‘This is a negotiator’s market’: TV networks see rough going through the fall

TV networks have endured the March wave of advertisers canceling or postponing deals. Now they are looking ahead to managing the next round of cancelation requests slated to come in next month.

May 1 through May 15 mark the deadlines for when TV advertisers can cancel a percentage of their annual upfront commitments for the third quarter. Many advertisers in industries like travel, theatrical entertainment and retail apparel have already cut back their budgets. But, TV networks’ sales teams are preparing for the worst-case scenario that more advertisers will follow suit while working to avoid or offset the potential losses.

“We’ve certainly looked at every contract and the budgets, and we have to assume that people that have [options in their contracts to cancel 15% to 30% of their quarterly commitments] are most likely going to take it. We’re preparing for holes and gaps,” said one TV network ad sales executive.

As long as advertisers’ businesses are being impacted by the pandemic, they are wary of making the kinds of long-term commitments that underpin the TV advertising market. Now they face a deadline to decide whether to keep those financial commitments or relieve themselves of some costs. With no way of knowing how much they may need the money in two or three months’ time, they are likely to opt out of the deals.

“On May 1 when our advertisers contact us to talk about their third-quarter commitments, we’re going to hear a lot of ‘we just don’t know yet. We have to wait and see when certain parts of the country reopen and how they reopen,’” said a second TV network ad sales executive.

In recognition that advertisers’ businesses are in a holding pattern and the ripple effect that has on media companies’ advertising businesses, TV networks are working to delay advertisers from making the most drastic decisions and avoid premature cancelations.

Buying time

Time the most valuable currency for TV ad buyers and sellers alike. Advertisers have become averse to making long-term commitments because they don’t know how their businesses are going to be impacted in the short or long term. As a result, those that have not stopped spending altogether are pulling back from their upfront commitments in order to switch to more flexible, short-term buying that more closely resembles the digital advertising market. Meanwhile, TV networks are trying to buy themselves as much time as they can for ad dollars to return, especially as they have seen that already begin to play out.

“What we’ve found, even during this relief process, is when you buy more time things tend to get better,” said a third TV network ad sales executive. “Time has allowed people to either decide to shift messaging or they’ve seen things are not as bad as they thought.”

This executive emphasized that, while TV ad dollars have dropped by double-digit percentages, “it hasn’t been a total bloodbath.”

At the same time that TV networks have seen some advertisers pull back, they have seen others continue to spend. Advertisers in the financial services, insurance, technology, telecommunications, food products, household cleaning products, grocery and streaming entertainment industries have continued to spend money, said the sales execs. However, those advertisers that are still spending money have not offset the decreased dollars from other advertisers. The money from the former group of advertisers has been stable but it has not increased, the execs said. 

Additionally, networks are finding new money coming into the market. Some pharmaceutical brands that don’t participate in the upfront market have started to buy TV ads within the past month, said the first TV network ad sales executive. And pizza delivery and insurance marketers have increased the money they are spending, said the third sales executive. Now the networks hope to see an influx of political ad dollars, especially as campaigns are unable to host in-person rallies and other events.

‘A negotiator’s market’

In anticipation of advertisers asking to cancel some of their Q3 spending commitments, TV networks sales teams are working up options that can accommodate advertisers’ current aversion to making long-term financial commitments while also maintaining some of the revenue assurance that those upfront deals are in place to provide. 

“Everything’s a negotiation. This is going to be a year in the ad sales world where it’s a year for not just great partnerships but great negotiation skills,” said the second TV network ad sales executive. “This is going to be a negotiator’s market”

The options that networks expect to be on the negotiating table include buyback provisions so an advertiser that cancels a portion of their Q3 commitment can return in the quarter and purchase the previously agreed-upon inventory at the previously agreed-upon upfront rate. However, while advertisers may prefer that buyback option, networks would prefer the option of allowing advertisers to cancel their Q3 commitments on a rolling basis, so that an advertiser may cancel their commitment for July but stay on the books for August and September with the option to cancel those months closer to when they begin.

Such options reflect the potential watershed moment that the TV advertising market finds itself in. At the same time as advertiser demand has dropped, TV viewership has increased, flipping TV’s traditional supply-demand dynamic and forcing TV ad sellers to adapt.

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“In the past five weeks, we’ve had to suspend the rulebook. What we’ve done is made sure that we’re first and foremost being mindful of what it is the advertiser and their agencies are asking us for and find ways to make those requests work,” said Steve Mandala, president of ad sales and marketing at Univision.

Some advertisers have asked to run their ads now but pay later in the year, according to TV network sales execs. Typically advertisers agree to 90-day payment terms with networks, but in some cases advertisers have asked to delay payments for 120 days and even 180 days. The advertisers that have asked to postpone payment have primarily been travel-related marketers, so the networks have understood the issue and been willing to accommodate the requests. 

So far networks have not had a glut of payment delay requests, but they expect that to change. “Our thought there is we can grant that in the short term, but we don’t want to make it a new policy. I think clients and agencies would love six months to pay their bills,” said the third sales exec.

Other requests have been easier for networks to acquiesce, such as advertisers who have asked to delay campaigns so that the advertisers can rework their creative messages to better reflect the current cultural climate. For example, automotive advertisers that had initially paused their campaigns have started to advertise again after adjusting their payment options, said the first sales exec. In some cases, networks such as Univision have worked with the advertisers to create the new ads, and agency executives have said that has helped to keep ad dollars in place.

“We’re looking at every opportunity of what can we do to offset those losses,” said the first sales executive.

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