Twenty-five years ago, I began writing a story just like this one. The article, for the now-defunct Marketing & Media Decisions magazine, was about the role the annual upfront network television marketplace plays in priming the media pumps on Madison Avenue.
Since the story was going to be featured on the cover, my editor asked if I could think of something good to illustrate it, so I asked Bob Blackmore, then head of sales at NBC, if he wouldn’t mind posing for a “power lunch” photo with a big shot agency media executive. As it so happened, Blackmore said he was planning a trip to Chicago to meet the late Willard Hadlock, who was then head of the media department of Leo Burnett, the precursor to Starcom and one of the biggest buyers in the upfront marketplace. The meeting proved to be more than a photo op. While Blackmore and Hadlock dined, they also talked business, and the first deal of the upfront buying season was cut.
I share this memory because it says volumes about Madison Avenue, and the almost apocryphal role the upfront plays not just as a business practice, but as one of its fundamental cultural rites. As a business practice, the upfront may be unique among industrial marketplaces. Hundreds of millions of dollars can get spent literally over a lunch and with no more contractual requirement than a handshake. In terms of culture, there are few things that occupy the attention of the ad industry — except maybe the Super Bowl and the Cannes advertising festival — as much as the upfront does.
And I will confess that it took me a while to truly understand — and appreciate — the upfront for what it actually is: showbiz, with an emphasis on the show, as opposed to the biz. Even in its down years, when the laws of supply and demand favored the buy-side, I would watch as major advertisers and agencies lined up to participate. For the first few years I covered it in the early 1980s, I would watch as one executive — Ralston Purina’s media buyer Paul Schulman — would routinely proclaim “the first buy” of the upfront season, as if it were a bragging right. Whether it was up or down, one thing you could say about the upfront is it has almost always had momentum — and, more often than not, it has been to the networks’ advantage, creating a lemmings-like dash to buy ads on the best prime-time shows, before they “sell out.”
And even though I have had a front-row seat at the process, it took me years to understand why it functioned that way.
The first time I realized something was wrong with the upfront was as a rookie reporter covering the 1983-84 marketplace. Only a few weeks into the job, I started getting calls from Wall Street analysts asking me how the market was going. I remember thinking, “Aren’t I supposed to be asking you?” A few years later, the pattern started to make sense. It goes something like this.
1. Anonymous network executives tell trade reporters how much upfront prices and volume are increasing.
2. Trade reporters run those increases by anonymous media buyers, who have a stake in seeing inflated estimates published so they look like they got a good deal for their clients.
3. A consensus for upfront volume and price increases begins to coalesce in the trade press and major newspaper ad columns.
4. Wall Street analysts issue equity research reports sanctifying the consensus as financial fact.
5. Even before the new television season begins, some of the upfront orders that have been put “on hold” get adjusted.
6. Once the new season starts, some of the shows purchased in the upfront get canceled, and those replacement series become part of the buys.
7. Depending on the strength of the quarterly “scatter” markets, some upfront advertisers may exercise some of their cancellation options, effectively revising the original upfront take, though no one is around to report on that. (Upfront advertisers generally have the right to cancel up to 25 percent of their first quarter, and up to half their second and third quarter buys.)
8. The sum of firm upfront orders, program cancellations, options exercised, and scatter deals alters the network marketplace, and price and volume increase dramatically from their upfront starting points.
I watched this process for more than a decade before I came across some bona fide numbers to compare it with. The data, which was self-reported by the networks to auditors who compiled it for the Broadcast Cable Financial Management Association, isn’t exactly gospel, but it’s generally considered to be in the ballpark and it was the only data I had available to me at the time I did the analysis, though the BCFM has since discontinued releasing the data publicly.
So what did the analysis show? That over a 16-year period I could access data for, the network prime-time upfront marketplace was reported to grow an average of 10.7 percent. During the same 16-year period, actual network prime-time revenues — as reported by the BCFM — grew only 4.2 percent.
Yes, the actual revenues reflect the sum of upfront cancellations, makegoods for ratings under-delivery, scatter sales, and other factors, but that still doesn’t account for a three-to-one disparity between how people reported the prime-time marketplace was growing during the upfront, and how it actually grew.
After conducting the analysis, I concluded that the upfront was more a market-shaping myth than a real economic indicator. Smoke, mirrors, sizzle and stampede, all designed to get people — and their ad budgets — moving. So I was confused the following year, when CBS issued a press release — the first and only one I ever remember a network distributing — about its upfront take. How, in this era of post-Sarbanes-Oxley corporate financial accountability, could a big corporation like CBS release financial estimates that were, how should I put it, written more with pencils than with indelible ink? That’s when it hit me that the upfront numbers must be so unreal, that no one — not even CBS shareholders — would take them seriously as a financial metric.
Still the upfront numbers soothing has continued, as have other questionable practices associated with the upfront, including the fact that it could well be the only marketplace where the sellers ask the buyers to “register their budgets” with them beforehand so that they can price their inventory most efficiently. The networks say they do this, and media buyers comply with the request, under the auspices that it is the only way to ensure that all the advertisers and agencies will get all the commercial time in the shows they want. Not because it is a method for the networks to “count the house,” model demand, and optimize their yield based on it — as observers in most any other market might conclude from such practices.
