Scattering TV's Upfront Ad Market 24/7

 A stalled TV advertising upfront could lead to a selling arrangement that makes more sense: a perpetual scatter market in which ad time is continually bought and sold as needed.

Media and advertising executives have amused themselves for years with talk about transitioning from frenzied upfront sales practices. The industry shift to more scatter sales could take root by default as a byproduct of the recession, coupled with Madison Avenue's growing migration to the Web.



Several media chiefs concede this could be the TV season that tips the scales. The less time the broadcast networks have to write upfront commitments before their seasons begin in September, the more available ad inventory shifts to the ad-hoc scatter market.

Executives at General Electric, which owns NBC Universal, confirmed Friday the TV network will retain a larger than usual portion of its ad inventory for scatter.

"The best thing that could ever happen is that we have a 100% scatter market because it would work to the advantage of the TV networks. But I don't think advertisers will let that happen because the market is always playing nine-month catch up," one media chief told me on background.

"Right now, advertisers and agencies feel like they should have gotten price rollbacks nine months ago, so they are demanding them now. If we went all scatter, then a year from now, advertisers will want to put all their money in the upfront because they feel they got a bad deal in 2009."

Advertisers, agencies and television executives jockeying for the best price and placement is the dynamic that drives the upfront. It could yield profitable results if more television time was sold in scatter. The laws of supply and demand would still govern the best content on television and elsewhere. But the advertising auction approach employed by Google and the targeted, addressable science of Google TV (which has sold upfront time to Coldwell Banker and to Saatchi & Saatchi) could become plausible mainstays of the digital interactive market.

Advertisers say their reluctance to make huge upfront TV commitments does not put them at risk, since they are holding back en masse, generally able to secure the commercial time they wanted closer to air time in last season's scatter market, often at prices comparable to the upfront.

The ever-dwindling ratings and audience shares continue to be a drag on advertiser enthusiasm. More advertisers are feeling comfortable with more targeted, quantifiable ad placement online and a collective multimedia strategy that includes TV.

ABC, CBS and Fox last week demonstrated their unwillingness to altogether part with the upfront by rolling back their prices 1% to 3% to jump-start ad sales, according to Ad Age. Some advertisers say they want twice that price rollback. NBC reportedly is offering mid-to-high single digit unit price decreases (or 1,000 viewers per CPM) to lure advertisers who are more rapidly buying time on its cable networks. NBC's prime time selling is different with Jay Leno stretched across weeknights at 10 p.m.

But there is no sense that the upfront floodgates are about to burst open. "This situation has made us look at some alternatives that will give clients the ability to reach broad audiences in a different way," OMD CEO Alan Cohen recently told Ad Age. P&G and other major advertisers have been aggressively doing this for years.

Negotiating and posturing aside, the upfront standoff lends credence to forecasts that upfront spending could be down 20% to about $7.5 billion, putting it on par with cable, and that less than the customary 80% inventory will be sold. Such gloomy forecasts take into account the collapse of the historically dominant auto industry, the radically reformed financial services and real estate categories, permanent loss of many companies, weak consumer and local ad spending and a 2010 recovery.

One thing is for certain: the undertow of change is firmly in place. The broadcast networks will likely fall short of their ad revenue expectations to offset their multibillion dollar program investments, pushing them into deeper financial straits.

Evidence in the latest quarterly earnings reports began Friday with NBC Universal's entertainment division reporting a 41% decline in profits dragged down by its TV networks and weak advertising. That trend will not easily reverse for any of the broadcast networks.

The networks already are producing, scheduling and promoting content differently on TV and online to maximize competitiveness. They are gradually joining paid on-demand consortiums to generate alternative revenues. It already is prompting advertisers and their agencies to be more efficient and creatively effective with their buys and campaigns. Eventually, the system will morph into a 24/7 interactive marketplace.

The existing upfront quagmire will contribute to that evolution against a backdrop of two reinforcing trends: online advertising also has slowed considerably and will offset only a fraction of TV ad losses. More marketers in categories such as telecom, entertainment and retailhave already become 52-week advertisers, responding to consumers' guarded discretionary spending.

Interpublic's Magna is the latest to forecast a 14.5% decline in total domestic ad spending to $161.4 billion (with even online spending down 2.2%). The outlook, based on revenues reported by media vendors, calls for overall ad spend to fall 2% in 2010 and total media supplier ad revenues to grow only an average annual 1% through 2014.  That's hardly worth celebrating. Advertiser optimism, however it is measured, will have less to do with tangible economic improvements and more with their overall digital empowerment.

Simply put: advertisers, agencies and media companies are embracing alternatives that will hold long after the recovery is underway.

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