Sales executives at rival networks were celebrating as the upfront ad market started “breaking” last week, but the mood at 30 Rock was much different. A dark word suddenly entered the lexicon at NBC: rollback.
After years of dominating the television business, NBC was cutting prices last week to secure commitments from major advertisers for the fall season. Rival broadcast networks are securing increases of around 5% in CPMs, the cost per thousand viewers. But buyers and analysts say that NBC's prices are falling, by at least 2% and in some cases more.
NBC executives were still writing deals at deadline Friday. But the slide marks a dramatic shift in the fortunes of the television business and foreshadows a tough climb ahead for NBC. Combine the price drop with the network's plunging ratings, and it seems that advertisers will steer $500 million to $700 million away from NBC this season, cutting its take perhaps to $2.2 billion.
The big question among buyers and rivals: Will NBC hold back commercials from the upfront and pray for rain, hoping that prices will be better in the “scatter” market next fall and winter?
NBC Universal Television Group President Jeff Zucker is the man most accountable for the health of NBC. He was at the helm as the network headed for a clear ratings iceberg that had been looming for years: the end of Friends. He didn't have the right shows in place to offset the impact and failed to launch new ones last fall. Moreover, he made few dramatic changes on the coming fall schedule that would suggest that an ABC-esque turnaround is in the air.
The beneficiaries? ABC and CBS. The champagne corks were popping at ABC as the network was the first to plunge into the upfront, writing $2.1 billion worth of prime time business. That's up around 30% from the roughly $1.6 billion the network wrote last year, with average CPMs increasing 5% and the network guaranteeing that its audience will increase 25%. That's a big risk, betting that ABC's audience will rise even more than the 17% it generated last season.
“We are really building this network,” says Mike Shaw, president of ABC's ad sales. “There's no network that's ever gone up 17% in one season.”
CBS was crowing because it's now the biggest player in the upfront. President of Ad Sales Joann Ross estimates that the network's final prime time tally will run between $2.5 billion and $2.6 billion, displacing NBC. “We'll beat NBC in volume,” she says. “We exceeded our expectations on volume.”
Fox also wrapped last week, booking $1.6 billion in upfront sales with 4%-6% CPM increases.
Cable moves slowly
Cable executives were nervously awaiting their turn. Discovery, MTV Networks, Lifetime and A&E had written practically no business by last Thursday. USA Network cut a lot of two-year deals last year, so it has more of its inventory committed. The president of one ad-sales group said midweek that only 30% of his clients had even registered budgets, the first stage of the negotiating process.
“It is slow, slow, slow,” says the president of another cable-network sales group.
The market is particularly hard on NBC, which has long been accustomed to squeezing ad buyers for CPMs at least 5% more than rival networks could secure. As the network slipped in the ratings, Zucker, NBC Universal Television Networks Group President Randy Falco and friends started touting how upscale its viewers are, scoring high in households with incomes more than $75,000 or $100,000. That's why ad buyers would still be willing to pay a premium.
At one point, NBC executives boasted about the network's dominance in upscale 18-34s. Uh, aren't most of those simply still living with Mom and Dad? “The only upscale 18-34 people I know are my children,” highly paid CBS Chairman Les Moonves quipped during a recent meeting.
Just before the Memorial Day weekend, NBC was talking to some advertisers about a 4% drop in CPMs. As the network started actually writing business last Wednesday, prices were coming in a bit higher, but they were still rolled back from last year's prices.
The Scatter Gamble
NBC's standing now jeopardizes its longtime lead in the most important measure, the amount of revenue that networks generate from each prime time commercial. Last year, NBC was in the lead, around $147,000 compared with CBS' $110,000, according to data published by Morgan Stanley media analyst Richard Bilotti last week.
NBC's revenue per spot could fall to around $123,000, while CBS' may jump to $126,000.
The bet is that the economy and NBC's ratings will strengthen in the fall and the network can get better prices in the “scatter” market than it can in the upfront. That's a major gamble given how badly NBC's new fall shows performed last season.
E-mail comments to jhiggins@reedbusiness.com
