Commentary
This Will Be A Sellers' Upfront
- by Dave Morgan , Featured Contributor, May 30, 2019
It’s the TV ad upfront season again and, like everybody else in the business, I have an opinion about how it’s going and how it will finish. My opinion: It’s going to be a sellers’ upfront.
TV media owners are going to get most of what they want this year, certainly in price, and most likely in volume too, and TV buyers aren’t going to be able to do much to stop them. Here’s some of the reasons why:
Demand exceeds supply. TV ad prices go up when more people are buying than selling, particularly when inventory is particularly scarce and precious, and prices go down when more people are selling than buying.
In TV today, more people want to buy TV ads than ever before, so demand is up. The majority of buyers want a good chunk of their money running in prime time and sports, the highest-rated and most-talked-about inventory (thus the most precious inventory). However, just as we saw over the past three years, overall ratings will be down, particularly in prime time (supply is down). Thus, when demand is up and supply down, TV ad prices will go up.
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Supply is fundamentally underpriced compared to alternatives. TV ad garnered more than $72 billion in the U.S. in 2018. However, on a comparable basis, TV ads at the person/impression level are significantly underpriced in bulk relative to comparable digital units. When you look at TV versus premium video ads on a P2+ basis (all persons 2 and older), digital video typically commands $20-30+ CPMs, and TV is frequently under $10 CPMs.
How is that possible, you ask? Aren’t TV ads sold at CPMs more like $30 and $40? Yes, but those numbers are usually based on “demo” breakdowns like people 18-49 years old. When you add in all of the people watching who are 50 and over — the significant majority of viewership for many TV shows — the overall P2+ CPM comes down dramatically.
At some point this will find equilibrium, but as long as digital gets a premium for the theoretical targeting that it can deliver, whether or not the campaign is targeted, and TV gets a discount for the inherent lack of targeting it can deliver — even if it delivers a ton of the target audience — we will continue to see this irrational disparity in pricing between linear TV and premium digital video ads.
True alternatives to TV advertising still lacking. As we’ve seen, Google’s YouTube and Facebook are still challenged when attacking TV ad budgets, and Amazon’s burgeoning ad-supported video investments certainly represent an enormous threat in the mid and long term. However, the most substitutable digital video inventory — safe, top brand-name, ad-supported video content with ads at scale — is owned by the TV companies themselves, in their own streaming services. This is even more the case now since Viacom bought Pluto and Disney has taken full control of Hulu.
Those streaming service acquisitions by Viacom and Disney, though expensive, each removed critical “end-run” pathways for large TV buyers to “buy around” TV companies’ inventory, and are smart strategic moves by the two TV media owners.
Fast-emerging D2C buyers now at the TV trough. This fact is all over the business press and trades. Digitally born, direct-to-consumer brands like Dollar Shave Club, Chewy and Casper have learned that nothing helps them scale customer acquisition and sales like TV. In a few short years, those companies went from “pre-TV” ad buyers to very substantial TV buyers.
There are thousands of D2C companies in the wings. They analyze their buys on results and ROI, not just year-over-year CPM costs. If big TV buyers step back at this upfront and say “no” to the sellers, the sellers know that they have plenty of new D2C buyers waiting in the wings.
What do you think? Is this upfront going to be a sellers’ or buyers’ market?
Great piece Dave. There is a yin and yang every year when it comes to the upfront vs scatter markets. When advertisers get crushed in scatter, they move money to the upfront. When the upfront is strong, sometimes they bet on a weaker scatter market and buy quarterly. Which way they go is also dictated by their forecast of the economy and their own sales estimates.
The intersting thing for for me is the idea that advertisers will continue to plow money into national TV even when it may in fact add unnecessary frequency and result in a higher cost per reach point.
As TV content becomes more and more fragmented, advertisers will turn more to reach optimization. This should convince the TV nets to start breaking out of their legacy daypart packaging approach, which only adds frequency and a higher CPRP, and develop a more advantageous approach that will drive more revenue.
