Upfronts to end 22% lower than in 2008

Broadcast networks held back more ad inventory

Broadcast network television upfront buying for the 2009-10 season is expected to wrap up this week with the five major broadcast networks taking in about $7.2 billion in primetime ad revenue, down 22% over last year's $9.25 billion.

While the troubled economy played a role in the decline of upfront revenue, with some advertiser budgets lower than last year, and negotiated pricing for ad units down -1 to -7% compared with last year, the biggest reason for the disparity was that the networks decided to hold back significantly more ad inventory, hoping to sell it during the season in hopes that the economy gets healthier.

ABC and CBS, which both sold about $2.5 billion in primetime advertising in last year's upfront, according to sources familiar with both networks' negotiations, sold about $1.9 billion, respectively, this year. Fox, which sold $1.95 billion last year, sold about $1.6 billion primetime revenue this year, while NBC, which recorded $1.9 billion last year, was said by sources to have banked $1.5 billion this year. The CW, with only five days and 10 hours a week of primetime programming, sold about $300 million in primetime advertising, compared with $380 million the year before.

NBC's primetime total does not include two weeks of Winter Olympics coverage in February, but does include the NFL's "Sunday Night Football" telecasts in primetime in the fourth quarter. And ABC's total also includes Saturday night college football telecasts.

Upfront negotiations between the network sales executives and the media agencies were the most acrimonious in years, with the agencies demanding secrecy and the networks agreeing to be even more tight-lipped this year.

"Because of the marketplace dynamics, there has been a high degree of secrecy," said one network executive. None of the networks would comment on the record or on background on the numbers, which were gleaned from conversations with media buying agency executives and other sources familiar with the negotiations.

But CBS Corp. president and CEO Les Moonves, speaking on the company's second-quarter financial call to analysts and the media, gave some insight as to why the networks held back more inventory this year, rather than sell it in the upfront at much lower prices than last year.

Moonves said in CBS' case, the network's third-quarter scatter ad dollars in primetime so far are up 30%, or $30 million, with the retail, telecom, fast food and pharmaceutical categories all beginning to spend more. Third quarter, Moonves said, will end up better on ad revenue for the network than second quarter when primetime advertising was down 4%. And he believes fourth quarter will be even stronger.

According to Moonves, CBS sold only about 65% of its primetime inventory in the upfront this year. He added that in the 2002 upfront -- the last time the network sold as little inventory -- it wound up taking in more ad revenue in scatter than it would have if it had had a bigger position in the upfront.

"We anticipate scatter (for the upcoming TV season) will be stronger than upfront prices," Moonves said.

Why then did the media agencies not spend more in the upfront if the networks are expecting the economy to turn around during the upcoming TV season? "Advertisers are not buying that far in advance," Moonves said, pointing out that some upfront buying can take place 15 months before the advertising is schedule to air. "They are buying closer to air time."

NBC was the first network to get some upfront deals done in mid-June followed by Fox. Both ABC and CBS took a harder line with media buyers, choosing to play a waiting game and call the buyers' bluff. But it seems like early primetime deals by NBC at -7 CPM rates held up as the low point of the market. Fox began doing deals a low single-digits in the -1 to -3% range, and eventually CBS jumped in and was doing deals in that same pricing neighborhood.

Sources said ABC continued to take a harder line, and several media buying agencies bypassed ABC and wrote business with The CW at -2 to -3% CPM rates. CW is usually the last network the agencies negotiate with. Media buyers said ABC will be the last network to complete upfront selling.

"The networks that were more flexible were the networks that were able to do earlier deals," said one source familiar with the negotiations. "The networks that took a harder line might have gotten stung a bit."

NBC, which has done early deals in the past several upfronts, did so again. Sources familiar with the network's negotiations said overall, combining NBC Universal's broadcast, cable and digital properties, including all dayparts, the company took in just south of the $4 billion it took in last year.

"It seems like NBC Universal overall wound up having a much stronger hand to play than the media agencies thought they did," said one industry source.

Sources said NBC sold the new five-night-a-week primetime "Jay Leno Show" as part of packages with other shows rather than selling it separately and worked out adjustments on its rates to fit into those packages. The network also did several product integration deals in the show.

NBC, sources project, sold about 10% less inventory than it did last year in primetime, selling about 70% of its available units. The CW, sources sold about 65% of its primetime ad inventory this year, compared with 77% last year.

ABC, CBS and Fox, which sold about 75%-80% of their primetime in the upfront last year, were each said to have cut back 10%-15% this year.