• by Wayne Friedman , David Goetzl  @dgoetzl, June 26, 2009

As the upfront advertising market begins to percolate, some media agency executives are approaching networks about the breakthrough chance for options in the fourth quarter.

"[Buyers are] merely trying to take advantage of a weak market and get as much flexibility as they can," says Gary Carr, senior vice president and director of national broadcast for TargetCast TCM.

The networks have a long-held policy that spending commitments for the October-December period are firm.

Fourth-quarter options could mean networks allowing advertisers the option to cut back some money. In exchange, marketers would need to commit more media dollars initially -- in the fourth quarter, other quarters or in other dayparts.

"Everybody's looking for more volume," a veteran media buyer said.

A network selling executive said: "Is that something that -- when we get into deal-making -- that people would entertain? Absolutely. But it's all dependent upon what you see [in terms of increased budgets]."

In the run-up to the upfront, Daryl Evans, AT&T marketing vice president, indicated at an industry event that the company might be willing to pay more for increased flexibility, although he did not elaborate.

But overall, broadcast and cable networks are wary of setting a precedent that could hurt them in future years. "Very shortsighted," said a media executive, adding: "Once you give [fourth-quarter] options to advertisers, they live in perpetuity -- and you never get them back. Not a smart way to run business."

Networks are bracing for advertisers to spend less this year with the uncertain economy. Merrill Lynch projected in May a 13% drop for the Big Four broadcasters to $6.52 billion and a 4% increase in cable to $8.62 billion.

Now, media executives are saying that total broadcast volume could be down in the 15%-20% range, with cable off 10%. Media executives say these estimates are based on initial budgets registered.

One media-buying executive said budgets are likely down not because TV marketers believe they can secure better pricing in the scatter market, but "because advertisers are genuinely concerned and don't want to commit the money."

"Frankly, I think you're going to see a good scatter marketplace ... I just think advertisers -- literally -- don't have 30-day visibility of their business, much less a year," explained a network selling executive.

Although seemingly beneficial to TV advertisers, not all media buyers see the advantage in gaining fourth-quarter options in exchange for more volume. One executive said it could hurt advertisers, seemingly bringing on more money and artificially creating higher demand and pricing.

"If the networks give options, it inflates the market," said Jason Kanefsky, senior vice president and director of national broadcast for MPG North America.

Generally, upfront deals -- where advertisers buy commercial time for an entire TV season -- mean that the portion of their buys placed for the fourth quarter are 100% firm. In the subsequent January-March period, advertisers can pull back 25% of committed dollars, and 50% in the second and third quarters.

More broadly, there was a report last week that the upfront market may be taking shape. Mediaweek reported on Friday that media agency GroupM and NBC Universal were nearing a deal involving NBC dropping prime-time CPMs by 7% or more. Rumors of the possible deal surface the previous week.

A Group M spokesman said this past Friday: "There is not a deal that is about to be completed in the immediate future. We are negotiating," adding that Group M was talking with other networks as well. An NBC spokeswoman said: "We haven't completed a deal with Group M."

Media executives disputed the 7% rollback NBC was said to be getting, in reference to the Mediaweek story. NBC is arguably in the weakest negotiating position and for some time, buyers have been strong in their demands for decreases of 10% or more for all networks.

Lesser rollbacks in pricing should go to CBS, Fox and ABC, they say. These networks have better ratings results and prospects. Media executives say the latest estimates are that Fox, ABC and CBS are hoping for minor 2% to 3% rollbacks -- down from recent guesses of flat or slight increases in cost-per-thousand viewers [CPM] pricing.

Movie companies, which spend some of the highest prices for commercials, would be in this 2% to 3% range, per executives -- with consumer products marketers looking for 10% and higher pricing rollbacks.

In its May report, Merrill Lynch noted how difficult it is to nail down "any official figures" regarding the upfront: "It is widely believed that the [media] companies 'fudge' the numbers in order to maintain the appearance of strength."

The report, authored by analyst Jessica Reif Cohen, continued: "This is not generally disputed by the companies themselves, which often acknowledge that figures leaked to the press can be easily manipulated by including/excluding various elements (e.g. sports, online, etc.) or by using estimates prior to receiving actual commitments."