This year’s annual upfront negotiations are not over. While most advertisers have done their deals with TV networks, others have waited to make their commitments — and they’re likely to pay a tax on the extra time.
In the spring and into summer, the upfront market appeared poised to split in two with a higher-than-usual number of advertisers expected to sit out the traditional broadcast-year window, in which deals take effect in October and run through September. The thinking was they’d do their deals under the calendar-year window that would align with their companies’ January-December fiscal calendars and give them more time to sort out their budgets.
Still, roughly 10% to 20% of advertisers that participate in TV’s upfront market have waited until this month to begin their deal-making under the calendar-year model, according to estimates by agency and TV network executives.
The calendar-year model is not new, but 2020 has changed the secondary upfront market. While some advertisers have historically struck calendar-year deals to align with their fiscal schedules, other advertisers in categories that had been most affected by the pandemic, like travel companies, retailers and movie studios, have opted to shift to calendar-year deals this year. Others opted to split their deals between the two markets, making some commitments in the broadcast-year window to lock up inventory early and waiting to make more in the calendar-year window when they would have a better sense of their full budgets and the general end-of-year economic outlook.
Whatever advertisers’ reasons for waiting for the calendar-year window, that extra time will likely cost them a little extra this year. The upfront has its own version of early-bird pricing. Advertisers usually pay up to 3% higher rates for calendar-year commitments compared to broadcast-year deals, according to agency executives. This year that tax may be closer to 5%, according to some agency executives.
TV networks are expected to up their rates for multiple reasons.
While the amount of money advertisers committed to networks’ linear inventory declined compared to last year, the money tagged to their streaming inventory grew to offset the linear declines. That was a better outcome than the networks had expected, given how the pandemic had weakened the TV ad market in the spring, and has given them the confidence to push for more money. “It’s fueling them to posture for increases beyond the typical market in calendar-year [negotiations],” said one agency executive.
Additionally, the TV networks may feel like they left money on the table by not pushing harder for rate increases during broadcast-year negotiations. Therefore, they are are looking to calendar-year deals to make up the difference, according to agency executives.
Furthermore, the networks are asking advertisers to “register,” or disclose, their budgets ahead of the calendar-year negotiations. Agency execs say the networks are presenting this as a way for them to gauge demand in order to manage inventory availability, but ad buyers see it as enabling the networks to up their prices since advertisers and agencies have no line of sight into how much money the networks actually have coming in.
“It’s their way of assessing how much money we have, so they can decide how much to charge us,” said a second agency executive.
Even though ad buyers don’t like the idea of paying a tax for the extra time, they believe the situation would be more expensive for advertisers that sit out the upfront altogether to buy ads in the scatter market, where networks sell their inventory left unclaimed by upfront advertisers. Networks’ scatter inventory typically sells at higher prices than upfront rates, which is a major reason why advertisers participate in the upfront.
But the instability of this year’s TV market is driving up scatter ad prices even higher than normal in the fourth quarter, with the trend potentially continuing into next year.
For as much as advertisers may gripe about the calendar-year upfront rate increases, “I think scatter will be even worse,” said a third agency executive.
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