If you're interested in understanding actual Upfront and scatter market dynamics, without the trade press hyperbole and positioning, read on. Here's a new way to interpret the Upfront and accurately forecast the scatter market. Scroll down for our broadcast and cable network TV 2014-15-16 spending data and forecasts.
With $30 billion up for grabs in media agency reviews, this year's Upfront is complicated with agency negotiators and networks discussing "special deals" and "contingent" pricing. While Upfront commitments typically remain in place on a client-by-client basis when they move agencies, networks are reluctant to expose special discounts and packages offered one agency to another that was not offered that deal. Those agencies that negotiate with networks on a multi-client basis are especially exposed if they lose a major account or two and are unable to meet their commitments. Clients are also reported to be holding back on Upfront budgets as they focus on their reviews and explore new ideas and new options. Plus procurement officers and supply chain management at the clients are getting more involved in the review process and, therefore, in the Upfront discussions. With new forms of data poking their way into negotiations, there are even more variables slowing down the market, as reported in the recent MediaVillage series by Charlene Weisler. Additionally, NBCU and Fox are packaging inventory across multiple platforms, making it more difficult to read the differentiated markets for broadcast, cable and digital.
As RBC Capital Markets' analyst David Bank reports, "The TV Networks appear to be easing into a new pattern of upfront sales that investors should get used to. Rather than the typical 'wrap-up' around Memorial Day, we are heading into a target of July 4th (which many networks still haven't been able to hit)." Bank also reports that "overall, volumes will probably be down ~6% (we get mixed messages – anywhere between 5% and 7% declines – so we will settle in the middle). Pricing is generally up low to mid-single digits." I'm projecting an Upfront market this year that is down more than last year's, when broadcast network volume declined 7.9% and cable volume declined 4.8%.
As I reported in my 2014/15 Upfront Summary last year, "the national TV market is being irrevocably impacted by secular and systemic shifts resulting from the growing impact of enhanced metrics, programmatic buying and digital video. The Upfront will continue to be a supply/demand marketplace in which supply expansion is outpacing demand. There are far more market influences driving downward pricing and creating new inventory sources than there are influences driving increased demand." This year's Upfront is more volatile than ever. ABC-TV and NBCU are reported to be in a "stalemate" with several agencies. While some cable groups have concluded deals, for the most part the cable, syndication and digital video marketplaces are in a holding pattern.
It's far more relevant to focus on annual network TV ad spending data than on Upfront deals, which are increasingly difficult – even impossible – to use for market decisions. Our forecasts predict a more conservative marketplace in calendar year 2015 than 2014, keeping in mind that the Upfront represents seasonal spending from September to August. In calendar year 2015, broadcast network 'legacy' ad spending is forecast to decline 7.2% with digital ad growth at 20%, resulting in total revenue declines of 4.5%. Cable, overall, is forecast to decline 1.8%. For 2016, we're forecasting increased declines in legacy ad spending with increased growth of investments in the networks' digital and VOD assets by advertisers, resulting in overall (broadcast + digital) declines of 3.7% for broadcast and 2.3% for cable.
In summary, a look at the data below suggests that each network can make its Upfront decisions with confidence that next year's patterns will be generally similar to this year's. If the broadcast network Upfront volume is down more than 8%-9%, then scatter will be up commensurately more than in this year's scatter. If the Upfront investments are down less than 7%-8%, scatter pricing and revenues will be down commensurately. For cable, if volume is down more than 5%-6%, scatter will be commensurately up; if volume is down less than 4%-5%, then scatter will be commensurately down.
There is an opportunity for some share shift as available Upfront budgets will ultimately find a home with the networks and syndicators that are most willing to negotiate. But there is too much volatility in the market and too many new variables, so it's time investors and the press stop assigning so much relevance to the Upfront market. The volatility will continue and, each year, the Upfront becomes less and less of a litmus test on the health of the TV and advertising market. It's time for networks to explore alternative relationship priorities and engage in more client-specific long-term initiatives.
|Marketing / Advertising Spending Data 2014 - 2016|
|UPDATED 4-1-15 Data reported in 000,000|
|"Legacy" refers to revenues generated for traditional non-digital advertising and marketing spend within each category||Calendar 2014||Calendar 2015||Calendar 2016|
|% Change||$||% Share||% Change||$||% Share||% Change||$||% Share|
|Broadcast Network TV||1.3%||19,256||3.4||-4.5%||18,393||3.3||-3.7%||17,715||3.2|
|Cable/Satellite Network Television||3.3%||27,006||4.7||-1.8%||26,523||4.7||-2.3%||25,921||4.6|