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TV Networks Bid to Quash Years-Old Ad Deals With Low Rates (EXCLUSIVE)

For TV networks, some types of advertising are better than others.

You’d think any revenue would be welcome at TV networks, which must contend with a growing array of digital rivals clawing at a pot of billions of dollars in ad cash. And yet, executives at the nation’s big broadcast TV networks are pushing back on certain types of ad deals, according to four media-buying executives and others with knowledge of negotiations. These agreements guarantee sponsors low or moderate rate hikes over a multi-year period, and are in some cases grandfathered into negotiations between TV networks and individual advertisers over decades of doing business. The pacts favor the client and leave the TV networks with little ability to increase rates when bargaining conditions are in their favor.

At the major networks, said ad buyers, there is a strong feeling that the haggling should this year tilt in their favor. All the nation’s big media companies are currently enmeshed in an annual haggle known as the “upfront,” during which U.S. TV networks try to sell the bulk of their ad inventory for the coming programming cycle. TV executives have moved aggressively this year, pressing for rate hikes in the double-digit percentage range, according to executives on both sides of the negotiating table, while trying to limit these lower-rate deals.

“When money is up,” said one ad-buying executive, “the networks will pick and choose good and bad business.”

The challenge, of course, is that some of the advertisers enjoying the perk have been among some of TV’s strongest supporters. In the past, companies like Procter & Gamble and General Motors have been known to enjoy such deals, and buyers suggested consumer packaged-goods companies, fast-food marketers and pharmaceutical manufacturers are typically the beneficiaries of the agreements.

At issue, as is often the case in TV’s annual upfront market, is an arcane unit of measurement known as a CPM, a gauge of the cost of reaching 1,000 viewers with a commercial. Some clients have over the decades been able to win guarantees of low CPM increases over a long time span. The networks are happy to have the pacts in place when the economy is shaky or when Madison Avenue experiments with streaming video and mobile tablets, but when the business climate is robust, the deals seem to spark a case of seller’s remorse.

In current negotiations, media buyers said, the networks have told media-buying agencies that they will only accept deals struck at lower rates if the buyers can give them more business from other clients who must pay what the market commands. The lower-rate clients might not be able to gain access to the best inventory, these buyers said, or may have to wait for the “scatter” market, in which ads are bought closer to air date and typically cost more.

“Networks are definitely looking to push away the low base CPMs they’ve had on their books for so long,” said another media buying executive.

The hard-line negotiating reflects the notion among media companies that they have more wind at their backs than they’ve enjoyed in some time. “Scatter” advertising has been moving robustly at vastly higher rates than what networks secured in last year’s upfront. When that happens, advertisers typically move more of their money into the upfront in hopes of avoiding price increases in a healthy marketplace.

To be sure, TV network sales executives have tried this sort of thing in the past, but media buyers said there is a new, more aggressive emphasis on the demand in 2016 negotiations that have already grown complex. TV ad packages in the time of “Walking Dead” and “Empire” often involve digital media and tough-to-execute integrations into programming and commercial breaks. And buyers continue to push back against the double-digit CPMs the networks are touting in talks.

One factor behind the new demand is a sense that some of the advertisers known for paying high rates and for buying a lot of scatter advertising are pulling back this year. Movie studios and automakers seem to be registering less volume for TV commercials in months ahead, according to executives on both sides of the negotiations.As a result, the networks want to keep more of the high-CPM money flowing into their coffers, while putting pressure on the low-CPM clients to pay full freight.

Will TV be able to switch channels on some of its most favorable deals? “They agreed to these prices at one time. They can’t just say, ‘I don’t want to agree to them because it’s not convenient,’” said one media-buying executive. “Some deals were struck when people were in dire straits.” The networks will have to hope the forecast calls for more good times ahead.

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