With media buyers and sellers experiencing the first buyers' market in several years, with the Aereo decision protecting broadcast industry retransmission fees, and with online video media struggling to gain a stronger foothold in advertisers' budgets, it's a good time for a realistic industry perspective and overview.
Before reviewing the Upfront market, here's what I think about the Aereo decision. I disagree that the Supreme Court's decision against Aereo is a blow against consumers, as has been argued. The decision not only defends the copyrights of the broadcast networks and stations, but assures that the industry's economics will continue to support high quality content that consumers love and advertisers need. Without retransmission fees, the disintegration of the traditional television network and station model would have accelerated, fundamentally threatening the total advertising business. Yes, Aereo made network TV content more accessible to consumers and its success would have triggered a wave of advanced over-the-top access technologies, but it also would have destabilized and caused a potentially cataclysmic overhaul of an industry that is providing consumers with more great content than ever. This was the industry's most important regulatory decision since the repeal of the financial syndication rules that prevented broadcast networks from producing and distributing their own content. Those who question the Aereo decision should keep in mind that the actual owner of the broadcast station licenses, which would have lost great value had Aereo been approved, is the federal government.
In our April 7 member's-only report, I accurately forecast the soft Upfront market that has become a reality: I advised then that "It's a "soft" marketplace with flat to declining demand." It's likely that overall volume for the industry will be down 2% to 4%, with total broadcast network volume down 4% to 7% and cable network volume flat to negative 2%. There are incremental budgets available if large cable groups agree to low single digit CPM increases.
UPFRONT CPMs AND C7
Costs-per-thousands for broadcast network primetime settled in at an average 4% to 5% increase compared to last year, with NBC generating both increased volume and average 8% CPM increases. Fox averaged closer to 2%. Most of the major cable network groups are just beginning to finalize deals as agencies push for CPM increases in the +2 to +5% range, with mid-sized network groups such as AMC Networks, which have lower CPM base costs, actively generating increased share. (NBCU packaged cable and broadcast together, along with digital inventory.) According to our sources, while some deals have been completed using ratings guarantees based on C7 data, they are very limited and conversion from C3 to C7 data has been a non-starter.
In interviews with several executives from leading national advertisers, they point to four over-riding dynamics in this year's Upfront.
1. SHIFT TO DIGITAL IS NOT MATERIALIZING
The volume shift to digital media that many pundits forecast is once again not materializing. MyersBizNet estimates that in last year’s Upfront, advertisers invested an estimated $250 million in online originated video advertising (excluding investments in the online properties of TV networks), and thus far this year our forecast of an additional $200 -$250 million has yet to materialize. While Digitas has struck a multi-client deal, most agencies report very limited activity to date with YouTube Preferred, the most desirable online inventory. Agency negotiators are debating the costs, the lack of demographic CPMs and the inability to cherry-pick content. A few brands have reported deals, and a few announcements are on the near-term horizon, but a check of several leading agencies uncovered few major multi-client deals. Basically, agency executives believe they can achieve their digital goals by packaging the TV networks’ online, mobile and VOD platforms in their broadcast and cable deals.
2. HOLDING BACK FOR SCATTER IS A VIABLE OPTION
In my April 7 report, I pointed out that marketers are defraying commitments of advertising budgets until market conditions become more clearly defined. Brand managers facing uncertain economic and political conditions are reluctant to lock into long-term budgets and are confident they can shift a larger share of their budgets from the Upfront to scatter market without a meaningful penalty. Several advertisers shared that this year's Upfront budgets were reduced as funds were moved to "hold." This could suggest a scatter market that's stronger than the past two years, although this assumes these funds will stay within the network marketplace.
3. BROADCAST PRIME REMAINS THE ENGINE PULLING THE UPFRONT TRAIN
Since there is less-and-less primetime "beachfront" property, marketers' Upfront priority is to lay claim to their required share of foundational quality inventory on the broadcast and cable networks. Their directive to their agency is to purchase quality primetime programming on both cable and broadcast, and to leverage their buys with sufficient lower-value inventory to maintain or reduce overall CPMs. So while networks and agencies both report CPM increases, client-by-client real CPMs are often flat to down due to a reformulation of the inventory mix. This model was especially advantageous to NBCU, which was able to increase its share of total Upfront investments. Network groups like Turner, Scripps, Discovery, AETN are being pushed hard to moderate their CPM expectations. For the first time, Fox-TV and Fox Cable are reported to have packaged inventory, as the divisions collaborate under a single newly appointed senior executive, Randy Freer. The success of NBCU will inevitably accelerate the cross-divisional sales integration at Fox, Disney-ABC, and CBS.
Second, agency buyers have a broader range of options in cable. In a soft market they have greater leverage to achieve their overall reach/frequency requirements across a wider spectrum of networks.
Third, broadcast and cable networks have made significant commitments to promotional, sponsorship, research and integrated marketing resources, which agencies are asking for and marketers value greatly.
4. VIABLE ALTERNATIVES GAINING TRACTION
VOD, cinema, placed-based and out-of-home video media, video produced by traditional print media companies, branded content and other more established and secure options are available to enable agencies to achieve their clients' TV advertising goals. As agencies integrate all video under a single "activation" lead, and coordinate video buying across multiple internal silos, it creates greater confidence within the agency and their clients that overall goals can be achieved with greater flexibility and creativity. This enables them to withhold Upfront budgets.
An unreported positive for broadcasters and especially Comcast is the growth of video-on-demand advertising, which MyersBizNet forecasts will increase 50% from $235 million this year to $350 million in 2015.
Overall, while many networks and digital video companies are disappointed by the somewhat depressed Upfront market, the health of the advertising business is strong, the dynamics of the Upfront are consistent with the realities of the marketplace and should not be a surprise, and all of us in this business dodged a bullet with the Supreme Court's Aereo decision.
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