Content

Upfront Relief

7/08/2005 8:00 PM Eastern

This year the cable upfront, though still mopping up some final deals, has proved bleaker than expected for sellers. But despite the tough marketplace, a number of cable programmers — large and small — maintain they secured the dollar-volume increases they were looking for.

Last week, officials at Turner Broadcasting System Inc., Scripps Networks, ABC Family and Hallmark Channel said that in the face of less-than-ideal circumstances — and lower-than-expected cost per thousand (CPM) increases — they nonetheless substantially upped their upfront share.

“We’re 90% done,” said Turner Entertainment Ad Sales and Marketing president David Levy. “There are some small shops left here and there, but ultimately I know where they’re going to end up, so I have a good understanding, a good feel, of where we’re ending up.”

Overall, it’s a relatively good story for Turner Network Television and TBS, which Levy maintained were able to land price increases at the high end of what the broadcasters grabbed, along with overall volume gains.

“This is the third year in a row that TBS and TNT achieved double-digit revenue growth in the upfront,” Levy said. “We’ll outpace the cable marketplace.”

It looks like the broadcast upfront will see a decline for the second year in a row, he pointed out, because of the huge decline NBC endured this year.

“What that tells me, and what I’ve been saying all along, is that there continues to be a shift from broadcast to cable,” Levy said. “At least from a Turner perspective, we garnered a lot of that momentum.”

FINAL NUMBER IN FLUX

Exactly how big the overall cable upfront — which was pegged at anywhere from $6.4 billion to $6.6 billion last year — will turn out to be remains up for debate. But everyone agrees that the medium will not get the 10% to 11% year-to-year increases that some experts had predicted before the market got rolling.

Several cable-network ad sales executives see the cable upfront growing by 3% to 7% at best. Others predicted it will finish flat or, at worst, decline.

Some Wall Street analysts have also tempered their earlier forecasts. Michael Gallant, an analyst with CIBC World Markets, originally had expected cable to rack up an 8% increase, but he later cut that target, saying it was tracking toward a 6% to 7% dollar advance, with CPMs in the 3% to 5% range.

One cable ad official, who didn’t want to be identified, thought those projections were far too rosy. He anticipated that the cable upfront market will decline this year versus last, owing to the softness in many ad categories and Procter & Gamble’s drop in TV spending.

“I think dollar volume is down,” the executive said. “Home video and DVD were way down, automotive was down, pharmaceuticals were down, and I think retail was down. And if all of those categories were down, and throw into that P&G being down, I don’t see any way cable is up. … I don’t see any way you make up for that kind of hit.”

There were a number of other factors that shaped this upfront. First, cable moved much more slowly than last year, when it was largely complete by Memorial Day.

“It’s been a bizarre market,” said Laura Nathanson, executive vice president of sales for ABC Family, which has concluded about two-thirds of its upfront business. “There was a panic in the beginning because no one was doing anything, and then buyers start to do deals. It’s just been very, very organized.”

Secondly, ABC set the pace for the overall market when it went first and agreed to price increases in the 4% to 6% range. That basically established a ceiling for the kind of CPM hikes anyone else — from CBS to Turner — could get. Overall, cable has averaged zero to 3% upfront price gains, according to a number of cable officials.

“It’s an off-year on price,” said Jon Steinlauf, senior vice president of ad sales for Scripps Networks. “It’s below what the sell side expected it to be. But there are some bright spots within that range.”

Relative to the prices Scripps has gotten, Steinlauf said: “We’re holding our own. I wouldn’t want to get into specific numbers.”

The “slowness” of the cable upfront didn’t mean “softness,” at least for Turner, according to Levy. In fact, it gave agencies and Turner the time to craft more-complicated deals that included broadband, video-on-demand, online, sponsorships, promotions, product integration and branded entertainment, he said.

“Ultimately, TBS and TNT will end up at the high end of CPM growth that’s in this marketplace, meaning comparable to what ABC and CBS got,” Levy said.

He added that ABC and CBS pulled CPM increases in the 3% to 5% range.

Nonetheless, Turner’s turnout was below the high single-digit and low double-digit CPM increases it initially sought.

“The marketplace dictates what advertisers will bear, and we got the high end,” Levy said, adding that Turner has sold all the inventory it had earmarked for the upfront.

At Scripps, Steinlauf was pleased with the volume increases that Home & Garden Television, Food Network, Do It Yourself, Fine Living and the recently acquired Great American Country have generated.

“Relative to the marketplace, we’re having a fabulous upfront in terms of the demand for all of our networks,” Steinlauf said. “We were caught by surprise at the lack of overall market strength.”

Like Turner, Scripps said it is tracking to outperform the overall dollar gains that cable will see this upfront. “We think we’re going to finish with three to four times the volume increase of the market,” Steinlauf said.

While the cable market is pacing at single-digit gains, Scripps will be in the high teens, according to Steinlauf.

Preceded by an initial joint presentation to shops in 15 cities this spring, this upfront marked the first time Scripps grouped all five of its networks together in negotiating with agencies, like a Turner or MTV Networks. The programmer was also selling sponsorships for a 17-day programming event, “Summer for Life,” that all of its networks will participate in next year.

Nathanson’s description of the cable market was that “fairly consistently, all the suppliers have said, 'Look, we’re going to fight for our value in the marketplace.’ No one said, 'OK, we’re going to go take a dive,’ which would have hurt all of us. It’s been a modest CPM-increase market.”

She said that ABC Family’s viewership increases over the past year translated to upfront success.

“We spent the last year selling in our value in terms of ratings growth, good programming, new programs coming on,” Nathanson said. “That really did resonate with the buyers. Would we have liked higher CPM increases? Maybe, but the market is the market and at least we’re on the higher side.”

In terms of overall volume, ABC Family is seeing “double-digit dollar growth … reflective of our ratings growth,” Nathanson said. “The dollars are there for us, it’s just the CPMs were a little more modest, but overall, the volume was available for us.”

SPOTLIGHT ON P&G

Both Turner and ABC Family said they even fared well with Procter & Gamble.

“We did relatively the same dollars with P&G, but I’m sure it did affect other people,” Levy said.

Last year, P&G approached ABC Family and expressed its desire to increase its business with the network, even meeting with president Paul Lee, according to Nathanson.

“The headlines were out there about them cutting back, and we kind of made it clear you can’t cut it back if you want to grow a partnership,” she said. “So they maintained their financial commitment with us this year.”

Hallmark Channel wrote “solid volume increases year to year,” double-digit gains, in part by expanding into new ad categories such as credit cards, financial services and insurance, according to Bill Abbott, the network’s executive vice president of advertising sales.

“Given the way the market was, we’re very, very pleased,” Abbott said.

March