Is COVID-19 the beginning of the end for upfronts?
Buyers and sellers have long questioned the necessity of flashy presentations, especially as the broadcast TV business declines. Disney chairman Bob Iger recently predicted an end to the antiquated upfront process altogether as a result of the economic crisis.
Ad buyers have been pushing to move the upfront to a calendar-year negotiation that begins in January and runs through Q4, giving them more flexibility and better alignment with clients’ fiscal budgets.
Buyers also hope that as demand dries up – after all, TV production is on hold and live sports and events are canceled with no return date – they’ll gain leverage in the decade-long sellers’ market to drive down inflated pricing and make real strides on cross-platform measurement.
“While timing may be one issue for some clients, the more pressing issues are around cross-screen measurement, flexibility and moving to audiences from demographics,” said Catherine Sullivan, chief investment officer for Omnicom Media Group in North America.
One thing, however, is certain: Locking at deals up front is still the best way to get a discount.
Why have an upfront?
Buyers and sellers have recently questioned everything about the upfronts except for the notion of buying media in advance.
Committing dollars up front is the most efficient way to lock in media placements, with scatter inventory buys up to 6% more expensive on average than upfront buys in 2019, according to Standard Media Index. In 2019, buyers placed $19.3 billion in upfront commitments versus $7.1 billion on scatter.
Buyers also negotiate up front with digital platforms such as Facebook, Google, Twitter and Snap for the same reason. Plus, locking in spend for the next 12 months gives big brands a clear view of a major fixed cost for the year.
“Having an upfront marketplace is very important,” said Mike Law, president of Dentsu’s Amplifi. “You get more value and better integrations down the line by making a forward commitment.”
But how and when deals are negotiated could change. While holding companies maintain that going to market collectively gives them better leverage, more flexibility on timing could help clients go to market individually and ink more customized deals, said Dave Campanelli, EVP and chief investment officer at Horizon Media.
“When all of the agencies come to market at the same time, the networks get a good sense of demand and a better understanding of the rate of change,” he said. “The more spread out that process is, the more leverage agencies and advertisers have.”
Regardless of how they do it, buyers will continue to commit money upfront as long as they perceive scarcity of supply, said Josh Chasin, chief measurability officer at VideoAmp.
“The inherent bet buyers are making is they will be better off procuring inventory now than waiting,” he said. “It’s in the networks’ interest to support a marketplace where their inventory is in high demand.”
Mark your calendar
This year, the industry is likely to negotiate for Q4 on a scatter market and move the 2021 upfront to a calendar-year negotiation. If it goes well, that timing could stick.
Most big companies plan their fiscal budgets on a calendar-year basis, which puts their TV investments on a different cycle than the rest of the business. But there’s upside to aligning those cycles, and some marketers have already moved in that direction. Roughly 20% of GroupM clients, for example, make upfront commitments on a calendar year, said chief investment officer Matt Sweeney.
But given that most clients do still negotiate against the upfront calendar, there’s likely to be a blend of negotiation styles immediately after the crisis. COVID-19, however, could shift the majority, especially if the networks begin releasing pilots on a rolling basis, rather than only during the fall.
If enough clients flip to calendar-year negotiations, FOMO on the upfronts will subside, opening the door for a more flexible schedule.
“It has been an industrywide fear that if you miss the upfront, you’re going to get punished on pricing,” Campanelli said. “Hopefully that changes, and we get to a market where you can secure deals whenever you’re buying.”
Structural changes ahead
Streaming has started to play a bigger role in TV negotiations, as companies such as Roku and Hulu bring their inventory to the upfront.
If cord cutting continues to speed up long term, streaming will play an even more central role in upfront negotiations. Streaming services don’t adhere to the broadcast calendar and generally don’t air live events (yet), so that could make the timing of negotiations even more flexible.
“In this day and age, new shows are debuting all year,” Chasin said. “When does it get to a point of critical mass, where it doesn’t make sense to have this timing?”
Streaming also increases marketers’ opportunity to diversify their budgets, especially as networks come to market with ad-supported offerings. As viewer shifts accelerate and negotiations pause, the buy side sees an opportunity to use this upfront season to actually make cross-platform TV easier to buy, measure and frequency cap.
Sellers have already begun to coalesce around Xandr and OpenAP to make cross-platform buying, frequency capping and measurement easier. They’ve also invested significantly in their own audience buying platforms, such as NBCU’s One Platform.
If the market favors the buy side due to soft demand, buyers can use their leverage to demand more cross-platform, audience-led deals.
“More granular measurement stimulates demand,” Campanelli said.
If leverage does swing toward buyers, they also see an opportunity to right-size the price of linear TV inventory, which has been inflating on scarcity value for years as ratings decline. This will be easier for the sell-side to do as the big networks launch streaming platforms to recapture audiences, and as weaker demand as a result of the economic crisis pushes them to drop pricing.
“As this [crisis] goes on, we’ll see networks start to be very eager for budgets and will drop pricing because of it,” Campanelli said.