% to 7%; and the CW notched 5.5% to 6.5%, according to ad buyers and other people familiar with the talks at the time.

Those increases came before cable grew a bumper crop of programs like “The Walking Dead” and “The Bible” that beat many offerings from the broadcast outlets, and before the slide in ratings that has taken place in the 2012-2013 broadcast season.

As the glitzy upfront presentations of April and May give way to serious financial talk between networks and sponsors, however, buyers are sounding a pessimistic note.

“It’s really coming out loud this year: There are a lot of other choices and the fact of the matter is the consumer has gone to other areas and they have technology that allows them to go to other places” to watch TV programs, said one senior media-buying executive. “I think you’re going to see a lot more money shift out of broadcast. In fact, I think you’re gong to see a shift out of cable into other things.”

This exec suggested some advertisers may push back against current conventional wisdom and insist on CPM hikes that are below 5%.

Buyers have an interest in tamping down the market. One Wall Street analyst is more optimistic, suggesting the top broadcast players will be able to achieve CPMs in excess of 5%. In an April 5 research note, Barclays Capital analyst Anthony DiClemente predicted CBS would  notch CPM increases of 6.5% or more, 6% at ABC, 5.5% at Fox and 5% at NBC.

No matter what numbers leak from the discussions, they appear to be trending down significantly from just a few years ago. In 2011, CBS was able to secure CPM increases between 13% and 15%, according to ad buyers and other people familiar with the discussions. Fox won hikes between 9.5% and 12%, and ABC won increases between 10% and 12%. NBC’s CPMs rose around 9%. Meanwhile, the CW won price increases of between 10% and 12%.

From the broadcast-network point of view, this discussion may contain more noise than signal. After rolling back CPMs in 2009, the networks have seen the measures grow substantially in subsequent upfront sessions.

If CPM growth is moderating, they might argue, it would simply be a sign of the robust growth the outlets have enjoyed in the recent past. At some point, the growth has to moderate. The nets are likely to continue making the point that the bulk of their programs continue to generate the mass audiences advertisers demand.

One TV topper has already suggested his network will give the best performance, no matter what the environment. Speaking to investors in March, CBS Corp. CEO Leslie Moonves said CBS would lead both in CPMs secured as well as the amount of dollars committed by advertisers.

At one time, the TV networks had a much easier time of it. In 2004, six English-language TV networks – the Big Four plus the now-defunct WB and UPN – secured a record $9.5 billion in ad commitments for the following TV season. Last year, the current five wooed between $8.8 billion and $9.3 billion in commitments. The money is promised by advertisers in May and June, but can be trimmed back or repurposed depending on schedule changes and programming cancellations.

The networks may not like the current trend, but they can at least take consolation they aren’t once again slogging through 2009. During that year’s upfront, which lasted all summer – the bargaining typically wraps before July 4 – many broadcasters had to give CPM rollbacks of a percentage point or two.