• by May 24, 2004

After whetting their appetites with an early round of cable deals advertisers are poised to begin negotiating upfront ad deals with the major broadcast networks as soon as the end of this week. The broadcast networks spent Monday accumulating prime-time budget submissions from the major ad shops and were expected to complete that process by the end of today. In theory, prime-time broadcast network negotiations could begin as early as Wednesday, though some buyers have said they still hope to sweat the major broadcast networks out in the hope of holding the line on broadcast network price inflation. That, and the relatively amenable pricing positions of some broad-based cable networks, has primed the 2004-05 cable upfront marketplace, which broke before the broadcast networks for the first time in recent memory.

The cable action heated up last week, while the broadcast networks were still presenting their prime-time schedules to the ad community. Cable networks making deals in the early going include Discovery, Turner Broadcasting, USA Networks, and MTV Networks.

"USA's almost done. Lifetime will probably be next," said one buyer. These are apparently big-volume deals made with major agencies, meant to lay down a base ahead of the expected $6 billion cable upfront market.

The broadcast upfront could break as soon as the end of this week or Tuesday at the latest, said knowledgeable sources on both sides of the table. Agencies are registering its clients' budgets with the networks, and the clock is ticking.

"I think by the close of business tomorrow, the networks should have everyone submitted," said a buyer who spoke on condition of anonymity.

It's no secret that the mood of the market favors some way of punishing the broadcast networks. Advertisers haven't been upset so much by the process itself as by the double-digit CPM increases the broadcast networks received the last two years. But while advertisers rewarded the 2002-03 upfront CPMs with another round in 2003-04, there are signs from many places that the advertiser sentiment is hardening into resolve. Sources said advertisers have told their agencies that they should negotiate from a firmer line, not immediately rushing into deals because the inventory may run short.

At least one network--CBS--was roundly criticized for its stated intention to seek double-digit CPM increases in the upfront. As he met with reporters last week, CBS chief Leslie Moonves only tempered his predictions slightly.

"We would like double digits. We think our schedule warrants it; we think our programming warrants it; we think competitively we warrant it," Moonves said last week. "We're going to be aggressive."

CBS executives have said that they have no problem with the strategy of three years ago, when CBS held inventory when it was clear they wouldn't get the prices it wanted. That led to strong gains in the scatter market, which brought more advertisers to the upfront the next year. But this year, scatter hasn't been the scorching hot moneymaker it has been in recent history.

Observers say the upfront market could only see single-digit growth this coming year, with CBS having high single-digit growth as its perception as the leading network in terms of programming. NBC, which is expected to have a tough time even with "Joey" and "The Apprentice," will come in with increases behind CBS, and the other networks will come in behind NBC. One buyer predicted a correction for NBC.

"The problem in this business is the bases carry forward, regardless of the performance. There have been two really strong markets in a row, so NBC never got corrected," the buyer said. "Sooner or later in life, there has to be a correction ... You've got to be insane to pay those kind of prices to NBC if you're not getting that value back."

In cable, where the cost per point to reach adults 18-49 could be as little as half as much as on the broadcast networks, there's a sense that things are turning their way.

"We are seeing a paradigm shift--a flow of money from broadcast to cable," said one cable executive who asked not to be identified. But the executive also discounted the prediction of $1 billion shifting from broadcast to cable this year, saying that the shift won't be that dramatic.

Buyers contacted by MediaDailyNews said that it's clear that cable is up.

"Is there more money in cable? Yes. Is there a billion dollars [more]? I don't know," said one buyer. The buyer said that cable was "still begging for money," with a lot of inventory left to sell.

Another said that the shift from broadcast to cable is very real.

"It only makes sense. Why wouldn't you do it?" asked this buyer. "The [broadcast network] ratings are so low, why overpay for them?"

Mark Rosenthal, president and chief operating officer of MTV Networks, declined to discuss specifics about the upfront.

"It's very strong year-over-year [gain]. I'll leave it at that," Rosenthal said.

He said the cable upfront seemed to break earlier than usual across the board, and that in MTV Networks' case, it's much further along than it's been in prior years.