TV’s Upfront Breakdown: Tensions Rise as Madison Avenue Threatens Big Change

TV Ad Sales Upfronts
always with honor for Variety

With the coronavirus pandemic spurring chaos across the U.S. economy, some of the TV networks’ best-known ambassadors to the advertising industry were called upon in recent weeks to speak with members of the Association of National Advertisers, an influential industry group representing 1600 companies that spend more than $400 billion each year on advertising and marketing. The big question: Can you help us?

At individual meetings, executives like Linda Yaccarino, NBCUniversal’s chairman of ad sales and partnerships; Rita Ferro, president of Disney Advertising Sales; and Jo Ann Ross, ViacomCBS’s chief advertising revenue officer attended video conferences with top marketing executives from around the nation, according to four people familiar with the matter. The TV executives assured the advertisers that even though big contracts for TV ads are typically devised in spring and summer, the networks would do business with advertisers affected by the difficult era at times of their own choosing.

On Thursday, the group told the ad-sales chiefs their promises were not enough.

The ANA called for a delay in this year’s “upfront” market, an annual process during which U.S. TV networks and their sponsors haggle over advertising commitments with a value that would likely fuel a powerful Silicon Valley start-up. The trade group believes the upfront should be delayed “until greater marketplace information and clarity becomes available.” And the organization is pressing to start a new “calendar year” process “with the typical negotiation window occurring in the fall or early winter timeframe.”

And with that, Madison Avenue may be headed for a massive traffic jam.

Thanks to the upfront, big ad campaigns get placed on everything from “Sunday Night Football” on NBC to “Supergirl” on the CW. Before the talks can start in earnest this year, however, they have grown contentious.

Billions of dollars are at stake.  Broadcast and cable networks in 2019 secured approximately $21.9 billion in primetime ad commitments for the 2019-2020 TV season, according to Media Dynamics Inc., an industry consultant. Add daytime TV and late-night programming into the mix, and the sum is exponentially higher.

The networks face a difficult situation. “It has become clearer and clearer that that this year is going to be a year filled with massive uncertainty for a lot of marketers,” says Bill Koenigsberg, president and CEO of Horizon Media, an influential independent media-buying agency.   He estimates 70% of TV advertisers will opt to delay upfront deals until 2021. But that remaining 30%, he adds, poses a challenge. “We live in a free marketplace, and the selling community – rightfully so – is open for business for 52 weeks a year,” says Koenigsberg. “There are a bunch of clients out there that want to stay on the calendar, and they are ready to go.”

Behind the scenes, some TV executives are frustrated, even angry. At least two of the advertisers that made statements in the ANA’s announcement  – Procter & Gamble and Unilever – are already holding discussions with some of the networks about buying ad inventory soon, according to three people familiar with the discussions. Procter & Gamble and Unilever did not respond to queries about their talks with the networks. Walt Disney, NBCUniversal and ViacomCBS declined to make executives available for comment.

TV’s upfront process has been in place since the 1960s, originally conceived so that the start of the TV season lined up with the introduction of new car models in the fall. Advertisers typically lock down deals in the upfront because they believe they will get a cheaper price than buying on an ad-hoc basis, known in the industry as “scatter.” When the economy in on the rise, more advertisers typically choose to buy in the upfront. And when a recession looms, more marketers tend to hold their cash closer to home, knowing that “scatter” will likely not rise above certain pricing levels. As more advertisers expand their reach to digital video and social media, there have been continuous calls to change the upfront process. And  yet, in normal years, Madison Avenue tends to return to it willingly.

Advertisers who have tried to circumvent the upfront in the past have not always succeeded. In 2012, General Motors, one of the nation’s largest advertisers, insisted that the networks capitulate to pricing rollbacks of around 20%, citing a need to tamp down marketing costs. The networks, doing business in a rising economy, refused to sell GM inventory in their best shows, including sports. Instead, they offered the big automaker ad time in lesser-watched programs in daytime and overnight schedules. Meanwhile, in 2006, Johnson & Johnson told the TV networks it would rather make ad commitments in tandem with the needs of its business operations, not months ahead of time as the upfront requires. Behind the scenes, however, the pharmaceutical giant quietly asked senior TV-sales executives to reserve some inventory for the fall of that year.

Advertisers in the 2020 haggle have demanded severe concessions on price. Among TV executives ,there is a sense that the ANA maneuver is really aimed at driving the networks to make cuts in the rate of reaching 1,000 viewers, a measure known as a CPM that is integral to the annual upfront talks between the TV industry and Madison Avenue.

No one thinks this will be TV’s most robust upfront year.  Movie studios and travel advertisers have largely been off the air in recent weeks, and automakers have pulled back on commercials. Client budgets are likely to be off what they were in 2019, says Koenigsberg, In a recent interview, Disney’s Ferro acknowledged that the media industry faced challenges this year. “It’s definitely a buyer’s market,’ she told Variety.

But advertisers have pressed for severe rollbacks in CPM rates the networks won’t entertain. With the NBA, NHL and NFL sketching out plans to return to play in the third and fourth quarters, the networks see little reason to cede too much ground. NBC, CBS, ABC, Fox and the CW pushed for hikes of 13% or more in 2019, and no one thinks such rates will be seen this year. But there is some sense CPMs could be flat or even up in a low-single-digit percentage range.

The ANA has in recent years been more eager stir industry waters. Under CEO Bob Liodice, the organization has pushed for greater transparency from digital advertisers, and, in 2016, conducted a seven-month investigation into allegations of kickbacks and unauthorized rebates and markups in media-buying deals. Liodice told Variety earlier this week the organization intends to pursue a new timeframe for upfront deal-making. “We are going to continue to push for it,” he says.

There will be some efforts at keeping peace. One network on Monday is expected to issue a call for greater collaboration among advertisers, agencies, and TV sellers, according to a person familiar with the matter.  The network is slated to acknowledge that the ANA raised valid points about how old ways of doing business can be improved, but press various parties to do more than simply trying to shift trading calendars.

Advertisers often get what they want. But in this case, the upfront will change only if most of them act in concert, says Koenigsberg. “If the marketers feel really strongly about it, they ought not to release their dollars until later in the year,” he says.