Upfronts: What You Need To Know About the 2013 Ad Haggle

The business behind the glitz: economic worries, auto commercials and gizmo ads

Don’t be fooled by the shrimp cocktail. The real upfront isn’t taking place on the stages of the many glitzy presentations stuffing the calendar between now and late May.

It’s time again to grit one’s teeth and sally forth into the hail of sales talk that comes every spring when all the major cable and TV networks (and, increasingly, video-streaming digital players and even a few print publshers) rush to entice advertisers to spend heavily and buy the bulk of their ad inventory for the coming fall season. Focus too intently on the flashy previews of new video content, the artery-clogging hors d’oeuvres and rapid-patter braggadocio about ratings, and you’ll miss the real upfront: the push-and-pull between Big TV and Madison Avenue.

The real upfront isn’t decided as AMC, MTV, YouTube or CBS unfurl clip after clip of new shows, throw the spotlight on this actor or that actress  or open the bar for a steady rush of twentysomething ad buyers. In reality, the amount of ad coin put down each year is the result of any number of arcane discussions about tabulating ratings, accommodating product-placement demands, and trying to devise price increases (rarely do TV pricing rates slump) that big names such as Procter & Gamble, Unilever, Verizon or Pepsi can swallow.

It’s true, this year’s session looks to be about as much fun as 2012’s, when advertisers plunked down the same $8.8 billion to $9.3 billion (depending on whose fuzzy math you want to use) on CBS, Fox, ABC, NBC and the CW they did in the prior year. The flat results came as General Motors held out for pricing concessions and the iffy economy prompted advertisers to keep money in their pockets.

In 2013, the picture looks very much the same. Yes, there is stronger economic wind: Unemployment has fallen, housing prices are up and there’s a palpable feeling among ad buyers that consumers want to spend. Even as financial indicators look more sound than they have in some time, the TV networks are suffering through a pretty rocky season: there are few if any new hits on the broadcast networks (even “The Following,” largely seen as one with a good track record, has seen its total audience fall below 10 million); NBC’s resurgence in the fall was driven by two programs, “Sunday Night Football” and “The Voice,” and looks to be unsustainable without them; a recent surge in CBS’s ratings was driven by its Super Bowl broadcast.

So how will the annual TV-ad haggle progress? Below, a few thoughts to keep in mind as you try to suss out how advertisers feel about the boob tube in 2013:

*More for less: With broadcast ratings estimated to be down about 5% for the 2012/2013 year, according to RBC Capital Markets analyst David Bank, advertisers will actually have to buy more TV time to ensure their commercials have the same power (when TV’s ratings go down, marketers have to run their ads more frequently to reach the same level of audience). That means the cost of reaching 1,000 viewers – a common measure in upfront talks also known as a “CPM” – is likely to increase, something that’s never viewed with great ebullience by the chief marketing officer at a big sponsor.

Analyst Bank has predicted CPMs will increase in the low-single-digit to mid-single-digit percentage range. Whether advertisers embrace those figures – or hold off their buys until the networks revise their offers – won’t be known until late May, when talks start in earnest.

Takeaway: Buyers love to tamp down the market with negative talk, but a slow-moving economy and competiton from digital players are likely to keep the networks from matching their record upfront of $9.5 billion in 2004.

*How many more days? At the start of the TV season and afterwards, a number of prominent TV execs including NBCUniversal’s Ted Harbert and Disney’s Bob Iger called for an extension of the measures upon which TV ad-sales are based. Rather than getting paid for the ads viewers saw within three days’ of a particular program’s on-air debut- the current standard, known as “C3” – the media executives wanted to get paid for seven days’ worth, also called “C7”.

After all, they argued, TV viewers often don’t get around to their favorite program for up to a week after it airs, and use a DVR or access to video-on-demand to view the shows – and the commercials that interrupt them. Shouldn’t the networks get paid for the extra views?

The answer the networks are likely to hear in the upfront: “No.” Buyers say they have little reason to pay for viewership that often takes place long after an ad can be effective. Who wants to shell out more money for movie trailers that run Thursday-night and aren’t viewed until well after opening weekend? Or for ads for a Memorial Day sale or a weekend special at McDonald’s that aren’t spotted until Monday night? In a recent talk with investors, even CBS Chief Executive Leslie Moonves seemed to acknowledge that “C7” was off the table, at least in the short term –although he still thinks his network ought to be paid for the extra views.

Takeaway: In an era of umpteen different kinds of “TV viewing,” figuring out viewership is important. But this one measure may not be as important as TV companies think.

*Is General Motors starting or stalled? GM is one of the nation’s biggest advertisers, plunking down around $1.6 billion on U.S. advertising in 2012, according to Kantar, a tracker of ad spending. Only Procter & Gamble and Comcast spent more.

Last year, however, the auto maker’s power came into question. In the 2012 upfront, GM tried to put a choke hold on the broadcast networks, insisting they cut their prices for TV ads by a significant percentage. The networks retaliated, refusing to do deals that would give GM ad space in football telecasts. In the end, according to ad buyers, GM bought ad packages that included a significant amount of less desirable ad time, giving the car maker the lower prices it wanted, but not the best real estate on each network’s prime-time schedule.

The question for 2013 is whether GM will rev its engines. Among buyers, feelings are mixed. One media buying executive feels last year’s ploy was something of a publicity stunt, driven by a hard-charging chief marketing officer, Joel Ewanick, who is no longer working at GM. Another buyer suggested auto manufacturers are putting more of their ad dollars into promotions, like price incentives, that lure consumers into showrooms. “We’re engaged in discussions with the networks to the extent that we normally are at this time of the year,” a GM spokeswoman said.

Takeaway: GM’s road to the upfront could be a path upon which others will tread.

 *Inspecting gadgets: The health of the upfront has for many years hinged on the spending of consumer packaged goods companies like Procter & Gamble, Clorox, Colgate Palmolive and S.C. Johnson & Co., along with automakers. And while those companies continue to spend massive amounts of money on TV, ad buyers suggest the true growth category these days is consumer electronics – and this year’s outcome could rely more on the willingness of companies like Apple, Verizon, Samsung and AT&T to keep hawking smartphones and tablets.

Telecommunications companies and tech players ranging from Amazon to Google and Sprint have flooded the airwaves with ads for e-readers, search engines, netbooks and more, buyers said, and the marketers’ presence in the so-called “scatter” market – when advertisers buy inventory much closer to air date – has been significant.

Meanwhile, ad buyers expect autos to continue to flock to big sports broadcasts, while movie studios -much like in 2012 – are expected to be flat to down in spending as they grow more selective in the releases they promote. Pharmaceutical advertising is also expected to be down, as more drugs become generic and fewer new blockbusters enter the market.

Takeaway: TV networks can only hope Apple, Verizon and their cohorts continue to spend, if only because their frenzy could prompt other players to get in the game, for fear of losing valuable perches in top-rated shows.