Media Roundtable: Does the Upfront Have to Change?

For years there’s been talk that the upfront television ad marketplace is an outdated concept. This TV season, that chatter has grown louder and more insistent as the networks try new scheduling techniques to stop ratings erosion, and cable and syndication try to steal away more dollars. For some expert perspective from both sides of the upfront negotiating table, we invited five media insiders to a roundtable discussion: Jon Mandel, co-CEO, chief negotiating officer, Grey Global Group’s MediaCom Worldwide; Tim Spengler, evp, director of national broadcast at Interpublic Group’s Initiative Media; Carat USA president Charlie Rutman; Jon Nesvig, Fox Broadcasting’s president of sales and evp of Fox Television; and Universal Television Networks’ Jeff Lucas, president of advertising sales.

How important is the upfront?

Mandel: I don’t understand what all the talk is about the upfront, as if it’s some kind of big thing, as if it’s indicative of the rest of the world—because it’s not. It’s one little blip that’s a part of our business. If you do the economic analysis, cable overcharges, radio overcharges, local broadcast overcharges, but network has been nothing but supply and demand for the last 40 years. The Internet, too—there’s endless supply and not as much money chasing it. The upfront is actually one of the more efficient markets. Now, is it broken in the sense that it’s the wrong time of the year? Yes, probably. Are there things that can change? Yeah, probably. But it’s not like the sky is falling.

Nesvig: There’s an awful lot that leads up it, but ultimately it is a client-demand marketplace, and it happens basically out of fear because of lack of supply. And sometimes it happens in May, sometimes it happens in July or August. It gets written about to such a degree in those few days because we’ve had a pretty high-demand marketplace, and it’s really a momentum marketplace.

Schrage: So what do you get when you cross the lemming with the sheep? An ad buyer?

Nesvig: I would never call my clients names. I don’t know what’s irrational about the process. We’re just here to respond to our customers’ needs.

Spengler: If you look back, the upfront has been going on in a very similar form for the past 20 years. I think over time it will change in one form or anther. It will be less important.

Nesvig: You’re not going to find any major differences until there is another avenue that’s pretty effective to reach the consumer. A viable alternative to network television, local television, cable television. You need to have a relief valve. They’re going to find it on the agency side, and then you’re going to need to have clients who have the guts to go with it, and then that will change. But is that going to happen next year or in the next three years?

Jeff Lucas: It’s not going to change in one swoop—it’s going to evolve.

Misunderstanding the market

Spengler: I think the biggest misconception is the thought that we on the agency side are being herded like sheep into paying a price. I’ve been doing it long enough to remember there are years where it does go down. Somehow when it goes down, you don’t see the press saying that it’s the end of the upfront.

Schrage: It’s not just distortion in the press, it’s the distortion in the advertising community.

Rutman: Double-digit price increases—you know, that’s a tough thing for anybody to swallow for any product. What doesn’t get reported is why that occurred.

Nesvig: I think one of the basic misunderstandings is that people talk about the upfront as though, OK, it’s 8, 9, 10, 12 billion dollars that’s moving—but the prime-time network upfront is still piece by piece.

Mandel: You’re in cable, Jeff. Why does the Weather Channel have an upfront? They can’t figure out what it’s going to do tomorrow!

Lucas: It’s advance buying. We buy in advance to magazines, we buy in advance to spot TV, we buy in advance for every other medium.

Rutman: Networks are delivering less, yet they’re charging us. Part of the reason they’re delivering less is because clients say, and agencies say, “You can’t charge me more,” so what did the networks do? They increased the GRPs. How did they increase the supply? They made a third of prime time be commercials. And you know what happened? Now less people are watching it.

Lucas: It’s a vicious cycle, but the point is that supply was added because the clients are saying, “I have to get on the air. I can’t be shut out.”

Why the Big Six get the big bucks

Nesvig: You still need to reach people. We tend to talk about it as a straight commodity, but we have actually gotten more focused within our products—there are certain shows that the cars need, they need a 24. The Thursday-night shows are just what the movie companies need. There are different target audiences that are markets within the marketplace, and if you want to come along and say, “I don’t want to be part of this madness,” that’s fine. There will always be inventory available at the last minute, but it may not be precisely tailored to your audience or may not meet your program standards.

Schrage: You have to pay a premium for fine tuning is what you’re saying.

Lucas: Right now, there are six broadcast networks, and there are 60 cable networks. In five years, there are going to be 70 networks. At that point, some of these issues are going to go away as the landscape starts to change.

Nesvig: One of the major advantages of being a national advertiser is access to more efficient media than your local competitors. Certainly, mass distribution leads to efficiencies.

Mandel: Think about introducing new products. You need some broad immediate reach. You’ve got national distribution on a given day. You’ve got to get it out there. If it takes you a month to build the reach and start moving that stuff off the shelf, it totally changes the economics of introducing a new product. It’s not about media, it’s about the very economy.

Efficiency versus cost-effectiveness

Spengler: Look at brands like Claritin. One year they go from buying two-page spreads only to a combination of national television and print. If they had launched that brand only in print and only in radio, or 20 percent of the budget in national television, [would it have been as successful]? Probably not. The medium works.

Schrage: You think that’s going to go away if you go to 70 networks?

Spengler: No, I think national television will still be a powerful platform.

Rutman: Nobody in the creative community wakes up in the morning saying, “What’s the next great use of radio?” or, “How can I make magazines more intrusive?” It’s still pages and spreads and :30s and :60s, and it becomes an afterthought. The truth is, there’s nothing on a par in terms of the power of the medium, in terms of a mass selling tool.

