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How TV Tuned In More Ad Dollars: Direct Response and Digital Doubts

Analysis: Madison Avenue is rushing to TV as if Tony the Tiger and the Marlboro Man were still in their prime

Upfronts Placeholder Art
Brian Stauffer for Variety

At a time when TV viewers have more power than ever to skip past commercials, Madison Avenue is acting like it’s the heyday of the Pillsbury Doughboy, Toucan Sam and Mr. Whipple.

TV ads, those 30-second sales pitches that prognosticators like to say are on the way out and about which consumers complain incessantly, are suddenly popular again – at least among the people who buy them. How else to explain why big advertisers, with a dizzying array of new ways to reach customers with social media and digital video before them, keep raising the amount of money they intend to spend on primetime TV?

To be sure, TV ratings continue to erode. But the nation’s five English-language broadcast networks prevailed against disruptive trends brought on by new streaming-video technology and managed to snare a gain of between 5.5% and 7.4% in the volume of advance advertising commitments they secured for their next cycle of primetime programming, according to Variety estimates, part of the annual haggling of TV’s “upfront” ad-sales marketplace. The networks secured between $9.6 billion and $10.8 billion for primetime, according to Variety estimates, compared with $9.1 billion and $10.06 billion in last year’s haggle. It is the fourth consecutive year that the networks have seen increasing volume for their primetime schedules.

The numbers are little more than fuzzy math and rarely have any correlation to the ad money big media owners like CBS, Walt Disney, NBCUniversal, Fox Corporation and WarnerMedia collect by the end of the year. But they do lend ballast to the notion that, despite a frenzy of calls predicting Big TV’s rapid demise, advertisers do not share that view.

“This year’s advertising upfront was one of the strongest we have seen in many years,” said Lachlan Murdoch, executive chairman and CEO of Fox Corporation, during a call with investors on Wednesday.

Why are advertisers relying even more on top-priced TV than they have in the past? Part of it appears to be disillusionment with aspects of digital media. Procter & Gamble, Unilever and AT&T have over the space of the past year put a spotlight on unsavory aspects of some of the new ways marketers reach their target base. They are concerned about having their commercials show up alongside offensive video content that some of the social-media giants appear to have problems vetting. And they are less than satisfied with measurement of how commercials are reaching and being recalled by digital users.

“I think there is a move back” to TV from digital, said David Zaslav, CEO of Discovery Inc. Wednesday, speaking with investors. “There is a feeling of safety. What are you next to? What are you buying? Who is the talent that you’re buying? What’s the environment that you are buying? You can do that on television and in digital, there is a fear of that.”

Even advertisers who have thrived in the digital realm are moving more directly into TV. One of the big factors buoying the 2019 upfront was a rush by upstart  companies that have primarily used digital to reach consumers in more direct fashion into a medium that is known to reach bigger, broader audiences. Online retailers like Wayfair and Warby Parker, digital-service companies like Peloton and a growing phalanx of streaming-video companies like Amazon and Netflix are increasingly using TV ads to spark the biggest conversation they can have with the widest audience possible. Little wonder that the last few Super Bowls have been inundated with commercials from streaming-video giants eager to get consumers to subscribe for a chance to view “Hanna,” “The Irishman” or “Game of Thrones.”

What’s more, the traditional media companies are now selling the digital media Madison Avenue craves. Across the board, TV’s mainstays experienced massive spikes in the sale of digital inventory. Walt Disney saw digital spending across its portfolio rise 50%, according to a person familiar with the matter. WarnerMedia saw double-digit percentage increases in spending on broadband video and video on demand. NBCUniversal saw volume committed to digital advertising rise 50% to “nearly $1.3 billion.”

The momentum may not last. Paying higher rates for fewer viewers isn’t a model that can sustain itself over the long haul. And the networks may face other challenges. The new wave of digital advertisers are severe scrutinizers of consumer response. On the web, they can track what types of ads generate reaction, site visits, requests for information, and, ultimately sales. Can they tie TV commercials to that same level of granular detail?

Not everyone benefited in the same way. TV ad rates soared, spurred by high demand for ad time and a dwindling supply of viewers. With costs on the rise, big advertisers parked their money first at broadcast, leaving less money to spend on cable networks. Viacom’s volume in this year’s market was flat, according to people familiar with the matter, and chunk of its intake was for new kinds of ads – tied to data and digital. WarnerMedia’s market was driven by digital demand; its ad commitments for linear TV were flat with last year.

For 2019, at least, the TV networks can content themselves with surges in volume and pricing. Demand appeared to be up for everything from the various late-night shows to ESPN’s “Monday Night Football” to the final season of “Modern Family” on ABC.

In an era of great uncertainty about where TV viewers are going and how to get an ad in front of them, Madison Avenue added to an already substantial bet on primetime.

At NBC, volume of advance ad commitments increased 8% in primetime, up to around $3.15 billion compared to around $2.92 billion in 2018. Last year, NBC’s primetime volume rose about 7%. The company pushed for greater pricing as well, seeking between 13% and 14% increases in the rate of reaching 1,000 viewers, a measure known as a CPM that is central to these annual discussions between Madison Avenue and TV networks. In 2018, NBC sought CPM increases of more than 11%

CBS saw its volume of primetime ad commitments rise 5% to 6%, according to people familiar with the matter, meaning the network could have secured between $2.39 billion and $2.79 billion, according to Variety estimates. Last year, CBS made deals for between $2.28 billion and $2.63 billion, representing a 1% increase over 2017. The network pressed for CPM increases of between 14% and 16%, compared with between 9% and 10% last year.

ABC saw its volume of primetime ad commitments rise between 5% and 10%, meaning the network may have secured between $1.95 billion and $2.42 billion, according to Variety estimates, compared with the $1.6 billion to $2.2 billion it signed up in 2018. The network sought rate increases of 14% this year, compared with the 10% to 11% it sought in 2017.

Fox secured primetime ad commitments valued at between $1.6 billion and $1.82 billion, according to Variety estimates, marking a volume increase of between 8% and 9%. Last year, Fox was able to drive just a 1% to 2% increase in volume, landing between $1.48 billion and $1.67 billion in advance commitments. Fox pressed for CPM increases of between 12% and 13% this year, compared to hikes of between 9% and 10% in the 2018 haggle.

And the CW secured primetime ad commitments valued at between $592.7 million and $663.4 million, representing an increase in volume of around 5%. In 2017, the CW notched volume of between $564.5 million and $631.8, a 15% rise over 2017 that was driven by adding programming on Sunday nights. The CW pressed this year for CPM hikes of between 14% and 15%, compared with between 10% and 11% in the 2018 market.

The numbers should be taken as directional indicators, not bank receipts. In the upfront, advertisers agree to spend a certain amount of money in the coming season. But they can cancel a portion of their upfront commitments each quarter, and can even pull their money if a show they agreed to support is canceled and the two sides can’t come up with a different schedule of commercials. Some people make the specious assumption that upfront figures are automatically deposited in the coffers of media conglomerates like 21st Century Fox, Time Warner CBS Corp., Comcast Corp., Viacom and Walt Disney Co. That’s not the case.

Even with that caveat, it’s clear advertisers have yet to abandon TV, even as concerns about viewers remain. Like Bounty, the paper towel with the famous advertising that came of age starting in the 1960s, TV is seen as “the quicker picker upper,” even in an era of Netflixes, Hulus and binge-watching.  Whether advertisers can continue to reach modern viewers through methods that had more traction in a much different generation remains to be seen.