Cable Networks Steal The Show—for Now

Not to get all Discovery Channel about it, but while the broadcast networks stamped around the upfront marketplace last week like rival elephants scrapping over a shrinking watering hole, two major cable players made like gazelles and snuck some gulps of money under the pachyderms’ trunks.

At week’s end, sources familiar with the discussions privately confirmed that Turner Entertainment had completed its upfront business with Starcom, to the tune of about $150 million. Earlier in the week, OMD and MTV Networks proudly proclaimed they had cut a significant multiplatform deal—neither party would confirm the dollar amount, but sources with knowledge of the deal said it valued roughly $300 million.

This isn’t to say cable is going to drink up more dollars than expected—probably under $7 billion in this year’s upfront—but it does signal a change from the last few upfronts when the cable nets were made to wait until the broadcasters had drunk their fill.

The broadcast nets had started the week promisingly enough. Fox did some quick movie business at cost-per-thousand rate lifts as high as 4 percent, but the studios traditionally pay higher rates than other advertisers in exchange for selective positioning. And industry sources said Fox’s negotiations with advertisers in other categories had stalled over price. CW was also cutting some smaller deals at flat pricing compared to soon-to-be defunct WB charged in the last upfront.

But as the week progressed, it became clear the market was not going to pick up steam for the broadcast nets. NBC, the network least likely to get a spot at the watering hole—it is widely regarded as the weakest of the Big Four—actually did some business at significant CPM cuts (in the negative-6 percent range) to lay in a base of revenue, said buyers. OMD is reportedly one agency to have done business with NBC at negative CPMs.

ABC, which everyone expects to be the market leader, had still not written any business at press time, several media agencies said.

And there was a lot of misinformation going around, too—one broadcast network sales exec quipped, “I’ve stopped listening because I can’t tell what is true or not true.” For example, it wasn’t clear at press time just what amount of business CBS had closed. The network was in serious conversations with Group M [MindShare, Mediaedge:cia, MediaCom] execs for much of last week, but hadn’t sealed any deals by week’s end, according to insiders. “The agencies were trying to get CBS and the other networks to write business at negative CPMs compared to last year,” said one agency executive.

But one network sales exec countered: “Neither the sellers nor the buyers are going to risk rushing to judgment and doing a bad deal.” As of late Friday, all the agencies had registered budgets and sent the networks plans, but some had not yet even heard back from some of the sales teams.

Aside from the Turner/Starcom and MTVN/OMD deals—representing less than 7 percent of cable’s expected upfront take—the cable upfront market remained all but dormant, too, with few clients even having registered budgets with the networks. “Unless you represent an endemic category, there have been very few budgets drawn up. Almost none,” said an ad sales chief at a first-tier cable net. Among those registering budgets, some have cut back their spending this year.

But MTV Networks’ sweeping multi-network, multiplatform deal with OMD has put the Viacom-owned properties in a better position than a few weeks ago. (Of that figure, about 10 percent has been earmarked for digital media.)

Merrill Lynch analyst Jessica Reif Cohen said that as cable’s prime mover, MTV Networks, may well prove to be the big winner this year. “Signing a relatively early deal is a positive indication that Viacom’s digital platform could help the company outperform its competitors and the general marketplace,” Cohen remarked in a note to investors. Viacom CEO Tom Freston said last month that anywhere from 5 percent to 8 percent of the company’s upfront dollars would be tied to its digital properties––the timing of the OMD deal was the only wild card. “MTV really crashed the party here,” said an ad sales exec from a rival younger-skewing network. “OMD got on board before it did much of anything on the broadcast side. That’s different.”

Joe Uva, president and CEO, OMD Worldwide, declined to comment on his rationale for moving quickly with MTVN, saying only that the deal guaranteed his clients, which include PepsiCo and Cingular, unparalleled access to a young, wired demo.

Details for the Turner/Starcom deal were sketchy, although a source suggested that that agreement also was bundled around a robust off-net package. Starcom clients include Miller Brewing and Macy’s—a $200 million newcomer to national TV.

The slow materialization of upfront sales was also affecting digital ad sales. “It’s a continual flow of engagement, but it’s too early to talk about deals,” said Alan Schanzer, managing partner of Mediaedge:cia’s MEC Interaction. “TV buyers are getting engaged in negotiations and are bringing us in to evaluate digital inventory.” But Schanzer said most digital deals are not going to get done until after the broadcast deals are finalized. “We’re trying to not get in the way, while talking to them on an ongoing basis,” he said.

Sean Finnegan, U.S. director for OMD Digital, whose team helped put together the OMD/MTVN deal’s digital components, said, “The networks are finally putting a lot of these packages together and are recognizing the behavior of the [digital] consumer.”—with Mike Shields