Upfront 2016: TV Networks May Gain Upper Hand For First Time In Years

Upfront 2016: TV Networks Gain Upper Hand For First Time In Years
AP Photo/Charlie Riedel

After years of difficulty, TV is tuning in something it hasn’t had in a long time: pricing power.

In the weeks to come, advertisers are likely to hear about new Thursday-night football games on NBC, an attempt to revive the fortunes of MTV, and the vision of a new entertainment chief at ABC. They will encounter something else, as well: For the first time in four years, they may have to capitulate to demands that they pay higher rates of increase to reach the TV audiences they need to buy their laundry detergent, hamburgers and smartphones.

TV continues to face audience erosion brought on by streaming video that beams across the rival screens of laptop computers, mobile tablets and smartphones. In 2016, however, TV has more wind at its back. Advertisers purchasing so-called “scatter” inventory, or ad time bought closer to air date, have found that prices have risen steeply since they bought similar ad time in the upfront market, when TV networks try to sell the bulk of their ad time in advance. When that dynamic occurs, it typically augurs a more robust upfront, as advertisers move briskly to lock in prices they believe will rise even more as the year progresses.

“Some money will go back to the upfront,” predicted one media-buying executive. Indeed, TV may secure more advance ad commitments for coming shows for the first time since 2011, when post-recession spending helped fill the medium’s coffers.

Since that time, however, TV networks have had to scramble for leverage. In 2012, NBC touted a Capuchin monkey named Crystal as the star of a sitcom called “Animal Practice,” and advertisers showed what they thought of the idea. They narrowed the rate of increase in the cost of reaching 1,000 viewers, a measure known as a CPM that is an integral part of these annual discussions between TV networks and Madison Avenue. In the intervening years, the story has largely been the same: TV networks have generally not been able to negotiate a wider CPM increase since the 2011 market. Those that have tried have often been penalized with flat or declining volume.  Based on guidance from buyers, Variety estimates the five networks last year secured between $8.02 billion and $8.69 billion for their 2015-2016 primetime entertainment schedules, compared with between $8.17 billion and $8.94 billion for 2014-2015. The performance marked the third consecutive upfront in which volume committed for primetime fell.

In 2016, the TV networks are likely to seek CPM increases anywhere from 5% to 9%, this buyer said. “For those seeking broad reach, sight-sound-and-motion and brand awareness traditional TV still utterly dominates all alternatives despite the growth of digital media owners and increasing consumption of video on internet-connected devices,” said Brian Wieser, a media-industry analyst with Pivotal Research Group, in a February research note.

The market could reverse years of narrowed CPM rates. Consider that CBS sought CPM increases of between 3% and 5% in 2015, according to people familiar with the situation, compared with 6% in 2014; 7.5% in 2014 and 2013; 8% to 9% in 2012; and 13% to 15% in 2011. Or that NBC in 2015 sought CPM hikes of around 5%, compared with increases of between 7.5% and 8% in 2014 and 2013; 5% to 7% in 2012; and 9% in 2011.

Fox last year was forced to offer CPM rollbacks by as much as 2%, a function of the network having some of the highest costs of reaching 1,000 viewers in the business thanks to the rise of “American Idol.” In 2014 Fox sought CPM increases of between 2.5% and 3.5%, compared with 5% to 7% in 2013; 7% to 9% in 2012; and 9.5% to 12% in 2011.

ABC last year sought CPM hikes of 5% or more, and faced headwinds. In 2014, the Walt Disney-owned network asked for increases of between 4% and 5%, compared with 7% to 8% in 2013; 6% to 8% in 2012; and 10% to 12% in 2011.

The CW in 2015 bucked the trend, thanks to a new slate of sci-fi and superhero shows, and sought CPM increases of more than 4%, compared with price hikes of between 3% and 4% in 2014; between 5% and 6 in 2013; 5.5% to 6.5% in 2012; and 10% to 12% in 2011.

In decades past, the rush to TV would have meant the nation’s big media companies were dealing from a position of strength. They are not.

The rise in rates, media buyers suggested, is taking place due to audience erosion. As more people leave TV to watch their favorite programs on mobile devices and video-streaming outlets, TV networks have fewer ratings points to sell. Viewership among audiences between 18 and 49 is down 12% quarter to date in broadcast primetime, according to research from Todd Juenger, a media-industry analyst with Bernstein Research. That same measure fell 6% in the fourth quarter of last year and 9% in the third quarter.  At non-kids’ cable networks, 18-49 viewership in primetime has fallen 4% quarter to date, according to Juenger’s research, 7% in the fourth quarter and 8% in the third.

Because of the rise in pricing, however, demand to lock in ad time is rising. In basic economic terms, higher demand plus weakening supply equals higher costs. ”The real issue is the supply problem,” said the media-buying executive. “If you do the math, that is going to cause CPM inflation.”

So TV networks aren’t off the hook this year. To lock in deals, they will have to offer packages that put advertising not only in “The Voice” and “The Big Bang Theory,” but on digital extensions of those programs. In some cases, the networks may have to work to make sure the ads they are selling are easier to notice. Already, Viacom has trotted out a pact with Snapchat that allows the owner of MTV, Comedy Central and Nickelodeon to sell ad inventory on behalf of the vanishing-messages app. Time Warner’s Turner has unveiled an effort to run fewer commercials in select TNT dramas as well as on its TruTV.

To turn this new flicker of economic life into a full fire, TV networks will have to continue their efforts to prove they can measure the new ways their big-budget programs are being watched on emerging screens. If that can be accomplished some time in the near future, perhaps those CPM rates will continue their rise.