Schrage: Is there a complementary or rival medium that could change the national TV model? What if, for example, we could demonstrate that you can use network TV to drive traffic to Web sites and turn broadcast into a direct medium?

Mandel: Let me ask, Why do you want to turn a mass medium into a personal medium?

Rutman: I could do that with newspapers, but the way newspapers are used, and I’m not a creative director, it’s a flat ad on a page that doesn’t have the sight, sound, motion and emotion of television. [But] I could reach more people in a day in newspapers than I can in television.

The value of network TV

Mandel: General Motors is not going to leave prime-time television, because all that’s going to do is make it cheaper for Ford.

Lucas: People walking down the line are very fearful of that risk. Tell me a product that could afford to take that kind of jolt?

Spengler: Are we questioning national television now, or are we questioning the upfront? Because I think the power of national television is really [vital] at this point. The clients have already answered that question. They’re too afraid to not be in it.

Mandel: I remember, a number of years ago, Mike Mandelker [UPN’s head of ad sales] was at NBC, and we had an account that had to get on the air. [NBC was already] sold out, and we had to get on. So we said to the client, “They’re sold out. We told you to buy this a month ago, you said no. Now you can’t get on.” And Mandelker had a great line. He said, “Well, why don’t you buy the evening news? We can always make that come in short.” He said it as a joke. And we went back to the client and said that as a joke. The client said, “OK.”

Nesvig: It’s a question of, Does it still work? The answer appears to be yes. When it doesn’t work, and you get a bad price/value relationship, people won’t spend.

Rutman: Jon Mandel represents the Seagram’s company. The alcoholic-beverage manufacturers are pissed off. They say they are being disadvantaged in the marketplace because they don’t have access to the power of broadcast network television—so apparently it must work. For those movie companies that have to open their movie on a weekend because the first week’s gross determines DVD sales, it works. It may not work as well as it once did, but it works.

Schrage: One has to wonder whether we’re running into the situation where people are spending an awful lot to be in a Bentley but it only goes 10 miles per hour on the highway?

Rutman: Are you saying that all these people who spend money are idiots? That’s what you’ve just said. There’s no hand that guards the marketplace. There’s an ephemeral thing called the marketplace. At some point when that price/value relationship is out of whack, there’s an alternative. It’s not out of whack versus some other alternative. When our clients tell us they’re not getting the results, you’ll see a reaction in the marketplace.

Mandel: Does anybody talk about not doing an upfront in cable? If you look at it on a price/value basis, cable’s the one that’s overpriced. Each network has two big shows you want to buy.

Lucas: We’re not saying we want to replace broadcast network television. We’re saying we can complement [the client] on the buy.

Upfront versus calendar year

Mandel: If the word “upfront” equals advance buying, I think we would all agree, we don’t get a lot of complaints about the fact that we need to buy time in advance. The one complaint I do hear is, most clients are on a calendar year. I’m not arguing about the advance—it’s just so out of line with all of our clients’ budget plans that it puts a lot of pressure on the client organization at a time when they’re not thinking about that. If there’s anything that should be adjusted, it’s the timing. Maybe it should be October or November. But every time we try to do that, there’s some guy that says, “Well I’m going to go early and I can get a better deal if I go early.”

Schrage: Will that change the future of the television season?

Mandel: When CBS put on Northern Exposure in the beginning of July, did anybody talk about how that was going to change the upfront?

Spengler: It feels like the networks are going to more of a 52-week year. As long as we believe there are benefits to our clients to move the money early, then I think we on the agency side will recommend that to our client.

Rutman: But you’re talking about that as if, once you shake hands, that deal is done. The truth is, there’s way more flexibility, and there’s way more movement.

The buyer/seller relationship

Nesvig: It’s important for us to remember we’ve got to work on this together. What are we going to do if we get squeezed and we can’t make any money? We’re going to look to the consumer for more money, and the advertisers are going to have less of an alternative. The more you weaken a robust network-reach vehicle, the less advantage the advertisers are going to have in being able to utilize it. What is in all of our best interests is not to yell at each other about price but to figure out how to make it work.

Mandel: Remember, packaged goods used to be the biggest client of network television. They also happened to pay very low rates compared to automotive or a movie because the economics of those businesses are different than packaged goods. What has happened is, the packaged-goods guys have moved more and more money out of network television, and the automotive guys and the entertainment guys have moved more and more in. Because it’s still the price/value for their business. For the packaged guys, yes, it is too much of a premium, and they’re going elsewhere. But at the end of the day, ironically, the networks are making more money, because the guys that are moving in are paying more than the guys that are walking out.

Lucas: I think we’re getting to that tipping point where a lot of clients really can’t afford it—not that they don’t want it, they just can’t afford [it]. I think we could be getting to the point where some of the big advertisers start to look for ways to shift money.

Nesvig: This was a big upfront. Why? Because the year before, people had been burned in scatter. You had an Olympics and election year coming, a lot of short-term money moved into the long term marketplace. Now to the advertisers who bought upfront the previous year, they felt, “Hey, I paid too much in scatter.” The guy who bought in scatter at a 40 percent premium, he said, “This upfront is the greatest thing ever. I just saved 25 percent. My CPMs went down.” These guys’ job is to find the value for their clients and put their money to use in the best possible way. I hope and I believe that that still includes broadcast network television as a major component, and I don’t like the kind of angry rhetoric that I’m hearing.

Lucas: I think there’s going to be a shift in this upfront from broadcast to cable. Not just ’cause I’m the cable guy sitting here.

Nesvig: NBC isn’t going to like the economics of that.

Lucas: I’m not there yet.

Nesvig: It’s sooner than you think.

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