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TV’s Upfront Sparks To Life as Madison Ave. Nods to Big Rate Hikes (EXCLUSIVE)

Madison Avenue is flirting with TV after a protracted period of playing hard to get.

After several years of moving money out of TV ad budgets to experiment with new digital outlets and social media, several big advertisers are spending more on the boob tube – and the result, according to ad buyers and other executives familiar with the pace of this year’s “upfront” negotiations, are a series of rate increases that TV has not won since the end of the last U.S. recession.

“It’s all about money coming back into the marketplace,” said one media buying executive, noting that consumer packaged goods companies, quick-service restaurant chains and pharmaceutical companies are moving money into TV’s annual upfront market, when the nation’s big media companies try to sell the bulk of their ad inventory for the coming programming cycle. Some of the money is coming back from digital spending, and some of it is being moved from TV’s so-called “scatter” market, when advertisers pay for commercials much closer to their air date. The money “is sourced from different ways, but there’s no doubt it’s back in the upfront,” this buying executive said.

The dynamic is evident in the early-stage talks currently taking place between the broadcast networks and advertisers. CBS, NBC, ABC, Fox and the CW are all in active negotiations and all are pushing to secure double-digit percentage increases in the rate of reaching 1,000 viewers. The measure, also known as a CPM, is an integral measure in these annual talks between Madison Avenue and the TV networks. And for the last several years, TV has had to cede ground to advertisers willing to move money to new venues: the rate of increase has narrowed again and again over the past several sessions.

“We are having a very strong upfront,” NBCUniversal CEO Steve Burke said at an investor conference earlier this week. “We are a little over halfway done.” Buyers suggested that budgets are coming in slightly up, but that some networks are gaining shifts in market share.

NBCU’s NBC broadcast network has pressed for CPM hikes of between 11% and 13% in deals for primetime inventory, according to media buyers and other people familiar with the situation, and is said to be working toward completion of its sales process. CBS has pressed for deals that call for CPM hikes ranging from 9% to 12%, according to these executives. Fox is in the midst of a process that calls for deals with CPM hikes of between 8.5% and 10%, while ABC’s range is said to be in line with those figures.

In contrast, last year, NBC pressed for CPM hikes of 5%, while CBS worked for gains of between 3% and 5%. ABC worked to secure increases of 4% and 5%. Fox was pressed to rollback its CPMs by as much as 2%, the result of ratings declines suffered due to the maturity of “American Idol” that had given the network some of the highest CPMs in the industry. CW, meanwhile, worked to secure CPM hikes of around 4%.  In 2016, the networks continue to suffer from ratings erosion, but heightened demand for ad inventory put up against a tighter supply has squeezed rates.

The networks aren’t guaranteed they’ll get what they seek. Buyers have been loath to pay double-digit increases. Just because the networks have signed some pacts, said one buying executive, doesn’t mean everyone will agree to those terms. Some conversations have “just slowed down,” said one buyer. “No one wants to write a number like that.”
Indeed, one major buying agency, WPP’s GroupM, has steadfastly remained on the sidelines. Without its participation in the process, the upfront cannot be said to be anywhere near its finish.

Some of the deals, buyers said, come as the networks work to craft bigger packages that involve digital, cable and other parts of their portfolio. In some cases, the networks may be willing to accept lower rates in other areas in exchange for higher CPM increases in primetime.

The negotiations have been extremely complex. Buyers and sellers have squared off for weeks over the CPM figures. And because companies like NBCUniversal and 21st Century Fox are placing more emphasis on what is known in the industry as “cross selling,” advertisers have had to get their corporate noggins around pacts that often include a mix of ad inventory that comes with varying prices and audience reach. In some cases, the TV networks have threatened to keep at arm’s length clients who have signed long-term deals that call for low rate hikes over multiple years.

There are other dynamics at play. NBCUniversal is moving aggressively to raise its base CPMs, which are said to be significantly lower than those commanded by Fox, CBS and ABC.  That’s the result of NBC suffering through years of ratings shortfalls due to lackluster programming.  Some media buyers have expressed frustration at the terms NBCU has tried to set. But under Linda Yaccarino, the company’s chairman of ad sales, NBCU is pushing to construct deals that will put the company’s advertising inventory on a more level playing field than that won by rivals.

Likewise, Fox is dealing with some of the industry’s highest CPMs, which rose as Fox enjoyed the success of “American Idol.” The network, owned by 21st Century Fox, may meet resistance in trying to secure the same types of CPM hikes as its competitors, because its CPMs are at a higher base.

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