‘We have to get this off our books’: TV networks’ debts to advertisers are piling up

These so-called “liabilities” have stacked up even more in the fourth quarter with lower-than-expected viewership for major sports, college football games being canceled and networks’ traditional fall programming pipelines being disrupted by the coronavirus crisis. “Ratings are down significantly and probably to a greater degree than anyone had modeled,” said a second agency executive.

In addition to wanting to show they can deliver on advertisers’ audience goals, networks stand to sacrifice revenue the longer that they carry a debt. “In some cases, they have liability from two years ago. That stuff is at 10% to 15% cheaper CPMs than the new inventory. So just getting it off their books is beneficial because they’re giving it away at the discounted 10% to 15% rate,” said a third agency executive.

One way that some networks are looking to settle their debts is by simply offering to give advertisers their money back rather than set aside inventory to make up for the missed guarantees, according to agency executives. To be clear, such cashback offers are not entirely new; the first agency executive said that for years they have been able to negotiate for clients’ money back if networks didn’t deliver on their upfront guarantees. However, other agency executives said broadcast and cable TV networks have become more willing to make these offers. 

Historically, networks would be able to find additional pockets of ad inventory to offer to advertisers, such as linear slots they set aside to sell in the scatter market or impressions from their streaming services and digital properties. But with pent-up advertiser demand squeezing the scatter and streaming ad markets, “now they’re running out of other areas,” said the third agency executive.

Advertisers are not all that interested in the cash back offers, though. While some clients are willing to take the money and spend it elsewhere if they are under a time constraint — like a retailer in the holiday shopping season— others expect to receive what they are paid for and are willing to wait. “They can’t say, ‘We can’t deliver; here’s your money back’ and push us into the scatter environment,” said the second agency executive.

However, advertisers may not be willing to wait for all that long. Although some are still owed for ad buys placed one to two years ago, ad buyers are becoming less tolerant of adding to their tallies. And while the networks’ streaming inventory would seem to offer a release valve make up for the linear misses, not all advertisers see that as an equal trade because of the concurrent reach of linear TV. “We want like for like. For the most part, we want linear impressions [for make-good inventory],” said a fourth agency executive.

As a result, advertisers may soon reach a point where they are no longer willing to spend new money until their old debts are settled. “I’ve had conversations with all of the top sales executives at the media partners [to tell them] ‘Hey, we’re watching this closely and we will prioritize future deals and also look at exercising [cancelation] options where we have to if you can’t hit the guarantees our clients need,’” said the second agency executive.