Slow start for 2009-10 upfront

Concern over "flow of information" limited early bidding

If nothing else, the 2009-10 upfront will be remembered as a marathon game of liar's poker, a bluffer's marketplace governed by the twin dictates of fear and paranoia. A preoccupation with controlling the flow of information inadvertently put the freeze on any early bidding, and with two months having elapsed since the game first got underway, only a fraction of business has been completed.

According to sources on both sides of the table, advertisers have locked up an estimated 25% of the broadcast and cable TV inventory on offer in this year's upfront, at aggregate cost-per-thousand declines that are nowhere near the double-digit rollbacks agencies had targeted back in June. Conversely, networks also gave up some ground, not achieving the initial single-digit increases they had been seeking at the outset. Some broadcasters are further along than others; sources indicate that both NBC and Fox are now about halfway to the finish, while ABC, CBS and The CW have all begun writing deals.

Cable is moving on a parallel track, as a number of top-tier network groups have written between 20% and 25% of their business.

While media agencies have demanded that networks and clients all but take an oath of omerta--some shops have gone so far as to request that their partners sign nondisclosure agreements upon completion of their deal-making--there is consensus as to how pricing is shaking out. Sources peg broadcasters to be securing CPMs between negative-3% and negative-5%, with CBS landing the most advantageous numbers.

"CBS had their corporate leadership publicly stating they weren't going to go negative in the upfront, and they've been the toughest to get into negative territory," said one media agency executive, who spoke on condition of anonymity. Sources estimate that CBS is writing CPM declines in the low single digits, between -1 and -3%.

Fox and ABC are dwelling in the same neighborhood, writing low-single-digit negatives. Both nets are expected to hold back a good deal of inventory for scatter--analysts predict they'll keep between 25% and 30% of their commercial time off the table, up from around 15% a year ago--although Fox has the latitude to play it closer to the vest.

"They just have so much less to sell that, out of everyone, they are most willing to take chances in scatter. It's less of a risk for them," said one media buyer. "They are very confident about their ability to garner premiums in scatter, so they don't feel like they need to lower their upfront price [by that much]."

Meanwhile, NBC is believed to be agreeing to rollbacks of 7% for many of its deals. The network made the first major move of the upfront, closing a deal with GroupM a few weeks ago. (As of Friday, NBC continued to deny that an agreement had been nailed down, going so far as to refute a recent public statement made by Ben Silverman, co-chairman of NBC Universal Entertainment. Speaking at Fortune magazine's Brainstorm: Tech conference on Wednesday, Silverman indicated that the NBCU/GroupM deal had closed, which NBC denied shortly afterwards.)

While NBC would not confirm its pricing, a source familiar with the network's ongoing negotiations said deals were being nailed down at low-to-mid-single-digit percentage rollbacks. That particular estimate covers all broadcast dayparts, not just prime time.

Still, buyers insist that negative-7s are the coin of the realm. "That is the standard number. There are ways to do a little bit better if you play with the ratio between what they're getting for Leno and the rest of prime time."

USA Network, NBCU's flagship cable property, is also believed to be further along than the rest of the pack, having moved as much as 45% to 50% of its upfront inventory. Sources estimate that USA has had to swallow only superficial price rollbacks, between 2% and 3%, thanks to its seemingly indomitable prime-time ratings and its historically low CPM base. "Those are protection deals," said one ad sales exec. "They don't have to go deep, because they're relatively cheap to begin with. Whereas a Turner may face a bigger cutback, just because of where their CPMs are at...TNT gets a pretty nice price for their original stuff, more than anyone else gets anywhere on cable."

The top-tier cable network groups (NBCU, Turner, Discovery, Fox Cable, Comcast, etc.) are all in motion, according to sources on the buying and selling sides. All told, cable deals are falling within a range of negative 5 to negative 8, although there are outliers on either side of the extremes.

Last year, cable landed $7.65 billion in upfront commitments, according to the Cabletelevision Advertising Bureau. This time around, analysts expect that figure to be reduced by as much as 15%, to around $6.5 billion. Broadcast dollar volume is likely to be down by 20%, falling from $8.7 billion a year ago to around $7 billion.

With August looming on the horizon, insiders believe that there are still a good two or three weeks to go before the major TV business is wrapped up.

"It's slow, and there's a sense that the walls are closing in," said one ad sales chief, who also declined to speak for attribution. "We're looking at six, seven weeks before the season starts, and besides just getting deals done, you have to get approvals, all that ... all in less than 60 days. Game clock's ticking."

If both sides agree that this has been an unprecedented marketplace, there's not exactly a consensus as to why negotiations have bogged down so completely. Buyers will say that the economy played a major role in dictating the pace of this year's upfront, but ad sales bosses believe there's a more immediate human agency at work.

"The buyers' self-imposed silence stalled the marketplace," said one ad sales head. "They made a conscious decision to cut off the flow of information, going all the way back to the budget process. There was very little information available against which anyone could make good decisions ... and that really gummed up the works."

Another network executive said that the buyers "were getting it from all sides," adding that unrealistic demands from clients for 15% rollbacks were exacerbated by a constricting culture of fear and uncertainty in the agency demimonde.

"These guys have had to contend with clients cutting their fees by 20% and all the head-rolling that comes with that sort of shift," said one ad sales boss. "So in order to get the upper hand, they try and do everything they can to maintain an advantage over us. And the way you do that is by holding back on good intel."

If it's premature to guess how the silent treatment will play out, client satisfaction is a lot less ambiguous. "An obvious sign of whether this will have worked out for the agencies is if a lot more business suddenly goes into review at the end of the year," said one sales veteran. "Then we'll see how smart they were."

