• by David Kaplan , June 9, 2005

The brisk upfront negotiating pace of last week has morphed into the slow, summer doldrums as NBC continues to haggle with buyers--and buyers, for the most part, have now turned their attention to concluding negotiations with the top-tier cable networks, industry sources say.

As the broadcasters were showing off their fall shows two weeks ago, some buyers and sellers say that Viacom--the owner of MTV Networks--and Turner were very aggressive in offering deals of 8 to 10 percent CPM increases. That was unattractive at the agency level, which created an opening for ABC to set the benchmark at 4 to 5 percent CPM increases, with other broadcasters following below that.

Now, according to various industry sources, Turner and Viacom are trying to hold the line diligently at a number that is either 5 or 6 percent--or even slightly above ABC's numbers--while agencies are still demanding less.

Still, some cable executives say that story is a bit of a distortion -- that the early talks were merely preliminary and that Viacom and Turner were merely trying to feel the buyers out, but not a take-it-or-leave-it deal.

"Certainly, there were talks between the top-tier cable networks and agencies. Everybody wanted to see who wanted to do some business, but these were just conversations, and thereafter ABC set the wheels in motion by cutting deals and doing things at a bargain-priced option," said one media executive, adding that the networks are simply looking for "deals along the lines of a CBS and ABC, but higher than Fox."

As for other cable networks, some executives say they are waiting to see what sort of deals Viacom and Turner write, and will then use that as a benchmark for CPMs. Still, others say they're talking with buyers, and are not at all affected by the machinations at other networks.

"It doesn't really matter which one moves first--but obviously, we want to be at the forefront of the cable market," said Bill Abbott, evp for ad sales at Hallmark Channel. "Our growth puts us in a position along with the top-tier players, and we want to be negotiating in a situation where we have as many of the pieces still on the table."

Abbott said that many cable networks, such as Hallmark, are concentrating heavily on product placement opportunities for advertisers, and that those deals are usually not wrapped up in a week.

Overall, cable executives do feel that they deserve some CPM increases, and that they can wait until they get them.

"For twenty years there has been only one trend in U.S. television: Cable's perpetual ratings and reach growth and broadcast's perpetual ratings and reach decline--and 2005 is no exception," said Sean Cunningham, president and CEO of the Cabletelevision Advertising Bureau. "If you look at the full picture: 18 demographic groups--as opposed to one--on an every-half-hour basis, across every night of the week, you will get the full picture--through the first nine months of the TV season, cable ratings grew in 90 percent of the half-hours among eighteen demographic groups; broadcast ratings shrank in 70 percent of those same instances."

Speaking of broadcast's shrinkage, one media buyer described NBC as "being stuck in cement," in regard to where its negotiations stand.

"After holding the line on 'no CPM decreases,' NBC has been giving CPMs that are roughly negative -2 percent," said one media buyer, and several others agreed precisely. "There were some strong discussions over there [at NBC] about holding out for scatter, but they looked at what they had and they weren't sure if they would be in any better position. And they're stuck right now, because the focus has shifted to Viacom and Turner."

NBC executives did not return calls seeking comment.

As to why a continuing stalemate has persisted this week, several industry observers said that lack of demand is the main reason.

Budgets are not up significantly--and in some cases, they're not up at all, sources say. Many expected that the automotive and pharmaceutical categories might not be as strong this year--but most say they were surprised that other ad categories such as retail did not come in to fill the void.

"It looks as though the Sears/Kmart merger could take money out of the retail market, as a matter of fact," said one ad sales executive. "And travel, quick service restaurants--which actually had a decent year--and financial services aren't able to pick up the slack either. We don't know if clients are just holding money back for scatter, or if they've just decided not to invest a lot of money in advertising for 05/06."

Although it sounds like a traditional buyers' market, one media executive insisted that it most definitely isn't.

"ABC was the one that defined the market," the media executive said. "They set what number they were going to go at and thereby set the entire market. No agency did that. At the end of it all, the average CPM an advertiser pays is going to be higher than last year, and that's because two networks and most of the cable guys are going to be a little bit up. Why is that happening? Because ABC took control of the market and went out at plus-4 or -5. They were able to do that because they're hot--and if you're an advertiser, it's all emotional and you want to be on the number one network. Number one is not highest rating against a demo; number one is what are people talking about around the water cooler. And right now, that's ABC, not NBC anymore--and that makes a big difference."