The TV industry expects the upfront ad market to split into two periods

Illustration of two TVs playing tug-of-war.

TV networks and ad buyers are coming to the consensus that this year’s annual upfront negotiations will need to be split up, based on interviews with four TV network ad sales executives and four agency executives. “It will not be the usual situation where a significant amount of the marketplace moves at the same time,” said one agency executive. Still up for debate, however, is how upfront market gets carved up and how deal terms will change to reflect advertisers’ desire for more flexibility in their commitments.

Normally at this point in the year, advertisers and their agencies are finalizing their budgets for the annual upfront marketplace. Then, after the TV networks wrap their upfront presentations in May, the negotiations can begin and continue through the summer. That has one out the window. 

However, there remains a desire on both the buy and sell sides to have an upfront market because it’s good for their respective businesses. Advertisers are able to secure TV inventory at lower prices than if they buy it outside of the upfront, and TV networks are able to secure revenue. “Upfront deals will continue to happen because that’s really where advertisers take advantage of pricing,” said a second agency executive.

TV networks and agencies have spent the past month feeling out one another for when they can begin negotiating. While nothing has been decided, TV ad buyers and sellers anticipate that negotiations will begin soon but only for some advertisers with others expected to follow later in the year.

Of the $20 billion that advertisers spend in the upfront market, “I would say $10 billion would happen in the traditional June-July timing, maybe another $5 billion moves in the fall and then the last $5 billion would probably go all scatter from advertisers who feel they need complete flexibility and can’t make a decision a month or two out,” said one TV network sales executive.

TV networks and agency holding companies are already discussing conducting some upfront negotiations beginning in June for advertisers whose businesses have remained relatively stable in the wake of the pandemic, according to the TV network and agency executives. These negotiations may adhere to the traditional upfront window, with deals taking effect in October and running through September 2021. But given TV advertisers’ current wariness of committing to long-term deals and the uncertainty around when live sports will resume, it’s possible that advertisers will look to only lock in deals for the fourth quarter and wait until later in the year to haggle over 2021.

Following the summer negotiations, a secondary upfront marketplace is expected to take place in the fall, most likely starting in September, according to the TV network and agency executives. That marketplace is expected to adopt a calendar-year model with deals taking effect in January 2021 and running through December 2021. The digital video industry’s upfront negotiations also seem to be moving to a calendar-year model. One digital media company has already been told by agencies that the company’s upfront deals will be shifting to calendar-year commitments, according to an executive at the company.

The cleanest scenario would be some advertisers signing upfront deals over the summer for the back part of 2020 and then in the fall everyone participating in an upfront market for calendar-year 2021. However, if advertisers use the summer to sign traditional second half upfront deals, that could throw the rest of the market in flux. Some advertisers may feel pressured to move up their negotiations to the summer for fear of losing out on more favorable rates and sought-after inventory by waiting until the fall, while others may not be able to move as quickly and be pressed to pick over the leftovers. In that case, the upfront marketplace would fragment even further into more of a rolling marketplace.

While TV ad buyers and sellers wait to see how the timing of the negotiations shake out, they have a clearer idea of one focal point in the negotiations. “People will ask for steeper [cancelation] options closer to air similar to digital,” said the first agency executive.

Typically, advertisers are only allowed to cancel portions of their upfront commitments and must notify networks of the cancelations up to two months in advance. But the pandemic has made short-term flexibility more of a priority for TV advertisers, and TV networks expect to see that reflected in the upfront negotiations. “We anticipate a ton of requests for more flexibility in deal structures,” said a second TV network sales executive.

Those requests could become a major sticking point in the upfront negotiations. Willing as TV networks may be to cater to advertisers’ requests, the point of the upfront for networks is have to firm up their forecasted revenue, so they are wary of providing advertisers with complete flexibility. Instead they are considering making changes to the traditional option structure. Typically, advertisers are provided no cancelation options for Q4, a small percentage for first quarter and larger percentages in the second and third quarters. Since advertisers may be wary of the pandemic subsiding only to return later in the year, TV networks are weighing the option of allowing advertisers to rejiggering the flexibility. In that scenario, an advertiser would still only be able to cancel a certain percentage of the overall commitment but the larger cancelation options could be moved up to the back part of the year or early 2021.

In the past, haggling over cancelation options came at the end of the upfront negotiations after other terms had been agreed upon. That could change this time around. “I have a feeling a lot of the negotiations are going to start with those and that will determine if and when advertisers are going to be able to participate in a version of an upfront,” said a third agency executive.

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