If nothing else, the 2009-10 upfront will be remembered as a marathon game of liar's poker, a bluffer's marketplace governed by the twin dictates of fear and paranoia. A preoccupation with controlling the flow of information inadvertently put the freeze on any early bidding, and with two months having elapsed since the game first got underway, only a fraction of business has been completed.

According to sources on both sides of the table, advertisers have locked up an estimated 25% of the broadcast and cable TV inventory on offer in this year's upfront, at aggregate cost-per-thousand declines that are nowhere near the double-digit rollbacks agencies had targeted back in June. Conversely, networks also gave up some ground, not achieving the initial single-digit increases they had been seeking at the outset. Some broadcasters are further along than others; sources indicate that both NBC and Fox are now about halfway to the finish, while ABC, CBS and The CW have all begun writing deals.

Cable is moving on a parallel track, as a number of top-tier network groups have written between 20% and 25% of their business.

While media agencies have demanded that networks and clients all but take an oath of omerta--some shops have gone so far as to request that their partners sign nondisclosure agreements upon completion of their deal-making--there is consensus as to how pricing is shaking out. Sources peg broadcasters to be securing CPMs between negative-3% and negative-5%, with CBS landing the most advantageous numbers.

"CBS had their corporate leadership publicly stating they weren't going to go negative in the upfront, and they've been the toughest to get into negative territory," said one media agency executive, who spoke on condition of anonymity. Sources estimate that CBS is writing CPM declines in the low single digits, between -1 and -3%.

Fox and ABC are dwelling in the same neighborhood, writing low-single-digit negatives. Both nets are expected to hold back a good deal of inventory for scatter--analysts predict they'll keep between 25% and 30% of their commercial time off the table, up from around 15% a year ago--although Fox has the latitude to play it closer to the vest.

"They just have so much less to sell that, out of everyone, they are most willing to take chances in scatter. It's less of a risk for them," said one media buyer. "They are very confident about their ability to garner premiums in scatter, so they don't feel like they need to lower their upfront price [by that much]."

Meanwhile, NBC is believed to be agreeing to rollbacks of 7% for many of its deals. The network made the first major move of the upfront, closing a deal with GroupM a few weeks ago. (As of Friday, NBC continued to deny that an agreement had been nailed down, going so far as to refute a recent public statement made by Ben Silverman, co-chairman of NBC Universal Entertainment. Speaking at Fortune magazine's Brainstorm: Tech conference on Wednesday, Silverman indicated that the NBCU/GroupM deal had closed, which NBC denied shortly afterwards.)

While NBC would not confirm its pricing, a source familiar with the network's ongoing negotiations said deals were being nailed down at low-to-mid-single-digit percentage rollbacks. That particular estimate covers all broadcast dayparts, not just prime time.

Still, buyers insist that negative-7s are the coin of the realm. "That is the standard number. There are ways to do a little bit better if you play with the ratio between what they're getting for Leno and the rest of prime time."

USA Network, NBCU's flagship cable property, is also believed to be further along than the rest of the pack, having moved as much as 45% to 50% of its upfront inventory. Sources estimate that USA has had to swallow only superficial price rollbacks, between 2% and 3%, thanks to its seemingly indomitable prime-time ratings and its historically low CPM base. "Those are protection deals," said one ad sales exec. "They don't have to go deep, because they're relatively cheap to begin with. Whereas a Turner may face a bigger cutback, just because of where their CPMs are at...TNT gets a pretty nice price for their original stuff, more than anyone else gets anywhere on cable."

The top-tier cable network groups (NBCU, Turner, Discovery, Fox Cable, Comcast, etc.) are all in motion, according to sources on the buying and selling sides. All told, cable deals are falling within a range of negative 5 to negative 8, although there are outliers on either side of the extremes.

Last year, cable landed $7.65 billion in upfront commitments, according to the Cabletelevision Advertising Bureau. This time around, analysts expect that figure to be reduced by as much as 15%, to around $6.5 billion. Broadcast dollar volume is likely to be down by 20%, falling from $8.7 billion a year ago to around $7 billion.

With August looming on the horizon, insiders believe that there are still a good two or three weeks to go before the major TV business is wrapped up.

"It's slow, and there's a sense that the walls are closing in," said one ad sales chief, who also declined to speak for attribution. "We're looking at six, seven weeks before the season starts, and besides just getting deals done, you have to get approvals, all that ... all in less than 60 days. Game clock's ticking."

If both sides agree that this has been an unprecedented marketplace, there's not exactly a consensus as to why negotiations have bogged down so completely. Buyers will say that the economy played a major role in dictating the pace of this year's upfront, but ad sales bosses believe there's a more immediate human agency at work.

"The buyers' self-imposed silence stalled the marketplace," said one ad sales head. "They made a conscious decision to cut off the flow of information, going all the way back to the budget process. There was very little information available against which anyone could make good decisions ... and that really gummed up the works."

Another network executive said that the buyers "were getting it from all sides," adding that unrealistic demands from clients for 15% rollbacks were exacerbated by a constricting culture of fear and uncertainty in the agency demimonde.

"These guys have had to contend with clients cutting their fees by 20% and all the head-rolling that comes with that sort of shift," said one ad sales boss. "So in order to get the upper hand, they try and do everything they can to maintain an advantage over us. And the way you do that is by holding back on good intel."

If it's premature to guess how the silent treatment will play out, client satisfaction is a lot less ambiguous. "An obvious sign of whether this will have worked out for the agencies is if a lot more business suddenly goes into review at the end of the year," said one sales veteran. "Then we'll see how smart they were."
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