Heading into upfronts, buyers hope digital video platforms will help offset rising TV costs

During last year’s upfront cycle, Hulu and YouTube were able to steal some ad dollars away from TV networks by offering audiences that are harder, if not impossible, to find on linear TV, according to agency execs. The digital platforms are positioned to win even more dollars away from TV this year as advertisers are pressed to amass more audiences online to counter the shrinking TV viewership that is pushing up linear ad costs. “If for some reason you weren’t thinking about Hulu or [YouTube’s upfront program] Google Preferred, now you have to got to start thinking about it. You need the audience and some [audiences] are much easier found there than on network TV,” said the same agency exec.

This year, Amazon and Facebook are looking to get in on the heist. Facebook has already announced its intent to crash the annual upfront negotiations. Meanwhile, Amazon has been making the rounds to agencies to pitch its video inventory, including the Freedive video service it unveiled in January, in search of upfront video ad deals this year, according to agency execs. Additionally, ad buyers have noticed that non-traditional video publishers, such as Hearst, have more video inventory on offer than they did in prior years. All of that creates more competition for the TV networks to earn their share of advertisers’ upfront budgets.

Buyers say ad prices in the linear TV marketplace are increasing because advertiser demand for that inventory has not fallen, despite the fact that TV networks’ linear viewership has. Compounding matters, networks such as NBCUniversal, Fox Networks Group and Turner have been cutting the commercial loads on their linear networks, which is further inflating linear ad rates. “We’re paying more for less, and the migration of viewers off of live linear TV is creating a lot of problems for our clients,” said a second agency executive.

TV networks are pushing back. In recent years, networks such as NBCUniversal, Turner and Viacom have pushed their digital video inventory to be a more integral part of their upfront packages. Typically, they use the digital viewership of their shows to offset linear viewership declines and ensure they meet the number of impressions guaranteed to advertisers in their upfront deals.

NBCU, Turner and Viacom, in particular, have been using their digital inventory to push for audience-based ad buys that are akin to the digital platforms’ pitches and have been well received by ad buyers looking to be more strategic with their clients’ spending. “The three of them certainly have been the beneficiary. We have completely ramped up the business we’re doing around audiences with them and would like to take a much bigger swing,” said the agency exec. That exec cited Turner’s announcement earlier this year saying it would use parent company AT&T’s subscriber data to bolster its targeting as an example of how TV networks are enhancing their audience-based sales pitch.

While TV networks are getting better at pushing their digital inventory, they are being met with some resistance from ad buyers who see an opportunity to reset advertising costs. Ad prices for networks’ linear primetime TV inventory are increasing because of shrinking supply and stable demand, and networks are trying to sell the digital viewership for those shows at the same rates. But ad buyers are torn on whether they should pay as much for the digital streams.

On the one hand, networks’ digital inventory is considered by ad buyers to be more valuable than their linear inventory in some respects. The digital ads can be more targeted, and streaming viewers are more likely to pay attention to the ads because digital viewers are more engaged than passive linear primetime viewers, according to agency execs. Additionally, ad buyers recognize that the networks need to make enough money from their programming in order to keep producing it and distributing on an ad-supported basis so that they attract viewers for advertisers to reach.

But on the other hand, advertisers are generally looking to cut costs and eliminate waste in their spending. Add to that the fact that, unlike with their linear inventory, networks have more digital inventory to sell than demand for it among advertisers, said the agency execs. As a result ad buyers see an opportunity to set a pricing baseline that is lower than linear primetime TV, which can be especially important as digital represents the future of the overall premium video marketplace.

“As a buyer, I’m conflicted. I want to go in and nail them on CPMs for digital because that’s our future, and I’m responsible for setting costs for our future,” said a third agency exec.