The 2015-16 TV Upfront is finally over and in the books. It was accompanied by the usual cacophony of voices predicting, once again, the “end of days.” Much of the rationale for these predictions is based on flawed assumptions by people who have no first-hand knowledge of the TV buying process. But just as the stock market forecaster who each year predicts a coming catastrophe will eventually be vindicated when the market does crash, so the Upfront Apocalypsers might finally have their day. To be clear, the Upfront will not disappear next year or the year after. However, when the TV historians look back, this year may be viewed as the tipping point … the year when the Upfront started to lose its mojo.
The Upfront has survived for nearly half a century because it offered benefits for both buyer and seller. The TV and cable nets sold premium inventory at favorable, guaranteed rates to entice buyers (agencies and advertisers) to make long-term commitments. Furthermore, the cost basis for long-tenured Upfront advertisers remained significantly discounted vs. current market rates, so long as they continued to buy Upfront each year. Also, both agency buyer and TV seller have long recognized that their manpower and systems couldn’t manage a marketplace dominated by short-term buying.
Benefits aside, the actual driving force and motivation that fuels the buyer feeding frenzy so important to the sell-side success is … Scarcity and Fear. TV and radio, unlike digital or print, have a limited amount of inventory available to sell. When inventory avails are scarce, pricing and cpms increase. Before the growth of digital channels there were few alternatives where advertisers might shift their media spend to temper TV price inflation. Also, until recent years, a strategic shift of budgets to the short term market was a risky option, as the sell-side was nearly always able to command even higher rates in the short term market. Few alternative media options and limited negotiation strategies played right into the buy-side fear factor. And the sell-side was able to leverage this very effectively.
The greatest fear of the top agency buyers has always been that their competitor agencies would negotiate lower Upfront rates, or that spots in the key, top-rated shows that their clients coveted would not be available. There were huge consequences for the winning and losing agencies (those negotiating the best deals according to the trade press). For years the TV sellers were able to use this as motivation for the Upfront TV feeding frenzy … buy us now or the prices will only increase!
While the Upfront evolves a bit every year, this year seems different. For several reasons it feels like we’ve reached the tipping point where the previous benefits enjoyed by Upfront buyers are no longer compelling.
First, advertisers and agencies are comfortable shifting ad spend out of TV into the broad array of digital options. This movement will continue and accelerate in the future.
Second, the massive audience fragmentation across TV channels has eroded the viewing audiences of the top TV and cable nets to such a degree that the long tail is growing longer. With a handful of exceptions the vast majority of ad supported programming delivers less than a 1.0 rating and is no longer scarce or unique.
Third, the pressure on agencies to reduce media costs is enormous. Agencies are investing in data and audience optimization tools. These tools drive TV ad spending to the most cost efficient channels, and these are generally lower rated, lower demand channels … and there’s certainly no scarcity of those.
Fourth, the penalties for buying in the scatter market no longer exist, so buyers can confidently shift spending to the short term market without fear of cost premiums.
Fifth, the TV sellers now offer the same Upfront increases (there’s still a wide disparity in base cpms) to 90% of the market, so there are fewer chances for agency buyers to gain a competitive advantage in the Upfront.
A final point … as automated buy/sell (programmatic) practices are adopted by the TV industry, large volumes of dollars and inventory will soon be traded very efficiently on a short-term basis. Over time this will remove the last major obstacle for those arguing that limited manpower resources still make the Upfront a necessity.
The management of both the top media agencies and top TV/cable conglomerates very much want the Upfront to continue. However, the key motivating factors for marketers to participate in it are fading away. I believe TV sellers will seek out new ways of creating Scarcity and Fear. I believe they will find new ways of packaging inventory or demonstrating ROI or building out their data offerings to incentivize continued, Upfront commitments. But, if they don’t ...
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