The Chicken Or the Egg? An Upfront Story
On your magic screen, you see a farm in a distant land. Each morning you observe the farmer feeding his chickens a measure of food, and each evening he returns to harvest about a dozen eggs from the coop. (Why you and your team have chosen to observe this particular farm makes me think you have way too much free time, but that's for another column.)
One day you notice that the farmer has doubled the amount of food that he is feeding his chickens, and lo and behold, the output of eggs virtually doubles. Since you have chosen to scientifically observe this farmer's behavior, you and your team of experts conclude that 1) the farmer has figured out or 2) the farmer has somehow learned that doubling the amount of food will yield approximately double the amount of eggs. You go on to deduce from what you have observed that the marginal gain from egg production exceeds the marginal cost of chicken feed, and the farmer is now running a more efficient and more profitable operation. You decide to call the place "The Egg Farm."
What you failed to realize (because the magic screen does not let us hear conversations or communicate with what we are observing) is that doubling the amount of food a chicken eats also results in fat chickens. And since you didn't know that eggs were in abundance in this farmer's world, you could not know that market pressure had pushed the marginal cost of producing eggs past the point of profitability. However, this particular farmer's business advisors had told him that the price for chicken meat was on the rise--so he should fatten up his chickens, sell them, and become an emerging media pundit. He tells his advisors that he doesn't need to become an emerging media pundit because he has not taken any of the eggs to market since he started doubling egg production--he has put them in an incubator in another building and transitioned his business into a "Chicken Farm."
People who are closer to the situation could have easily deduced what was happening from their more detailed observations. But on our magic screen, we only saw what we saw, so we were forced to reach our conclusions using inductive reasoning. This is never a good thing. After all, through our magic screen we still think this guy is in the egg business!
Now let's turn this magic screen to the upfronts. By all accounts, the television industry is having a rough year. Although the actual numbers don't look too bad--NBC is estimated to be down 5 percent versus last year (they also don't have any hit shows) and CBS will be flat to -2 percent (people who are on the inside will tell you that the Tiffany network will end up in the +2 percent range). But ABC is up 3-4 percent (they have some hit shows), and Fox looks to be up about the same (they really have a hit show).
But, since we're using a magic screen scenario, let's agree that business could be better. Conventional wisdom and pundits galore have attributed withheld upfront monies and lack of advertiser commitment to the decline of TV viewership and the rise of alternative media opportunities. And as chair of the Advanced Media Committee for the National Academy of Television Arts & Sciences (The Emmy Awards), I can attest to the increased sales activity in online and advanced media platforms. However, there may be more to the story.
If you spend any time acquiring information from financial news sources (notice that I did not say read the financial section of the newspaper), you are undoubtedly aware of the uncertainties of our economy: gas prices, health care costs, the war(s), social security, the housing bubble, etc. The Fed has been on a rate-raising spree, and inflation and recession fears are rampant in the financial communities. Are we simply observing "Fear Factor: The Media Game?" Is it possible that this year's upfronts are simply reflecting smart buyers hedging against a weakening economy? Commit too much upfront and you overpay; commit too little and you overpay. Hmmm...it sounds to me like the upfronts are doing what they were designed to do.
What are we really observing? Is it the chicken or the egg?