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Why TV Can’t Close The Upfront: GroupM Resists Big Rate Hikes

TV can’t seem to wrap its annual “upfront,” when it vies to get hold of billions of dollars in advertising.

In mid-June, NBCUniversal Chief Executive Steve Burke told a group of investors that the large Comcast-owned media conglomerate was off to an auspicious start in TV’s annual “upfront” market, when U.S. media companies work to sell the bulk of their ad inventory for their coming programming cycle. “We are having a very strong upfront,” he told a conference organized by Guggenheim Partners. “We are a little over halfway done.”

Closing out that final 50% has been more challenging – and not just for NBCU.

With TV networks enjoying more leverage in these annual talks with Madison Avenue in some time, one of the world’s biggest media-buying firms, GroupM, has held firm. NBCU and Time Warner’s Turner have yet to finalize deals with the company, which represents advertisers like Unilever and American Express, according to media buyers and other people familiar with the pace of negotiations. GroupM’s discussions are said to still be open with a few other media companies as well, these people said.

GroupM declined to comment. NBCU declined to make executives available for comment. A Turner spokesman declined to comment.

Demand for TV ad time is higher this year, thanks to some big advertisers trimming the money they earmark for digital and moving it back to TV, as well as declines in traditional ratings at most TV networks. When those elements surface, marketers typically try to put more money down on TV in advance to lock down lower prices, and the market’s pace is quick. A decade ago, those circumstances would push advertisers to finalize deals within a few days of attending the glitzy presentations that Disney, CBS, NBCU and Fox put on each May.

Those dynamics, however, were true of a simpler time. TV negotiations these days extend beyond the living-room screen and often encompass digital, broadcast and cable. In 2016, GroupM is said to be pushing back against what it sees as higher-than-tolerable rates of increase in reaching viewers. Advertisers and networks each year haggle over the cost of a CPM, or the price of reaching 1,000 viewers, a metric that is integral to the market’s discussions. NBCU is said to be seeking CPM hikes of between 11% and 13% for primetime inventory, according to media buyers – among the highest discussed in this year’s market.

GroupM has pressed for more moderate rates of increase, these people said and resisted calls for price hikes that go over 10%.

People familiar with negotiations have let slip media company expectations to news outlets: CBS is said to have pressed for CPM hikes in the 9% to 11% range, and expects to close its process with volume up between 3% and 5%, notching between $2.26 billion and $2.6 billion for its primetime schedule, according to Variety estimates. ABC is said to have pressed for CPM hikes of between 8.5% and 10%, and expects volume of advance ad commitments to rise 2% to 4%, to between $1.7 billion and $1.96 billion. Fox is said to have pressed for similar increases and expected volume to rise between 3% and 5% to between $1.47 billion and $1.64 billion, according to Variety estimates.

The CW is something of an outlier, and has won new interest for a stronger reliance on sci-fi and super-hero themed programming.  The network in 2016 sought CPM hikes in the low double-digit range and expected volume to rise by as much as 12% to 14%,  to between $476.6 million and $523.2 million in advance ad reservations.

Several of the networks have tested new, in-your-face tactics this go-round. According to media buyers, the TV networks have resisted doing deals that call for lower CPM increases. In some cases, these buyers said, that means pushing back against years-old agreements that guarantee specific advertisers low rates. In other instances, it has meant choosing to do more business with the client in a particular ad category that is willing to accept higher rates than competitors.

NBCU has reason to be aggressive. Under ad-sales chief Linda Yaccarino, the company has worked to regain the pricing it enjoyed when it showed must-see fare like “E.R.,” “Seinfeld” and “Frasier.” Over the years, the network proved unable to keep churning out reliable hits, and its ratings fell. Now that it has stocked its schedule with “Sunday Night Football,” some “Thursday Night Football,” “The Voice,” and a series of new procedurals from producer Dick Wolf, the company is trying to gain parity with rivals like Fox and CBS, which boast higher base CPM costs. NBCU is also pressing to sell broader packages of advertising that encompass packages across many of its outlets.

For now, GroupM is resisting pressure. According to some media buyers, the company has suggested it could wait to spend its clients’ millions in the so-called “scatter” market, when ad time is purchased closer to air date. If that takes place, NBCU, Turner and others might have to work harder to capture advertising that could not be locked down.

 

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