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Upfront 2017: TV Networks Square Off Against Cooling Ad Market

Variety logo Variety 5/11/2017 Brian Steinberg
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The TV industry faces a cliffhanger in weeks to come that is every bit as tantalizing as ones that surface in the final episodes of a season of “Empire,” “The Walking Dead” or “Grey’s Anatomy.” Can CBS, ABC, NBC, Fox and the rest tune in more advertising dollars than they did last year?

Madison Avenue is, at least initially, saying no. A range of ad buyers suggest TV’s annual “upfront” market, during which the U.S. networks try to sell the bulk of their ad time for the coming season, is likely to be more challenging than last year’s. In 2016, TV carried the day, and advertisers agreed in many cases to pay double-digit rate increases. The five English-language networks secured between $8.41 billion and $9.25 billion in advance ad commitments for primetime, according to Variety estimates – the first time in three years they might have managed to break the $9 billion mark.

Advertiser interest in 2017 may be harder to snare. “We are looking at slight decreases in demand,” said one media-buying executive.  “Budget clarity is very slow to progress this year,” said another buyer. Overall volume of advance advertising commitments is seen coming in around flat to slightly up, buyers suggested.

Media buyers have a vested interest in keeping the TV-ad market cool, but executives on both sides of the table agree that TV’s leverage in 2017 has slipped. In 2016, the broadcast networks nabbed significant increases in the cost of reaching 1,000 viewers – a measure also known as a CPM that is integral to these annual talks between the networks and their advertisers. Rate hikes in some cases were as high as 10% to more than 12%. This year, according to buyers and TV executives, the networks will fight for hikes of between 8% and 9%.

“You start hearing numbers like high singles in CPM growths,” said Leslie Moonves, the chairman and chief executive of CBS Corp., during a recent conference call with analysts. “The upfront, to me, is going to be exceedingly strong.”

“The very high end of it could be 8% or 9%,” said one buying executive. “But I think everything else will be below that.”

And so the haggling begins.

In 2017, buyers and sellers are both cognizant of the fact that traditional TV audiences continue to erode – and that the industry has yet to agree upon new measures that would help the networks monetize viewing being done on mobile devices and using streaming video. In recent months, ad spending has softened, according to Standard Media Index, a tracker of how ad dollars are allocated. Key events like NCAA March Madness and TV’s glitzy awards programs have been “slowing down more than anticipated,” the company said in a recent research note. National TV advertising spend declined 1% to 2% in the first quarter, according to Pivotal Research analyst Brian Wieser, owing in part to uncertainty about national policy due to a chaotic White House.

At the same time, the networks have a big chit in their favor:  Advertisers have in recent months begun to fret over a lack of transparency in digital media. They frown when their ads turn up next to potentially offensive content on YouTube and grimace when Facebook acknowledges it inadvertently undercounted views of video ads, as it did late last year.

With this kind of anxiety on the wind, TV has something all advertisers want: high-quality content that Madison Avenue can trust, backed by a third-party measurement system that has been in place for decades.  Advertisers next week are likely to hear about a revival of “American Idol” at ABC; an “X-Men” drama at Fox; and a live showing of “Jesus Christ Superstar” on NBC. In an era when linking a brand to controversial content can generate massive approval via social media, there’s something to say about programming one can trust

“There is a digital crisis of confidence which might cause dollars to migrate to the safe haven of TV,” said one of the buying executives.

But that is tempered by the prospect of smaller rate hikes. If the CPM increases narrow from last year, it could put the networks on a track they had been on since 2011 – the last year prior to 2016 they were able to negotiate broader hikes.

Post-recession spending helped fuel advertiser enthusiasm for TV that year. But in 2012, as NBC executives put an upfront spotlight on a Capuchin monkey who was a member of the cast of a sitcom called “Animal Practice,” advertisers pulled their purse strings tighter. Except for last year, TV networks have generally not been able to negotiate a wider CPM increase since the 2011 market. Those that have tried have often been penalized with flat or declining volume.

The 2016 market was also boosted by an unusual dynamic: Big consumer-product marketers like Procter & Gamble grew frustrated with digital media and moved their money back into TV. Buyers think that reverse money flow will not show up with similar force in 2017. What’s more, buyers suggest ad spending by auto makers, movie studios and retailers will be less robust than in the recent past. Even the gadget-hawking telecommunications sector – which has pumped millions into TV in recent cycles – is seen cooling off.  The pharmaceutical industry, meanwhile, is seen ramping up ad spending in a significant way.

Of course, the TV networks are selling much more than TV. All the big media companies have digital inventory to sell as well, and many of them have devised new ways of measuring audience attention upon which they can strike ad deals. The results of their labor likely won’t be known in part until later in the summer. Until then, only the people at the negotiating table will know how much money is passing hands.

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