• by Joe Mandese  @mp_joemandese, April 30, 2004

The official story is that nothing substantive happened during the first and possibly only NUDG (Network Upfront Discussion Group) meeting. The real story is that something very significant happened: The upfront reigned supreme. And that, coming only a month before 2004-05 deal-making begins, sends a very strong signal for the networks unbridled control over the upfront sales process. If the upfront marketplace is like the game of poker that many of its players say it is, than the networks have just read the faces of ad industry leaders and they won the first hand.

Upfront sales reform was never the networks' idea. The upfront has always worked well for them and they've had no reason to change it. The notion of reform has always come from the buy side - mainly from advertisers, and secondarily from agencies when their client frustrations reached a new point. This year, it failed to reach a tipping point. And if you believe the outcome of Thursday's meeting, it never may. It could be that NUDG was not the proper forum for ratifying real change, but the official position from its organizers coming out of that meeting is that things work quite well and that there is no need for change. Huh?

Only 27 percent of advertisers surveyed by the Association of National Advertisers leading up to their 2004 Television Advertising Forum said the upfront actually works for their company. Only 20 percent of agency media executives felt that way when surveyed by MediaPost in April (see below).

The Upfront Works For My Company

            Advertisers     Agencies 
Agree               27%          20%  
Neutral             38%          43%

Disagree            27%          37% 

Source: Advertisers = Association of National Advertisers member survey. Agencies = media agency executives from the MediaPost Advisory panel, based on an online survey fielded by InsightExpress.

Clearly, there is a major disconnect between how the ad community feels about the upfront and how it behaves when it comes to the upfront. Advertisers and agencies have been complaining about the process for more than two decades. It has been the central topic of discussion this time every year at virtually any major TV marketplace event preceding the upfront, including the ANA's annual TV ad forum. So it wasn't surprising when buyers, sellers and advertisers debated its merits once again at this year's forum. What was surprising was when Carat CEO David Verklin made a put-up or shut-up offer to help organize a committee to tackle and resolve the long vexing sales practices once and for all. Equally surprising, was the instantaneous decision by the ANA's TV committee members to do just that.

Those developments were likely sparked more by passions than by business logic, according to executives who actually participated in the NUDG meeting. They seem resigned to the fact that the upfront - in its current form - is here to stay, at least for the foreseeable future. And that no oversight committee or group is about to change that. Part of that is due to legal issues. The other part, if official statements from the ANA and American Association of Advertising Agencies are to be taken literally, is that the upfront processes that everyone has been complaining about, actually work and don't need to be changed.

And if that's true, then it means NUDG was nothing more than a venting process. A way for advertisers to blow off some steam and release some of the pressure marketing executives have been feeling from their management and their procurement departments over the publicly embarrassing inflation of network upfront ad prices, the thing that everyone said could never even be addressed by a NUDG type committee or meeting.

The only way to address that, of course, is through the marketplace itself. Advertisers would need to simply stop demanding network ad inventory as much as they do. Some think that will happen on its own accord. Some even think it will happen this year. A new survey of advertisers and agency executives released Thursday by industry analyst Jack Myers even seems to suggest just that. Those results predict a significant upfront budget share shift from broadcast network prime-time to cable TV.

That would be interesting if it occurs, but it remains unclear how much such a shift would actually impact network upfront buying pressures. During the past several upfronts, the percentage of upfront ad budgets has shifted toward cable networks, but in each of those years, the relative CPM (cost per thousand) of the broadcast networks has continued to expand, not wane over cable networks. The reason for that is simple economics. The ad industry simply continues to value network ad inventory at a higher level than cable ad inventory, and has been willing to pay more for a diminishing supply. The real change will happen when advertisers and agencies cease believing that broadcast network ad inventory is worth more than cable's. That doesn't appear likely to happen this year.

What is likely is that despite all the proclamations for a network upfront market correction, the volume of advertisers demanding network ad inventory likely will outpace the supply that the broadcast networks put up for sale. It may happen at a slower pace than the rapid prime-time sellouts of the past two years, and it may be less frenetic, but all the indications are that the broadcast networks continue to call the shots. And the outcome of Thursday's NUDG meeting only reinforces that, even if only symbolically.

The bigger issue, of course, is not what this signals for the relationship between Madison Avenue and Broadcast Row. It's what this signals for the relationship between agencies and their clients. Yes, in the end, advertisers approve their agencies upfront decision-making. And in many cases, marketers likely even overrule their agencies decisions to hold the line on network upfront ad buys, succumbing to their own internal pressures to secure what they perceive to be irreplaceable prime-time network inventory. But the perception that their media agencies aren't stewarding the situation will only grow with network upfront CPMs.

Perhaps the greatest indicator to watch for this is the ANA's own periodic agency relations survey. Asked what the biggest needs are that they expect their agencies to fulfill, 79 percent of advertisers said they want their agencies to "spend my money as if it's their own." It ranked 11th among out of 27 agency attributes listed in the survey.

While the vast majority of marketers are satisfied their agencies are living up to those expectations, 19 percent are not. That's the stat to watch over the coming years, and see how it correlates to network upfront price inflation. And if that continues to happen, the one-and-only NUDG meeting may have closed the door on more than just upfront ad sales reform.

My Agency Spends My Money As If It's Their Own

Very Satisfied          55% 
Somewhat Satisfied      23% 
Somewhat Dissatisfied   14% 
Very Satisfied           5% 

Source: Association of National Advertisers' agency relations survey. Base = 179 agencies rated.