Network TV Upfront Economics Follow Anticipated Script. JackMyers Think Tank

On May 13, in advance of network television's fabled Upfront Week, I published my forecast for the overall economic issues that I expected would emerge from the Upfront buying and selling season. I'm re-publishing sections from that report now that the broadcast network Upfront is concluding and as the cable Upfront is moving into its final stages.

May 13: "The Upfront will closely follow last-year's pattern without the delays caused by the conversion to C-3 (live plus 3-day delayed commercial viewing) ratings. This suggests a reasonably quick process that should be completed ahead of the July 4 holiday. The earlier Memorial Day weekend will also contribute to a speedier Upfront process. While agency executives are less than eager to accept another round of CPM increases, the fact is demand should be strong and networks are increasing value through multiple marketing and cross-platform initiatives. While broadcast networks' CPM increases will not fully compensate them for erosion suffered during and after the writers' strike, they should have healthy gains as well as incremental revenues from alternative distribution models. It appears that once again the stronger networks will get stronger and the weaker networks will also do just fine."

This analysis has proven to be right on target, as most senior executives acknowledged at the time. However, several trade publications also jumped on the recession bandwagon and reported the negative forecasts of an influential analyst without publishing alternative points-of-view, sending some short-term jitters into the Upfront negotiations. But agencies, led by Zenith Media, started a methodical, quick and relatively painless series of negotiations and deals.

In my May 13 commentary, I also issued a warning on the value of Upfront cost-per-thousand (CPM) pricing analyses that is worth noting again.

May 13: "Because the higher-demand networks can re-allocate their inventory, reducing the share of lower paying categories and increasing the share of revenues from higher paying advertisers, overall per-network CPMs can increase while individual advertisers and agencies can hold the line with minimal real CPM increases. "Advertisers who are constantly looking for efficiencies are the ones who fall out of the medium for cost reasons," explained a senior industry executive. "Through attrition, networks are losing the lower cost advertisers and increasing sales to higher value advertisers. The base of TV advertisers is still growing, so the medium is healthy."

As trade press reports abound and as Wall Street analysts pore over the numbers being reported, it is important to take heed of the danger of using Upfront data as a guideline for overall market strength and economic vitality. I wrote in my original commentary:

May 13: "In past years, JackMyers Media Business Report has issued specific projections for Upfront spending. Both my forecasts and my post-Upfront analyses have provided insights on market conditions and network-by-network revenue, cost-per-thousand and sell-out performance. This year, I am not offering predictions nor will I report after-the-fact on network Upfront revenues. The Upfront is no longer a representative indicator of network performance and the information released by the networks is, at best, questionable. If a network ever actually reports poor performance in the Upfront, then we can be assured it was a disaster."

Both the broadcast and cable network Upfront markets have been healthy, with scatter money driving expanded sell-out levels across the board. With the economy expected to trend downward, networks will have less inventory for sale in the quarterly scatter markets, enabling them to sustain pricing levels even if demand softens. While this year's Upfront again appears relatively normal, it is anything but. As I have been commenting weekly in my reports at www.JackMyersThinkTank.com, a major trend is having increased impact on spending in all media. Each year, both buyers and sellers refocus the negotiations from price-only to new models and metrics.

May 13: "Inevitably, the next generation of Upfront buying and selling relationships will also incorporate network review of advertisers' creative strategies and an analysis of which advertising messages are most complementary to each network's program content, and which are most effective in holding audiences through commercial breaks. And media companies that are slow to invest in value-based media and marketing extensions will find themselves forced into a media commodity pool designed to drive costs toward free."

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