News

Upfront Undone

5/03/2008 2:00 AM Eastern

Cable-network ad-sales executives are bullish about the current selling season. They predict strong revenue growth in spite of national economic woes and due in part to soft ratings for their broadcast-network competitors.

But some ad-agency executives say the prevailing sentiment of the upfront period may be better characterized as “Curb Your Enthusiasm.”

“The situation will come down to the very last minute,” said Horizon Media executive vice president and chief media negotiations officer Aaron Cohen. Agencies are taking a very cautious approach, he said and it's not “crystal clear that [dollars] will be committed in the levels of last year.”

The wild and woolly ad-sales “scatter” market, in which ads are sold on a spot basis, heartened ad executives with double-digit rate increases in fourth-quarter 2007 and the first quarter of this year. But Cohen said sales growth is slowing at the moment.

FAVORABLE FACTORS

Yet network ad executives cite factors they believe favor strong ad sales in the upfront season, in which media buyers purchase ads for a full season of programming. Last fall's weak broadcast-network entertainment schedule led viewers to sample new (or new to them) fare on cable networks. That trend came in advance of the Writers Guild of America strike, which further weakened broadcast dominance.

Cable has also steadily been adding buzzworthy originals to its lineups, such as AMC's Mad Men and FX's Damages, network sales executives said. And unlike the broadcast networks, new fare debuts throughout the year, they noted.

Such executives as FX senior vice president of sales Michael Brochstein and Hallmark Channel executive vice president of ad sales Bill Abbott aren't the only ones predicting ad-sales revenue growth. The annual spending report from Jack Myers Media Business Report predicts national cable sales will increase by 7% for 2008, attracting an estimated $18.9 billion.

By contrast, broadcast ad spending is expected to increase 3.2% to $19.5 billion. The forecaster predicts broadcast market share will decline from the current 8.2% of the national advertising pie to 7.9%. But according to Myers, cable is not picking up share from broadcast: Cable's market share is predicted to remain at its 2007 level of 7.7%.

TNS Media Intelligence is more conservative in its projections for this year. That market-research firm predicts cable's national ad sales growth rate at 5%, with broadcast-network growth at 2.7%.

Ad experts, such as Discovery Networks U.S. ad president Joe Abbruzzese, said that in general, the upfront auction generates about 80% of the ad sales for the year for broadcasters and about 50% to 60% of cable's yearly ad sales. Applying that formula, this year's broadcast upfront could be about $15.6 billion and national cable networks' could range from about $9.45 billion to $11.34 billion.

A year ago, Merrill Lynch projected 2007-08 broadcast primetime upfront spending to grow 3% to some $8.7 billion and cable to grow 3% to $7.53 billion.

The overall 2008 projections are in spite of the fact that 2007's biggest spending sector, financial services, is reeling from the home-foreclosure crisis and other signs of a recession. Some of the growth this year predicted by analysts is based on 2008-only factors, such as political- and Olympics-related ad buying.

But buyers and network execs alike said a recession doesn't necessarily mean that ad money will dry up completely.

“In tough economic times, advertisers gravitate to what works for them, and that's television,” said Carat USA director of national broadcast Andy Donchin. “If you cut back, and the competition doesn't, you lose your voice.”

Advertisers may be more conservative in their spending or shift from sales-focused commercials to branding or other tactics, buyers said.

“I've yet to meet an agency saying, 'Budgets are through the roof!' But we're still feeling pretty good,” said FX's Brochstein. Good programming draws advertisers, he said.

“Cadillac sponsored the premiere of Damages. They weren't on our network before,” he said. That drama series, which stars Glenn Close, has been picked up by FX for a second season.

Quality originals draw viewers, and positive feedback to advertisers, Discovery's Abbruzzese added. Bank of America actually got letters from viewers of the Emmy- and Peabody-winning Planet Earth, thanking it for bringing the HD miniseries to viewers, he said.

BACKHAND 'COMPLEMENT'?

Despite the positive spin by cable execs, buyers said clients don't look at cable as a broadcast primetime replacement but as a “primetime complement,” according to one buyer who asked not be quoted by name.

But cable could benefit if broadcasters misplay their hand.

“[Advertisers] are still heavily invested in the [broadcasters], but if they are too aggressive in rate inflation, buys could flow to cable, and they'd see more money,” said Donchin.

Cable-network executives noted the efforts they've made to make themselves more attractive to advertisers, including offering multiplatform deals, product integration and experiments in how a commercial pod is presented.

The latter was a necessity after last year's adoption of so-called C3 ratings, which measure viewership when a program debuts, as well as during the subsequent three days of viewing on video-on-demand platforms and digital video recorders. C3 drills down into commercial-minute ratings, so advertisers can compare which networks fare better or worse at retaining audience through commercial breaks.

C3 was a boon for some networks such as Hallmark Channel, with an older demographic less prone to surfing away when commercials come on, which is hurtful to other networks. (See related chart.)

Abbruzzese said C3 caused a 7% to 8% drop of in costs per thousand (CPMs) for Discovery Networks.

Executives from competing networks named MTV Networks as the biggest victim of C3 falloff. But the programmer's president of advertising sales, Hank Close, said the networks have altered their advertising methodology to mitigate any losses due to C3 measurement.

