Upfront Strategy

Here's a sure sign of spring: The ad industry has begun talking about the next episode of network TV's upfront sales bazaar. It's a market unlike any other. A small group of buyers—maybe about 100—and an even smaller bunch of sellers—a half-dozen—cut multimillion-dollar deals that account for a huge chunk of network TV's $20 billion in ad inventory for the 12 months starting in September. In return for these large yearlong commitments from their best customers, the networks guarantee that advertising schedules will reach or exceed specified audience ratings goals. But the economic logic behind these deals is hard to fathom. The networks take a disproportionate share of the risk, knowing with remarkable precision the best they can possibly do. Buyers, conversely, know the worst. If the TV shows outperform their guarantees, the buyers get the extra ratings as a bonus; if the programs fare poorly, sponsors receive extra spots to make up for the deficiency.About 20 years ago, when it was in a much stronger position than it is today, CBS attempted to break with tradition and sell its choicest ad slots without guaranteeing audience performance. If memory serves, that sales attitude lasted for about a month. The other networks—all two of them—benefited mightily as advertisers shunned the Tiffany channel. It took CBS a year or two to recover.Now the Black Rockers are making noises suggesting they are about to try another tough strategy—seeking top dollar for upfront ad sales rather than offering discounts. CBS signaled to Wall Street that the network might hold back time from the upfront market if pricing isn't favorable.This time, despite a poorer starting position, the strategy could work. Merely removing time from the market—once the buyers see you're not bluffing—will drive up the price of what remains for sale. Having additional inventory for sale later in the year could prove valuable, too. Today, CBS' parent company is much more broadly based than it was two decades ago, and top management is considerably more hard-nosed. They might be more willing to stick to their guns until victory is at hand.For buyers, however, a logical, winning, though we suspect unused, strategy might be for an advertiser to buy heavily into the networks' new and unproven offerings, whatever they are. Ordinarily, these shows are modestly priced and offer generous guarantees. If they miss their targets, the advertiser gets make-good units; if they hit their targets, the advertiser got a bargain. If they beat their targets, it's pure bonus. Heads you win, tails you don't lose.In actual practice, if the ad market turns out to be especially strong, the networks get premium prices for the time that remains for sale after the upfront buyers are accommo-dated. If the market softens, advertisers can back out of some earlier commitments—or at least average down. In a typical year, spots sold upfront are cheaper than those sold later. And that's not a bad arrangement for buyers, either.

Brand Marketing

Upfront Strategy

Alan Gottesman

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Alan Gottesman