Upfront: Will Digital Make a Difference?

Upfronts Deliver Incremental Revenues?

This year's network television Upfront is shaping up to be the most interesting in years – maybe the most interesting EVER! There is growing disparity between the expectations of the networks (and Wall Street) and the wary realities being put forward by buyers. As outlined in last week's Report, buyers believe volume will be flat to slightly down while sellers and Wall St. anticipate up to 5% growth. Sellers and Wall St. project CPM growth in the high-single digits (even into the low double digits) while buyers are far more conservative. Compounding these differences is the surprisingly impactful emerging digital video marketplace as evidenced by this month's well-received "Newfront" digital content presentations.

Will these Newfront presentations impact on the traditional Upfront market this year and translate into meaningful incremental revenues for online video sites? Pivotal's Brian Wieser pointed out in his recent report, "we do not consider these events to be material to anyone other than the companies making the presentations."

Annualonline videorevenues will grow at the same rate with or without the Newfronts, but the "dog and pony" investments are contributing to enhanced perceptions of digital video opportunities and improved self-esteem of the digital community.

There's no doubt that all but a few of the more than 15 Newfront presentations effectively communicated that a new marketplace has emerged. But, pouring cold water on the presentations, one industry observer wryly noted that since there is limited advertiser demand for digital video media content, the companies are instead creating demand for their Upfront events and parties. Microsoft turned away more than 200 people, there were lines for others, and tickets were tough to come by for several. The best received presentations were those that focused on content and that at least appeared to understand that Upfront presentations are supposed to create demand for advertising availabilities in that content. Aol. and Vevo, along with Hulu, took honors as the best reviewed Digital Content "Newfront" presentations last week with industry executives eagerly anticipating Google/You Tube's Beacon Theater event Wednesday evening. (See Newfront and Upfront Reviews at MediaBizBloggers.com)

Preaching to the Choir

The executives in attendance at most of the events notably did not include most network TV planners and senior buyers, senior media agency executives, or even some of the most senior agency digital buyers. Client executives were few and far between. Attendees were primarily composed of the junior and mid-level management at digital agencies and media agency digital groups, plus the requisite "friends and family" from digital publishers, networks and service companies. A few Wall Street analysts and journalists were in the audiences. The Newfront presentations, surprisingly, were not streamed live to make them available to senior executives who prefer to view from their offices.

Supply and Demand

The dynamics for the creation of a standard currency, data analysis for apples-to-apples comparisons, and demand curves for online video are not yet established. Wieser comments, "very little [online video inventory] would be deemed to be of sufficient value that it must be locked up in advance."

Dollars diverted from broadcast networks to online video will accrue mostly to those networks themselves. Cable networks and syndicators have considerably fewer available digital options to offer advertisers than their broadcast counterparts, and are less well positioned to compete for digital revenues. But buyers seeking greater cost efficiencies from cable have many traditional options within the cable community itself, and don't require negotiating leverage except in a runaway growth market, which this will not be.

Embracing the Upfront Model

It's great to see the major players in online video embracing the traditions of the Upfront, no matter how antiquated those traditions may be. Considering the frequent calls over the past decade for the abolition of Upfronts, the expansion of the marketplace reinforces the vitality of broadcast and cable networks. Advertisers continue to depend on network TV to be the engine that pulls their marketing train. Digital companies have been smart to load up some grain cars and attach them to the engines. The question is how many cars the TV networks can pull behind them and how much grain will be unloaded by buyers.

The good news for the networks is their own cars carry the most valuable grain, their inventory will be the first to be sold at the highest prices, and they've been smart enough over the past half-decade to expand their inventory.

Digital Video Market Realities

Wieser notes "buyers at agencies are keen to purchase online video inventory to create an "escape valve" containing traditional TV pricing,which is what marketers care about most. Sellers would generally love to sell it to capture a higher volume of dollars, as they care about boosting revenues. For now, most of the buys of online video will remain within the bundles that traditional TV sellers attach to conventional buys, as occurs today with the broadcast networks and Hulu, for example. [Online video] just doesn't require anything resembling an upfront marketplace. Most online video will continue to be funded by digital budgets (distinct from TV budgets, and with often divergent goals from those used to budget TV advertising). These buys will continue to have shorter lead-times than TV, as online advertising is typically planned closer to the time at which campaigns run. As well, for these budgets, online video is only one of an array of digital tactics, and there remains no shortage of ways in which digital budgets can be executed without committing months (or up to a year) in advance, as is the case with the conventional Upfront."

Beginning of a New Era

These same criticisms were applied to cable network TV in the 1980s and throughout most of the 1990s. But after the post-2001 economic recovery, cable Upfront revenues grew exponentially and have now achieved parity with broadcast. Advertising funds a wide diversity of independent cable networks plus many owned by Disney, Comcast/NBC and News Corp. Over the next two decades, similar dynamics will emerge in digital video, with the 2012/2013 Upfront marking the beginning of this new era.

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