MTVN delayed adoption of C3 because the company felt its adoption was “ill-timed,” he said. Once the cable group adopted C3 measurement, it negotiated higher CPMs that accounted for the C3 audience loss during breaks, he said.

MTV Networks and other cable programmers have also stemmed audience loss during commercial pods by experimenting with new ways to present ads. Close said strategies have included a 13-mobisode series for T-Mobile, which extended that advertiser's brand to a new platform, among other digital initiatives. On-air, MTV Networks shifted from two commercial pods per hour to three. Spots in those shorter breaks were designed to “marry an advertiser's brand equity” to the character of the network on which the ad runs.

Such strategies have contributed to a 3% improvement in viewership to VH1 commercial pods, for instance, he said.

Turner Broadcasting System has also been experimenting with “pod-busters,” strategies to retain viewers in the commercial breaks. One method is “bit-coms,” a mini sketch comedy created around a product and designed to look more like entertainment.

His networks have also experimented with where conventional ads get placed in theatrical films they air, to see if first-hour pods get better retention than ads that run later; and with the placement of “funny pods,” which urge viewers to stick around to get the joke.

These strategies have played out across cable networks in response to the new focus on C3 measurements of commercial viewers. It shouldn't have taken that change to happen, Cohen grumbled.

“Damn it, this was stuff they should have been doing all along,” he said.

TURNER STEPS UP

Turner is sufficiently confident in the ratings performance of its suite of networks (TNT, TBS, TruTV) that the group is doing its upfront presentation May 14, the same week as the broadcasters.

“Let [buyers] make decisions, then and there, on an equal-plain basis. The implied message is we have the content … we are a substitute for broadcast,” said Levy.

Comcast Networks, which includes E!, has also added a third commercial pod and shifted national advertisers into the first position in commercial breaks as a response to the C3 ratings. Advertisers are teased within a show, such as a “Dress My Mess” minisode teased within an episode of Clean House, said Comcast Network Advertising Sales president David Cassaro. The networks are creating more pod-buster content for advertisers using an in-house production unit, and saving pods for advertising, not promotions. Crawls and pop-ups during shows are used to promote upcoming content, he said.

Though C3 has provided a more accurate picture of actual commercial viewing, executives predict its use to be short-lived, as networks criticize it as placing too much onus on networks, rather than advertisers, for the performance of a pod.

“We deliver a number of viewers into a break, but if they are met with bad copy, or over-used copy and the viewers turn away, that's our cost now,” noted A&E Television Networks senior vice president of national ad sales Mel Berning. “I think it's right to focus some of the responsibility back to the creative community. It's not just the network putting something on the air.”

Craig Woerz, co-founder and managing partner for MediaStorm, an agency that specializes in placing ads for entertainment brands such as those of movie studios or their individual releases, agreed with Berning.

“There's too much run-of-the-mill creative out there. We need more integrated ad opportunities out there,” he said, suggesting that show talent be utilized, “not a full-fledged endorsement, but some integration.”

But union pacts with talent can complicate such deals. Actors have already asked for possible compensation for revenue they've earned through product integration in shows in which they perform.

Woerz is an enthusiastic backer of what he termed the “stellar” opportunities in cable, though he called this one of the most “complicated media planning seasons ever for us.” His agency, which plans campaigns for theatrical releases, for instance, looks for advertising partners with as many opportunities to integrate ads into programs and platforms as possible.

An “unsung hero,” in his opinion, is the growing base of viewers of free on-demand programming. That viewing, he said, represents 'pure engagement.” Clients are doing some buys of ads on free on-demand shows without also buying ads on the scheduled airing of the program.

BEYOND C3

Some buyers are already moving beyond C3 and want a minute-by-minute or 30-second-by-30-second measurement system to be developed.

“We weren't satisfied with C3 from the beginning,” said Starcom MediaVest Group senior vice president and cable activation director Natalie Conway. That agency pinned 16 of its ad buying deals to minute-by-minute measurements in 2007. She said this year, 25% of the agency's cable investment would have “exact minute guarantees,” with a couple of pacts including second-by-second deals.

Starcom MediaVest has been one of the most aggressive agencies in promoting more intense media monitoring of ad performance. For instance, in April it agreed to participate in a program that will begin in the third quarter and will collect second-by-second viewership data from 100,000 DirecTV set-top boxes.

While more precise data collection is desirable, not everyone in the ad community thinks it will be quick in coming on a commercially practical basis.

“Second-by-second is a long way away,” predicted Cohen. First the technology has to be developed, and then the data must be able to be delivered to third parties for network analysis, he explained.

“If no one has an easy system for us to analyze, well, it won't happen next year,” he said.

But “any medium that can improve accountability will be welcomed,” added Donchin.

RANK PROGRAMMER RETENTION RATE
Source: Hallmark Channel/Nielsen NPower Ratings Analysis
1 Nick at Nite 95.2%
2 Hallmark Channel 94.9%
3 TV Land 93.0%
4 HGTV 92.9%
5 USA Network 92.4%
6 The Weather Channel 92.3%
7 Fox News Channel 92.2%
8 CBS 92.2%
9 Tru TV 92.0%
10 Fox (broadcast network) 92.0%
...
45 TV Guide Network 84.6%
46 VH1 84.5%
47 CNBC 84.4%
48 E! 84.2%
49 MTV 83.8%

September