Commentary
The Drama Behind Upfront Price And Volume: Make Your Bets Now - Or Later?
- by Wayne Friedman , Staff Writer, March 7, 2023
Price versus volume. It has always been a key upfront conundrum.
What do you favor -- in this marketplace?
A year ago, David Zaslav, president/chief executive officer of Warner Bros. Discovery, went with his gut feeling. He was going to hold out for better prices for the company's TV inventory.
The downside when you want to lift or increase pricing more than your competitors, of course, is that you're going to sell less inventory -- which is what happened to Discovery.
Zaslav got low to mid-teen price increases and nearly $6 billion in business.
But then the uncertain fourth-quarter scatter market came around -- after rumblings that the end of the third quarter wasn't so good.
The last quarter of 2022 then witnessed the scatter market crumble -- for every network group.
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So those that maxed out on upfront sales -- maybe 80% to 85% -- did better than those that only sold say 60% to 65% of their upfront inventory.
Still, Zaslav said during his recent fourth-quarter earnings analyst phone call that he believed it was a good move -- that it brought pricing nearer those big broadcast-focused higher CPMs for his cable TV inventory -- something he had always complained about.
For years, he and others complained about the price disparity between a cable network and a broadcast network -- that cable network owners were getting the short end of the stick for what they felt was virtually identical linear TV inventory.
The net result? Fourth-quarter ad revenues at Discovery's TV networks fell 14% to $2.2 billion -- a drop that turned out to be much lower than other network competitor groups.
Scatter-market weakness could continue in this regard for at least the first if not the second-quarter period -- the latter being a key benchmark indicator for many for how the upcoming TV upfront advertising market should be priced.
Who's betting that Zaslav will try the same tactic again?
Analysts and business professionals would like to believe a soft recessionary economy affecting the advertising marketplace will be a short one.
It's rare that two year-over-year quarters for scatter will both be weak.
So we wait for another price and volume drama.
Wayne Friedman is West Coast Editor of MediaPost. You can reach Wayne at wayne@mediapost.com.
Wayne, the national time buyers have always maintained that higher ratings equate with quality---which was always a questionable assessment---but as the broadcast TV networks invariably pulled much higher averge minute ratings the buyers---with their clients' approval---- penalized cable by granting it CPMs that were half or less what they paid the average broadcast network seller. This also made sense as it allowed many buyers to use cable to "sweeten" their total buy CPMs by adding cable to their broadcast investments.
Another reason for penalizing cable was the "lower quality" of its content---much cheaper shows than on broadcast prime; too many reruns, too many commercials, etc. So, the buyers felt it was "fair" to penalize cable for its lower risk approach to program content as well as its practice of loading up on commercials.
The problem with this kind of thinking is that times have changed. Broadcast ratings, while still higher than cable are far lower than they once were and the spread between the two kinds of "linear TV" in this regard has narrowed considerably. Also, the broadcast TV networks increased their primetime in-show commercial loads from a mere 6 minutes per houir when cable first appeared and its lower CPMs were set in place---to over 13 minutes, so the commercial clutter argument has much less weight than it once had.
Finally, as regards program quality and the corresponding effect on the audience, the broadcast TV networks embraced reality fare in prime time as a way to reduce costs, they now employ more repeats and the audience compositions for nearly all of their shows lean heavily towards the 60+ age group. None of these situations applied in the 1980s and into the 1990s.
In short, the time may have come for at least some of the cable players who are being penalized in this manner to fight the battle of CPMs all over again. They might win---but at a price as much higher CPMs for cable would mean much higher CPMs for "linear TV" in its totality---which would drive more ad dollars into streaming.