May Madness

The $8 billion television upfront store will soon open for 2003-2004 and a lot of customers are expected. They have indicated as much as they register intentions to buy in advance of the grand opening and grand price increases. The upfront season is usually madder than March Madness and this year promises to exceed expectations.

Polling for bulls and bears

The television marketplace is usually divided into three selling sessions: the upfront in late spring, the scatter market in early fall and the opportunistic market the day before or day of broadcast. However, the upfront market is where most of the merchandise are sold, especially the good stuff (like top ten programs) and pricing is set for the year. Since television is such a dominant medium for advertisers and network broadcast and cable is dominant within the medium, this madness sets the tone for the entire media marketplace in the next planning year. This is true for not only local television across a broad spectrum of geographic markets but to some degree there is a residue effect on print media as well.

Networks are in an unusually strong position. Prior to each upfront they poll their customers to find out intentions to buy. This allows them to not only figure out the size of the market, but also how it will be divided up by daypart and even by program in some cases. Advertisers and agencies cooperate because they do not want to be left holding a bag of money instead of a bag of programs when all is said and done. This does however allow the networks to decide how much bull to put into the bull market and how much a bear market will bear. So they hold many of the better cards in the deck before the game is played.

“Clout” and strategic flexibility

Years ago we had three or four networks dealing with scores of agencies to move the merch. Today we have scores of networks and a handful of major media services with most of the money. So the math is inverted and it would appear as though then agencies have the upper hand, but the gods like to play little tricks. In recent years we have witnessed the emerging importance of the strategist. New research methods have armed planners with new powers, so buys have to more responsive to the needs of new tactics. This requires more flexibility than was evident in the past. A media service moving a billion dollars into the television marketplace can be about as nimble as an elephant on a dance floor, unless they treat each client’s needs individually. When they accommodate these needs, “clout” becomes client based, not media service based. More properly put, “clout” becomes what it always was to begin with, the power wielded by a few very knowledgeable individuals on both sides of the negotiation.

The CPM dipstick

The currency used in the negotiation is of course money, but the denominations are coined in cost per thousands (the amount necessary to reach one thousand people in the target audience under consideration). CPM (cost per thousand) is the simplest most straightforward expression of what a medium is worth to both the buyer and seller. It is in fact an agreement, that reflects not only cost of the audience exposed to the media vehicle, but its personally perceived and objectively tested ability to communicate selling points, have an impact on and ultimately persuade people to buy advertised products. It is the negotiators dipstick to test the depth and quality of the marketplace.
Most advertisers in a category will enjoy roughly the same rates on apples to apples basis (say for roughly the same package of programs). Because the media are wary of executive mobility and loose lips within a category, they tend to normalize pricing. For the individual advertiser though, pricing levels are set by comparing this year’s rates to last year’s. So getting a good feel for what your competition is doing and clocking your own pricing history goes a long way to helping the Marketing Director at the advertiser feel a bit more comfortable about the precious millions of dollars that are crossing the table.

The battle of the bubble and the bulge
Pricing from year to year, over the past several seasons, has been pretty unpredictable. However, after the downturn of 2001-2002, the television market is expected to rebound. While consumers are demonstrating a low degree of confidence in the economy, marketers are showing a high degree of confidence in the medium, as expressed in several industry polls. As a result, higher prices for programs, especially the higher rated ones, are the order of the day. This might be a bubble waiting to pop, but is more likely a bulge indicative of marketer’s frustration with the downturn.

Price increases over last year’s upfront will range from 0-20%, with daytime at the lower ranges (1-5%) and primetime at the higher (10-20%). Morning and fringe times will fall in between. Within primetime, NBC and WB should enjoy rate increases that are higher than their competitor’s (15-20%), while ABC and UPN will probable be able to wrest 10-13%. CBS and FOX will likely fit in between. In cable, music, sports and News channels should enjoy the biggest gains of up to 15-20%, while broader based cable networks should hover around 5%.

So now we will see how this confidence game (for that’s what it is in the best sense of the3 word) will play out. If the numbers hold up, we can either interpret them as madness on the part of marketers for paying high prices in a poor economy or a precursor of better days for everyone. Place your bets.

Media Directors Inc.: March-April 2003