• by Wayne Friedman , David Goetzl  @dgoetzl, May 14, 2007

As the broadcast upfront season begins today with NBC's presentation, buyers and sellers appear to be largely in agreement about the currency that will be used once the deal-making begins. In a move that essentially marks a quid pro quo, the opposing sides are gearing up to negotiate using a combination of two data streams: average commercial ratings and "live plus three day" data covering DVR viewing, according to multiple sources.

One driving force appears to be GroupM, the massive WPP buying operation that encompasses four major agencies and does some deals leveraging dollars from all of them. Chief Investment Officer Rino Scanzoni has said he favors using average commercial ratings, and sources said GroupM also wants the "live plus three day" ratings (derived by adding "live" viewing to DVR viewing over the three days after broadcast).

A GroupM representative confirmed the commercial ratings push, but declined comment on the DVR stream.

But the GroupM position looks to be contributing to a sort of snowball effect, as other buying entities and networks now believe that the estimated $8.7 billion broadcast market will settle that way, sources said. Count executives at marketer Procter & Gamble among them, a source in contact with them said. With P&G thinking that way, that likely means two other major agencies are looking to go in that direction: MediaVest, which handles TV buying for P&G, and Carat, which works on planning for the large packaged-goods advertiser.

Multiple sources said the major broadcast networks (ABC, NBC, CBS, Fox and CW) have indicated they will agree to those terms, although one executive at a major buying agency said when their commercial rating/"live plus three day" position was expressed to the networks, the networks by and large simply "listened."

"We look at it as the best way to move in this market for our clients, and I think the networks have looked at it and said this is in our best interest too," said Lyle Schwartz, the research chief at Mediaedge:cia.

A representative for P&G said the marketer hasn't made any decisions and "it's too early to speculate." MediaVest and Carat did not immediately provide comment. Representatives for all five networks did not provide comment.

Sources did caution that the apparent consensus on currency could break down, perhaps creating a standoff. There's also some belief that certain buyers aren't prepared to do deals with commercial ratings.

More broadly, there's the issue of whether the would-be currency would lead to a decrease or uptick in the market, and which side it would favor. If commercial ratings yield less inventory to sell, networks will no doubt try to increase pricing to stabilize or bolster unit costs.

So far, this year's early consensus contrasts with last spring, where buyers refused to pay for any DVR viewing and would only negotiate on "live" data. ABC resisted and fought hard for some DVR payment, but the combination of buyers closing rank and the other networks failing to join in holding the line allowed the buy-side to win the battle.

Under the emerging consensus now, buyers would be able to achieve guarantees based not on how many people view a program, but on the average number who watch the actual commercials within the show--and theoretically would not have to pay for ads skipped via DVRs. Networks, on the other hand, would be able to monetize DVR viewing by receiving payment for ads viewed with the devices--something they have failed to do and are hungry for.

The "tradeoff" would allow both sides to please key constituencies. Buyers would be able to tell their clients that they are only paying for the more desirable commercial ratings. And networks would be able to tell Wall Street that they're now getting paid for DVR viewing--something investors have worried about, as some believe the DVR could eventually kill the networks' main revenue source.

The principal reason buyers appear willing to move off the "live"-only push is the coming launch of both average commercial ratings and the "live plus three day" stream from Nielsen at the end of this month. Together, the data will derive an average rating for all commercials aired in a particular show, starting with the "live" broadcast and stretching over the ensuing three days.

But buyers, in theory, won't have to pay for ads that are fast-forwarded through, since an ad that is skipped via a DVR does not count toward the commercial rating. The potential downside: If only one second of a commercial is watched and the rest skipped, that counts as a commercial viewed.

The "live plus three day" movement is less than ideal for retail and movie advertisers whose ads lose relevancy after the 24 hours or so following a "live" broadcast--and a buyer at a leading agency said the retailers are indeed unhappy. But he suggested that would serve as an impetus to alter creative so that it would have a three-day shelf life. Fox, in turn, is working on a possible solution where new ads could be inserted into programming recorded on DVRs, which would then appear when the shows are played back.

Agencies could ask for a separate currency such as "live plus same day" viewing for retail and other clients, but that could lead to significant "back office" complications and other flux. On the other side, a network like ABC may still push to do some deals involving a "live plus seven day" metric, leading to other complexities.

Once the currency is agreed upon, then the upfront could take on a texture very similar to years past, where negotiations are based on traditional issues such as ups or downs in volume and CPMs--direct results of supply and demand. There are some additional factors, however--such as whether buyers will push to add some "bolt-ons" in their guarantees based on engagement data from, say, IAG Research or proprietary studies that networks and buyers have conducted together.

Buyers and sellers, of course, disagree on how strong the market will be, with some sellers predicting perhaps a 3% volume jump and buyers suggesting a 5% decline. Merrill Lynch's Jessica Reif Cohen projects that total volume for the four major broadcasters will jump 4% to $8.7 billion, with CPMs up at the same rate. A strong scatter market is a factor in her predictions, she wrote recently.

While commercial ratings appear primed for the broadcast negotiations, the cable marketplace could go in any number of directions. Cable sellers have indicated that they prefer to do deals without them this summer, and then ease them in over the next 12 months.

But some networks with inventory to fill such as a lower-tier channel, or even larger ones looking to grab share, could offer advertisers the option.

Mel Berning, who oversees sales for A&E and the History Channel, said due to questions about the accuracy of the data in cable and the risk of not making a "rational transition," it makes sense to hold off in the short term. But if clients demand it, he will consider it.

"If we have a big client who tells us that's the only way we'll do business, we'll have to look at it," he said.

But he added that agencies are expressing a desire to do a variety of deals, ranging from the traditional program ratings to exact-minute ratings to other engagement metrics.

"Cable's always been nimble, and we're going to be nimble again this year," he said.