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Upfronts 2014 Preview: Upstarts Giving TV Networks a Run for Advertisers’ Money

During this year’s upfront market, TV networks more than ever will have to compete outside the box.

For decades, the main rivals in the annual springtime haggle over commercial inventory in TV’s new fall season have been, well, other TV nets. In an earlier era, broadcasters wrestled among themselves for money from Procter & Gamble and Heinz. Then cable joined the mix. Now all sorts of digital video players are threatening to keep Big TV from wielding a club.

To be sure, TV has been fending off YouTube, Yahoo and the rest of the digital field for the past few years. But in 2014, advertisers seem more comfortable embedding their messages in all kinds of video — and that may give rise to new dynamics in this old-school advertising market.

The upfront buying and selling frenzy that is the dominant force in the U.S. TV ad market typically erupts in early June. And it’s preceded by a string of promotional events from networks and cablers large and small. With more outlets jockeying for premium ad dollars, it’s no surprise that upfront presentation season seems to get longer every year.

On Feb. 26 the startup cable network El Rey, backed by director Robert Rodriguez and Univision, unveiled its programming slate with an upfront-like pitch to advertisers. Weather Channel, Hallmark and Nickelodeon have been among the early movers this year with presentations (followed, quite often, by cocktails) for media buyers in the coming weeks.

“The forces that are at play are making it more of a video marketplace in general, and not so much a television marketplace,” said one media-buying executive. With so much to choose from, advertisers are being very selective and trying to find growth areas, the executive said. Already, Time Warner’s Cartoon Network has unveiled a plan to beam videos just ten to fifteen seconds in length in the hopes of capturing more young viewers whose ties to linear TV are growing more tenuous. Weather Channel also beat its digital chest, telling ad buyers about the robust set of “video minutes” it offered to the digital set, or a new emphasis on investigative video it would unspool via its digital properties.

To be sure, new players are dwarfed by more traditional ones. Advertisers spend $60 billion to $70 billion annually on U.S. TV of all stripes — broadcast, cable, local, syndication and Spanish-language. Meantime, 2012 Internet ad spending came to approximately $36.6 billion, according to the Internet Advertising Bureau. Of that total, just $3.4 billion was spent on mobile advertising.

But there’s a growing sense TV’s market share is ebbing. Ad-buying firm ZenithOptimedia has projected television’s portion of global ad spending will begin to fall marginally after 2013, tumbling to 39.3% in 2016 after peaking at 40.2% last year.

TV networks, however, have had something to crow about in the early part of 2014. After a choppy fourth quarter, demand for scatter advertising, or commercial time not booked in advance, is on the rise, according to analysts. Primetime commercial ratings for viewers 18-49 were up 1.6% for broadcast and 3% for cable in January, according to research from MoffettNathanson analyst Michael Nathanson.

TV networks will rail against the upstarts by touting big audiences and an increasing reach into digital, social and mobile.

But TV will have to prove more flexible to keep the ads coming in. El Rey, a startup that is tiny in the broad scheme of media, has secured ad deals with both General Motors and Heineken USA by agreeing to weave those companies’ products into its shows, and to have Rodriguez create promotional videos that can air on the network. If viewers are tuning in for the sensibility provided by the director of “Machete” and “From Dusk Till Dawn,” executives suggest, then using his filter to craft the ad messages makes sense.

In 2013’s upfront market, a moderate approach worked best. Ad commitments flowed more readily to those networks willing to accept a lesser rate of price increase than they took in 2012. ABC and NBC found negotiations with advertisers more protracted, while CBS, Fox, the CW and several cable outlets drove volume by practicing temperance.

“There’s certainly more competition for dollars now, and if you push away money because you are stuck at a certain price, you are playing a more dangerous game than ever,” said the buying exec.

Even Leslie Moonves, chief executive of CBS Corp., is mixing optimism with restraint. “I feel confident saying right now that we will lead the marketplace in pricing and volume,” he said during a recent conference call with investors, “but no, I’m not going to make any exact predictions just yet.”

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