NEW YORK Like the proverbial group of blind men trying to ID an elephant by touch—it's a snake! it's a tree!—getting an accurate read on this year's cable upfront has been an exercise in warring perspectives.
Depending on which part of the pachyderm you're tugging on, cable will wrap up its most protracted upfront in five years somewhere between flat to down 2 percent from last year's $6.5 billion marketplace. If you believe the final tally will fall at the low end of that range, that's $130 million that has disappeared from the table.
If indeed the skies over the cable marketplace are as gray as an elephant's hide, both buyers and sellers remain generally optimistic about the next few quarters, thanks in large part to a scatter market that shows no signs of fizzling out. Ad sales executives at cable's powerhouse networks have been reporting third-quarter scatter increases of around 10 percent versus a year ago, and many see the same holding true for the last three months of 2006.
One factor that could have an averse effect on scatter is the surfeit of inventory expected to glut the market in the coming quarters, as cable in the aggregate moved less upfront inventory than last year. MTV Networks was the extreme case, selling about 50 percent of its total inventory in the upfront, versus the 60 percent it has put on the books in upfronts past.
Other volume shifts were less remarkable, and a few networks were flat versus 2005. In any event, cable ad sales execs didn't seem overly concerned about inventory discrepancies, given that they had fair warning going into this year's upfront. "Advertisers told us in no uncertain terms that they would be holding back money, and that their calendars have changed," said Spike TV senior vp, ad sales David Lawenda. "So we're adapting, developing opportunities for them throughout the year. Whenever they decide to come to the table, we'll be ready."
However much additional inventory will be out there in scatter, some ad sales execs said it's difficult to divine what, if any, effect the extra volume will have on scatter pricing.
Bruce Lefkowitz, evp, ad sales at FX Networks, said there were too many factors in play to get a true picture of how the next few quarters will play out. One factor that particularly stands out is the fuzzy math that is sometimes used when final sales tallies are added up.
"If someone says they sold 60 percent, it may actually be closer to 40," Lefkowitz said. "If everyone announces that their final numbers were up, but the top four [media buying] agencies say they were down in volume between 6 percent and 12 percent, then the math just doesn't add up." For his part, Lefkowitz said he doesn't have any extra inventory lying around, saying that FX ended flat on volume, while National Geographic Channel was up 20-25 percent.
David Levy, president of Turner Entertainment ad sales and Turner Sports, also reported volume increases, saying that his networks finished up in the mid-single-digits and saw cost-per-thousand rate hikes that were "flat to slightly up" versus last year's upfront. And while Levy agreed with the assessment that cable would finish flat-to-down, he said that he believed that third- and fourth-quarter scatter would be strong.
"There's going to be tons of extra inventory, no question about it, and we're all going to have to work a little harder for that dollar, but if you have the brand clients want and if you have the digital extensions they want, you're going to get that money down," Levy said.
In the long term, Levy said he sees the 2006 upfront as a harbinger of what future markets are going to look like. "This really was a watershed year. Negotiations were far more intricate, and clients had an unprecedented number of options," Levy said. "We're going to look back and say that this was the year we began moving to a 52-week marketplace."
While conventional wisdom says a weak upfront leads to a strong scatter market, at least one media buyer said upfronts aren't suited for the role as the industry's chief prognosticator. "I believe strongly that there is way too much emphasis placed on the upfront and what it means," said Rino Scanzoni, chief investment officer at Mediaedge:cia. "It's a futures market, and people invest in futures markets when they expect tightening. If anything, it's a rear-view look at the marketplace."
While the future remains murky, most ad sales execs agree that they don't see the upfront disappearing altogether. Steve Gigliotti, svp of ad sales, Scripps Networks, said, "As there is a limited amount of good programming, there's going to be a demand to get in ahead and lock it up at a good price." (His upfront volume increased at a rate "approaching double digits.")
In the near term, scatter looks solid. "Unless the business has totally changed since I woke up this morning, money chases ratings points," said one ad sales exec. "Since ratings points are down, scatter should be healthy. Simple as that."