Amazingly, it is none of these practices — not the smoke and mirrors dance, not the mythical growth projections, not the compilation of sellers’ own budgets — that has stuck in the craw of Madison Avenue. What really gets people all worked up about the upfront, is that the upfront gets people all worked up. By that, I mean, stampeding, rush-to-market techniques the networks use to put their inventory up for sale.
Over the years I have heard a fair amount of grousing about those tactics, but it wasn’t until it erupted into industry coalition status in spring of 2004, that I saw anyone actually try and do anything about it. That coalition, dubbed NUDG (the unfortunately named acronym for the Network Upfront Discussion Group), was kick-started by a panel at an Association of National Advertisers conference that culminated in a five-hour summit of major advertisers, agencies and network sales executives — and their lawyers — where they discussed everything from opening and “closing bells” to frantic wee-hour deal-making over cold pizza. NUDG’s conclusion: The upfront works just fine, and nobody needs to do anything about it.
"While not a perfect process, the current processes in place were generally acceptable — were essentially optimal, and they will continue as is," Bob Liodice, president-CEO of the ANA, said following the meeting. "It's not to say that in the end that everybody was thrilled or is absolutely satisfied, but there was not sufficient enough consensus to say that an alternative approach was better or worse.”
In other words, the upfront was status quo. That equilibrium was underscored by an ANA survey that same year, which found that just as many national advertisers agreed (27 percent) that the upfront works for them, as those who didn’t (27 percent).
It’s difficult to say how dissatisfied advertisers and agencies may or may not be with the upfront these days, because so many advertising market conditions have changed. While TV still represents about two-thirds of the advertising budgets of big advertisers and agencies, it is spread over many more networks, and many big advertisers seem more concerned about digital media — especially social — than they do with when, how and why they buy their network TV time.
That said, people I hold a great deal of respect for in the industry assert that the upfront is more than just smoke, mirrors and cattle prodding. They say it provides some important structure for the overall media marketplace that enables big advertisers and agencies to manage their businesses — while enabling the networks to stay in theirs.
“I really disagree with you on smoke and mirrors,” one particularly knowledgeable source at a major TV company told me when I described this piece I was writing. “As far as ‘going in’ never matching the ‘coming out’ — from the initial consensus reports, to the firming up of holds, cancellations, makegoods, and all the other things that dilute the realness of it as a market — have you ever refinanced a mortgage? Have you ever bought something with a guarantee that required repair? Have you ever bought an airline ticket and canceled it? Have you ever bought something that required a refund?”
Revisionism aside, others believe the upfront plays a more practical role.
“It does serve a genuine business purpose,” asserts Brian Wieser, a research analyst at Pivotal Research Group, who previously was the chief economist and forecaster at Interpublic’s Magna Global unit. “Its purpose is locking down that which is most in demand, and that which is increasingly most in demand for a particular cohort.”
The cohorts Wieser is referring to are really big and somewhat price-elastic national advertisers, especially those in competitive, time-sensitive marketing categories such as automotive and movies who care more about delivering prime-time advertising impressions when they need them, rather than saving a media buck or two.
Wieser notes that if you look specifically at the broadcast network upfront prime-time marketplace, “170 companies account for 90 percent of network TV advertising revenues.”
“That is a very concentrated cohort. That cohort accounts for 50 percent of all TV advertising,” he says. Marketers aside, he notes those 170 companies are represented by only about a dozen big ad agencies, whose jobs depend, to some extent, on the upfront.
Wieser’s point reminded me about an old adage I used to hear when I first started covering the upfront. It goes like this, “No media buyer ever lost his job for paying too much in the upfront, but they have for missing the upfront.”
“That’s the reason why it exists,” Wieser notes. “Whether the real number is 2 percent or 4 percent is besides the point.”
That may be true, says Jon Mandel, a long-time top Madison Avenue media buyer who is now CEO of Precision Demand, a company that is trying to bring a more scientific approach to buying television, but those reasons have grown outdated and irrelevant.
“If you go back historically, there were real marketing reasons for the upfront,” he says. “Originally, it was because the advertisers owned the shows and were part of the development process. Then it became about the timing of it.”
Most big marketers used to have fiscal years that ended on June 30, so the timing of the upfront, which usually begins in June, made good sense. But nowadays, Mandel notes, most big advertisers have calendar fiscal years, so a late spring or summertime upfront makes no sense for them from a fiscal point of view.
“In theory, the timing of the upfront should have been moved to sometime around October,” he says. And while that might conflict with the launch of the new prime-time season in September, when kids are going back to school, Mandel notes that prime-time programming — and viewing — is now more of a year-round phenomenon.
Even marketing reasons, like the auto industry’s history of introducing new car models in September, are no longer the factor they used to be for the upfront. In the end, some believe the upfront continues to operate when and how it always has, because, well it’s when and how it has always operated.
“In the end, it is a lot of smoke and mirrors, because of all the glitz and Hollywood star power associated with it,” Mandel concedes, adding, “But it’s really just like putting lipstick on a pig.”
Joe - congratulations, this is probably one of the best pieces you have written. One can only hope that, like with the dinosaurs, this practice will eventually become extinct. If you normalize spendings for media inflation and general inflation over a 13 year period, guess where budgets in reality have gone? No wonder then that procurement demands from the media buyers that they negotiate the increases away. And no wonder that to make the buyers look good, the industry (agencies and owners) conspire in this annual ritual dance.
Great article Joe. But even now the concept of an upfront is expanding - one for digital and internet, that is also about to break. One day let's just call it an "all-front".