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Upfront 2019: TV Advertising Isn’t Dead (Yet)

Analysis: Prognosticators keep calling for TV's demise. Madison Avenue has a different view.

TV’s annual “Upfront Week” is here, bringing with it the usual spate of mainstream media scrutiny of whether the medium is likely to survive that much further into the future.

In an age of streaming video, the articles are right to ask the question. But the premise could not be more wrong.

Yes, consumers are signing up for Netflix and Hulu at a steady clip. Based on recent evidence – subscriber activity around ESPN Plus, CBS All Access and other like-minded on-demand services – they may well do the same for Disney Plus and whatever streaming vehicle WarnerMedia rolls out in a few months’ time. But TV is likely to stay around for at least a few more years. Madison Avenue demands it.

The proof: Even as TV’s linear ratings continue to swoon, the money committed in advance for commercials in traditional shows has increased in each “upfront” market for the past three years, according to Variety estimates  –  and others, as well. Despite significant viewer shortfalls for traditional TV, the nation’s broadcast and cable networks saw advance ad commitments increase 5.2% to more than $20.7 billion in 2018, according to Media Dynamics, a media consultancy. In the year-earlier period, upfront ad commitments rose $5.9% to $19.7 billion.

During TV’s “upfront” market, U.S. TV networks try to sell the bulk (typically 75% to 80%) of their ad inventory for the coming season. The process was first established in the 1960s – 1962, to be exact, by ABC – as a means of giving advertisers a chance to peek at new shows well in advance of their launch in the fall, a time that just so happened to coincide with the debut of many of the new car models from top automakers.

It is an old process, one that many even say is antiquated. And yet many of the nation’s biggest spending advertisers – think Procter & Gamble, General Motors, McDonald’s – continue to take part in it. Those that have tested removing themselves from the upfront market tend to think better of the decision. Johnson & Johnson in 2006 told the networks it would sit out the process, spurring much hand-wringing about the health of the TV business. But the massive drugmaker actually asked TV ad-sales executives to hold ad time aside for it to buy later in the year, according to executives familiar with the matter at the time. In any case, J&J hasn’t rattled its saber about the upfront in recent years.

Nor have many others. Indeed, in recent years, marketers have ponied up higher prices to stay on TV. Already, according to four executives familiar with early discussions between networks and advertisers, TV ad-sales executives have begun to test whether they can notch higher rates than they got last year. In 2018, many of the networks sought hikes of between 9% and 11% in the rate of reaching 1,000 viewers, a measure known as a CPM that is central to these annual talks between networks and Madison Avenue. Their initial asks this year are likely to press into the mid-double-digit range –  figures that will make any stalwart media buyer blanch.

It’s a bold move by Big TV, particularly with ratings on a continued downward track. But imagine what it must take for networks to have the chutzpah to ask for higher rates in exchange for delivering smaller audiences.

To be sure, much of that uptick is driven by simple and obvious supply-and-demand mandates. When there are fewer products to sell  – in this case, TV viewers – and demand remains the same or increases, the price goes up. That is likely to remain a big part of the market back-and-forth, says Michael Nathanson, an independent media-industry analyst with MoffettNathanson, particularly as the industry consolidates. “If anything, the marketplace became even more inflationary as Discovery and Scripps have consolidated for over a year.  Disney is adding FX and Nat Geo and has created one upfront pitch like NBCU.  And if CBS and Viacom happen, that will be a major consolidation too.   In essence, over the next year you could end up with only 5 companies controlling all of the national inventory,” he notes. “While many of the usual faces are gone, the shortage of [ratings points] and the shrinkage of sellers will generate higher inflation for national TV.”

Whether the amount of money committed to this year’s upfront rises remains to be seen. Already, two different media-buying executives believe the totals will be flat to down from last year’s numbers. And yet eMarketer, a media-research company, has called for overall upfront commitments to rising 2.4% in 2019 to $21.25 billion.

Advertisers have moved early to investigate football and broadcast primetime, says one executive familiar with early talks. And while there are some questions about whether automobile companies and retailers will spend as robustly as they have in years past, the pharmaceutical industry is likely to lend TV a another new high. “Pharmaceutial is on fire,” says this executive. Drug makers have spent heavily on TV in the last several cycles, snatching up spots in late night and morning news, where they can buy the longer ads they require to detail side effects of various remedies, usually at lower prices.

Sales executives see new money coming to the table from upstart companies like Wayfair, Peloton or Spotify. These are advertisers who have largely committed dollars to digital and social and now want to use TV to reach a wider crowd. Anyone who has watched CBS in recent months would have seen commercials from Chewy.com, Etsy, Hotels.com, Ring, StitchFix, Tripadvisor and Trivago. The networks also anticipate a marketing war breaking out among streaming-video outlets, particularly as Disney and WarnerMedia come to the market, perhaps prompting backlash from Netflix and others. “Everyone is gearing up for the streaming wars,” says one executive familiar with early talks.

And recent ad prices have been high. Prices for so-called “scatter advertising,” or commercials bought closer to air time, have been significantly higher than those from last year’s upfront, according to media executives. CBS told investors last week that scatter prices were up more than 25% in primetime, and even more in late night. NBCU chief Steve Burke recently told investors scatter prices have been up “30% and sometimes 40%.”

Meanwhile, digital-video rivals have problems of their own. Disney’s recent write-down of its stake in Vice, which announced it would fold many of its stand-alone digital verticals under its main site, is a clear signal that many new-tech content darlings are facing unique hurdles as well.

Advertisers continue to sound an alarm about “brand safety,” and their worry about the content their ads might support on some video-streaming sites is palpable. AT&T has pulled money away from YouTube. Procter & Gamble and Unilever continue to sound an alarm about the transparency they want from digital media. “You can’t paint all of video-based content with that brush,” said one media buyer, but “brand safety is a concern.”

In the meantime, “old” companies like CBS, NBC, ABC and Fox have moved full-bore into video on demand and even advertiser-supported streaming video. And they’ve quietly begun to expand efforts to make it easier for advertisers to buy commercials across different screens and with more precision. NBCUniversal, Viacom, Fox and Univision have struck an alliance that lets advertisers define narrower swaths of consumers, like first-time car buyers, and keep those definitions as they deal with each company. NBCU and Viacom are making use of CFlight, an NBC data set that measures viewer impressions across multiple types of venues. With apologies to the Rolling Stones, in 2019 TV advertisers can get what they want, and get what they need.

The TV industry’s challenges run deep and aren’t to be taken lightly. But so long as Madison Avenue’s billions continue to flow, the sector has at least a fighting chance.

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