IMHO, for the TV nets to win in the end, they will need to sell their inventory on a more granular basis. This means by program, by time period, by selling title and by dayparts as well. The old daypart mix sales approach will eventually kill them. Too much frequency will cause dollars to go elsewhere.
I agree, Dave, and we have already told various publications in interviews that, at this point, we see a 5-6% uptick in upfront ad spending, which, when you take into account anticipated rating declines in the "key" audience tonnage guarantee metrics---18-49 and 25-54----will mean a very substantial increase in CPMs.
To Long's point about excessive frequency being a liability---I assume that he refers mainly to cable or non-prime TV, we should remember that most upfront buys are corporate deals and are not brand specific. Later, when the buys are parcelled out to the brands, savvy advertiser media mavens and their agency advisors can try to deal with excessive frequency. Also, with half of the average commercial minute viewers" not even being in the room, let alone paying attention to the ads, the "excessive frequencies" that some are worried about are not nearly as great an issue as maintaining one's "share of voice" in market categories where 5-10 brands are competing for the consumers' attention---and dollars. Reducing your frequency---to avoid redundency--is fine if you operate in a vacuum. But what about the number of times that rival brands are talking to your brand users---trying to woo them away?Do you really want to reduce the number of times you make your sales pitch while they batter away at your customer base?Food for thought.
Every brand has their own R&F goal. Geico for example actually tried to hit you over the head as many times as possible. They have great creative and That category has to do this to compete.
Frequency goals really depend on the product category and the individual brand.
All I can say is beware. Studies have shown that too much ad exposure is not a good thing for some brands. Producing a higher cost per reach is the real issue however. Brands should spread their money around and optimize to whatever goals they have. TV is the most amazing reach vehicle that has ever existed. What may be slowly killing the industry is the built in legacy sales mechanism that works against what the marketplace wants right now.
Cpm business is is a slippery slope. Lower ratings, higher CPMs and a higher cost per reach point. Where is the breaking point? I don’t know.
Long, Ed, I totally agree that massive over frequency, which is on the rise, could be the deathnell of growth over time for the TV ad industry. It needs to be fixed or it will chase away advertisers and viewers.
Demand never outweighs supply in TV. The upfront system creates an artificial demand for what is essentially a (nearly) unlimited supply of rating points. As long as the upfront system rewards rankings over actual audience size, the networks will continue to be able to charge more for a shrinking product. Also should note that as average ratings decline, it becomes much easier to estimate future program and network performance, so guarantees, the only reason for advertisers to still want an upfront, are not nearly as useful as they once were.
Agree Steve - You hit the the nail on the head. Impressions are infinite, but reach is finite. When will agencies and adversiers start realizing that the best way to approach audience fragmentation is optimizing for reach. The probem is that agencies are predominantly evaluated on CPM and impressions not R&F rule the roost.
I don't buy the idea that audience guarantees are the only reason for advertisers to be in the upfront market and I have doubts about the notion that the sellers can, somehow, greatly improve the supposed excess frequency patterns of advertisers simply by selling against more selective metrics. How do you do that for corporate 30-brand buys?What do you do with your redundent GRPs?
It's a very complicated issue--or set of issues---and the first step is to get a realistic handle on how much "damage" is being done to a brand if consumers "see" 6 messages per month vs 8 or 10? Sure, there are diminishing return effects as frequency builds up---but that's true for everybody, including competing brands---- so it may all cancell out. Also, I have yet to see a study that shows that "excessive frequency"---whatever that is---causes consumers to turn against brands and stop buying them as a form of "punishment".
Thanks for the thinking, Dave. Billions of dollars will be spent in this upfront by agencies armed primarily with an MRI index and a CPM goal. It's absurd. Clients need smarter thinking. There should be a reduced focus on protecting CPM bases and an elevated focus on new media ideas and strategies that will actually grow clients' businesses!