Disrupted by the COVID-19 pandemic, advertisers canceled 15% to 25% of the third-quarter advertising time bought during the 2019-20 upfront, according to sources familiar with the situation.
Ad sales executives said the cancellations were “not as bad as expected,” after the networks saw ad revenue declines of from 30% to 59% in April, according to Standard Media Index.
Advertisers ordered $21.9 million worth of television ads during the 2019 upfront. The networks sell a full year’s worth of commercials “upfront” and guarantee they will deliver a certain number of viewers. As part of the deal, the advertisers are given an option to cancel as much as 50% of their orders in the third quarter.
The coronavirus began impacting business in March, just past the deadline for advertisers to cancel second-quarter commercials bought during the upfront. The deadline for canceling third quarter upfront buys was May 1, but the networks extended those deadlines, hoping that the economy would open up, increasing the demand for advertising and reducing the inclination to cancel.
Advertisers who canceled their orders could later turn around and try to buy commercials in the scatter market.
“They're saying ‘we want control of this money,’” said one sales executive, even if advertisers know they might have to come back and buy the same ads back later.
The executive said the scatter market had been getting stronger along with the stock market and cancellations were slowing down at the the networks.
“They want control over how to reallocate their spending,” the executive said. “The only argument against taking options is the possibility of paying a CPM penalty” if prices in the scatter market are above the pricing in the upfront deals they canceled.
In order to keep prices up, networks can opt to use unsold inventory to satisfy make goods rather than put them in a soft market and accept below upfront rates.
“We’re going to come into the third quarter with almost no liability [for ratings shortfalls]," the executive said.
