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TV’s Tough Upfront: Madison Ave. Bets on Streaming and Tries to Foil Price Hikes (EXCLUSIVE)

variety digital innovators
marco goran romano

TV’s hottest properties this year may have little to do with the primetime lineup for which the medium is best known.

Advertisers are placing new emphasis on ad-supported streaming outlets like Walt Disney’s Hulu and NBCUniversal’s Peacock, while exploring opportunities with WarnerMedia’s HBO Max, Fox’s Tubi and ViacomCBS’s Pluto, according to four media buyers and three other executives familiar with the pace of the industry’s annual “upfront” negotiations, when Madison Avenue and U.S. media companies haggle over advertising inventory in the next programming cycle.

In a normal time, both sides would have wrapped their bargaining in mid-July. But amid the effects of the coronavirus, the market is just approaching its halfway point, according to these people. Ad budgets are down, in some cases significantly. One buying executive estimated clients could budget 15% to 20% less than their normal spend, while another buyer suggested the volume of advance ad commitments for the industry could be down as much as 5% to 10% for the 2020-2021 TV season.

The figures come in sharp contrast to the networks’ 2019 performance, and show how the convergence of the pandemic and the rapid rise of streaming are upending the business. In 2019, the nation’s five English-language broadcast networks managed to snare a gain of between 5.5% and 7.4% in the volume of advance advertising commitments they secured for the 2019-2020 TV season, according to Variety estimates.  The networks secured commitments totaling between $9.6 billion and $10.8 billion for primetime, according to Variety estimates, compared with $9.1 billion and $10.06 billion in 2018. It marked the fourth consecutive year the networks saw increasing volume for their primetime schedules.

Now, advertisers believe TV viewers are fast moving to streaming platforms to watch favorites at times of their own choosing. “What we are really seeing is that premium entertainment will no longer be sitting on linear TV. We knew that was happening. We thought the time frame would take a few more years,” says Catherine Sullivan. chief investment officer of North American operations for Omnicom Media Group, one of the nation’s largest buying agencies.  “But it has completely accelerated, and it is now.”

Buyers say they are concerned about the lack of college football in the third and fourth quarters, and worry about the effects of coronavirus on the next NFL season. They also believe TV networks’ linear audience supply will be crimped severely by a potential lack of fresh, original dramas and sitcoms around the fourth quarter, which includes the all-important holiday season. Several advertising categories – including movie studios, auto and select retailers – have pulled back extensively.

The TV networks are trying to hold firm against pressures. They are pushing for a 5% to 6% increase in the cost of reaching 1,000 viewers,  a measure known as a CPM that is essential to these annual conversations. “They are saying, ‘if we don’t get a mid-single digit increase for prime, we will hold on to sell in ‘scatter,'” says one buying executive, making a reference to ad time that is purchased closer to air time, usually for a higher price. “But they have an assumption that clients don’t have alternatives to reach  their audiences.” Buyers said some networks have been willing to do deals that call for a lower CPM increase – somewhere in the low-single-digit percentage increase range.

Some networks appear to be offering discounted CPMs in exchange for commitments to their streaming services, according to several executives, with one buyer suggesting the networks have even “gone negative” on rates for linear TV in exchange for robust client support at a difficult time. Some of the more favorable rates may come as a means to get advertisers to buy less-robust cable networks, some of these people said.

Other concerns are also at play. Some buying agencies are pushing back on a new wrinkle in measuring TV.  Nielsen is this fall making available a count of so-called “out of home” audiences – people who watch TV in offices, hotels, bars and airports, among other venues – in its measure of TV audiences. The measure has come under scrutiny in recent weeks, and has become a part of this year’s ongoing negotiations.

The networks may have time on their side. The NFL season is about to start. And scatter pricing has been robust, according to several of the companies. “I think scatter, across the board, is in the mid- to high teens. I think that shows the demand for marketers to get back on air in a mass market and broad way,” said Lachlan Murdoch, Fox Corporation’s CEO, in a recent call with investors. ViacomCBS CEO Bob Bakish told investors recently that the company’s second quarter “turned out better than we thought” in part “because scatter pricing held strong, 25%, really greater than that versus the upfront.” As the fall draws closer, some ad clients are pressing for their buying agencies to lock up deals and present media plans for the fall and holiday time – which may place new pressures on the agencies to come to terms more quickly.

Any TV company that doesn’t have a digital strategy risks losing out this year. ViacomCBS recently unveiled a new system that allows advertisers to purchase commercial inventory from across the company’s various digital-video offerings. Disney has implemented new technologies that tie buying ads on Hulu to inventory purchases on its TV networks. And NBCUniversal has been placing emphasis on its “One Platform,” or technology that facilitates buying across traditional TV and digital video. The offering “is how we dynamically adjust to audiences’ ever-changing consumption habits,” says Mark Marshall, president of advertising and partnerships at NBCUniversal. “And at its core, this platform allows us to fuse the power of linear with the ease and fluidity of digital.”