With news of on-demand and interactive media choices stealing the headlines almost daily, along with studies citing the imminent exodus of marketers to more ROI-friendly options, it would seem the national TV sales chiefs should prepare themselves for a multi-billion-dollar revenue dropoff this year. But for the foreseeable future, starting with this year's upfront marketplace, the networks and major agencies predict there will be no mega fallout of dollars.
Media agency executives acknowledge they do not see the broadcast network upfront growing much beyond last year's approximate $9 billion, but they also don't expect it to drop much below that. And while advertiser spending on the Big Six nets may have peaked—meaning more money will be allocated to nontraditional media in the future—the shift of spending on digital, interactive, on-demand and other new forms of advertising will happen gradually over the years.
"I think there has been a slow migration of ad dollars out of broadcast and into nontraditional media that started about three years ago, and has continued," said Ray Warren, CEO of Carat North America. "But I don't think you will see anyone pulling $40 million for a client out of broadcast to put into the Internet, until they can be sure that wherever they move that money into will give them the same merit of scale that broadcast does. Right now, no one is sure where that is."
Steve Grubbs, CEO of PHD North America, said most spending in nontraditional media will come from an increase in overall ad budgets rather than a cutting back of broadcast bucks. "There will not be a huge shift of dollars out of broadcast," he said.
Added Kris Magel, svp, account director at Zenith Optimedia: "Advertisers are not going to be running away from broadcast television [in the upfront]."
In this year's upfront, advertisers will probably use the spectre of a possible pullout to get more accountability from the networks for the millions they will spend. Elizabeth Herbst-Brady, director of broadcast investment at Starcom, believes the broadcast networks must be more accountable in showing advertisers that the money they spend is producing positive results. She also noted that the networks who show a willingness to be more creative in coming up with alternatives to traditional 30-second spots will be the ones who are able to retain more dollars down the road.
"Clients are trying to make sure strategic-ally that what they set out to do with their advertising, they actually accomplish," said Herbst-Brady. "But whatever media mix they use is best used in conjunction with traditional broadcast television. Nobody is prepared to totally walk away from sight, sound and motion."
Grubbs said the amount advertisers spend in the upfront versus how much they hold back for scatter next season will depend on how the networks price themselves. "In the past two upfronts, the networks have basically been buyer-friendly, and if they each set price points that are reflective of the marketplace, they will hold onto their dollars," he explained.
Magel said it has helped the broadcast networks' case that there is again some excitement over their program lineups. "You no longer hear complaints from advertisers about the low quality of shows on the networks," Magel said. "Advertisers are generally pleased with what the networks are putting on the air. There are seven or eight major hit shows with lots of buzz. And the cost-per-thousand prices have moderated. It is no longer a situation where advertisers feel they are paying too much."
Strong performances this season to date, particularly by ABC and CBS, will help those networks once again set the pace in the upfront. And Fox is once again becoming a contender with its strong midseason lineup and new fall entries that have taken root ratings-wise.
"Shows like Desperate Housewives, Lost and Grey's Anatomy on ABC, American Idol, 24 and House on Fox, as well as the procedural dramas on CBS, continue to get buzz for those networks," noted one media agency executive, who did not want to speak for attribution. "Those networks will at least match what they took in during the last upfront. While the WB's ratings are down, there is still a segment of advertisers who must reach that network's targeted young demo. Even if UPN is flat, the upfront total will probably decline only as much as NBC's total take [this upfront] declines over the last upfront."
NBC's fortunes in this year's upfront will largely determine whether or not the broadcast upfront is up or down. Last year, NBC had its worst upfront in years, taking in $1.9 billion, down from $2.9 billion the previous year.
The network's delivery of adults 18-49 in the prime-time ratings race is down 16 percent in the season to date. Fox is also down 9 percent (though that's about to surge upward on the strength of the above-mentioned shows). While CBS, UPN and the WB are all flat in 18-49s, ABC continues to hum along, up 3 percent in the demo season to date.
Ratings naturally have an effect on upfront performance. But as far as the future of the upfront process goes, media buyers remain sure the current system won't really change for several years to come. "Until somebody comes up with a better formula for doing business, I think this one works pretty well," Grubbs said.
Lee Westerfield, senior research analyst at Harris Nesbitt, said while some dollars have shifted to the Internet and elsewhere, it's still chump change in relation to the billions spent in TV. "The auto ad category is up 20 percent on the Internet, but that is off such a small base that it could go up 300 percent and still not make a dent in TV advertising," he said.