In April 2004, advertisers tried to remake TV advertising’s annual upfront marketplace. The Association of National Advertisers and the American Association of Advertising Agencies got roughly 40 brand, agency and TV network executives and even some lawyers in a midtown Manhattan board room, and the group spent five hours figuring out how to change the upfront, according to a MediaPost article published at the time. But nothing came of that meeting.
Now, as the saying goes, change is happening gradually and then all at once. Since the early 1960s, the upfront has been a fixture of the TV business, It is an opportunity for advertisers to lock up TV networks’ finite number of ad slots for relatively low prices in exchange for committing to spend an agreed-upon amount of money with the networks over the following year, year after year. The upheaval to the economy is making the most sacrosanct business practices — the centrality of the office, for example — up for discussion and adaptation. TV is not immune. “TV is the least flexible media type out there,” said one agency executive. That rigidity, which was a benefit to both buyers and sellers in the Old Normal, is now a liability in a world of virus outbreaks, uncertainty about the return of live sports and the critical fall TV schedule.
TV has held onto the upfronts even in the face of the rise of digital channels like search and social that allow advertisers to turn campaigns on and off from one minute to the next. The crisis, however, has pushed TV ad buyers and sellers to make TV advertising more pliable and remake the terms of upfront agreements. The question is whether that will be enough to stave off wholesale change.
“COVID definitely called attention to the lack of flexibility of TV in a way that has always been in the background,” said Stacey Stewart, evp and managing partner of integrated investment at UM Worldwide.
In March, many advertisers asked TV networks to let them out of the commitments they had made last summer. Despite the deadlines for such requests having passed, the networks complied. They opted to sacrifice short-term revenue to preserve long-term relationships. But, in doing so, they opened themselves up to advertiser pressure for lasting pliability, making flexibility the focal point of this year’s upfront negotiations.
“The rules of engagement are changing substantially right now. And I do believe that the level of dollars that our clients will be willing to commit on an upfront basis will certainly hinge upon networks’ ability to become more willing to look at different models,” said Catherine Sullivan, chief investment officer for North America at Omnicom Media Group.
At least one agency is making flexibility a precondition of this year’s upfront negotiations before registering any money with the networks. “If they’re not willing [to agree a client’s flexibility demands], they’re going to be last in line and lose out in this year’s upfront because demand is softer than in years past,” said an executive at this agency.
Options on the table
Advertisers, agencies and TV networks are putting seemingly every option on the table to restructure the staid upfront deal. Considering the current economic uncertainty, advertisers are looking to give themselves more leeway with regard to the money they pledge to spend. Meanwhile, TV networks are trying to determine how to provide that flexibility while ensuring that most of the committed money — 70%, per TV network sales executives — cannot be canceled.
Historically, advertisers have been able to opt out of portions of their year-long upfront commitments on a quarter-to-quarter basis. The cancelation amounts vary by advertiser and by quarter, but they range from 15% to 50% of the pledged amount. However, advertisers have to give networks an early heads up if they plan to cancel a portion of the next quarter’s commitment. The cancelation window also varies. Most commonly, advertisers have to provide notice 45 to 60 days prior to the start of a quarter, though some advertisers like movie studios have deals that only require 30 days’ notice.
In this year’s upfront negotiations, advertisers and agencies are looking to loosen upfront contracts’ cancelation terms. Most commonly, advertisers and agencies are looking to shorten the quarterly cancelation window to 30 days and increase the cancelation amounts to at least 50% of the committed dollars. But ad buyers’ flexibility demands branch off from there. Some buyers are angling to connect cancelation options to how the crisis affects individual advertisers’ businesses, such as enabling a retail advertiser to immediately cancel its commitments in full if an agreed-upon percentage of its stores are forced to close. Others have asked to be able to cancel two-thirds of the committed dollar amounts or to strike deals on a quarterly rather than annual basis.
“We’ve probably seen two dozen flexibility framework options thrown at us. Half are unreasonable, and half are understandable,” said one TV network ad sales executive.
TV networks’ concerns
As much as TV networks don’t want to deter advertisers from participating in the upfront, they have their own businesses to protect. Networks rely on upfront commitments to guarantee revenue against their programming costs, especially expensive content like original shows and sports rights.
“Original shows are a huge undertaking with hundreds of people on set and millions of dollars spent. That takes planning, and the upfront conversations we’re having help us forecast and project and budget. It’s different than digital content environments that are real-time with low production,” said a second TV network ad sales executive.
Besides, TV networks already offer advertisers greater flexibility than what is ironed out in upfront agreements. According to TV network executives, advertisers regularly ask for two-week extensions when making cancelation decisions ahead of a quarter, and at least half the time, the networks grant these extensions. That cuts the cancelation window to roughly 30 days for advertisers on 45-day terms and would cut the 30-day cancelation window that ad buyers are after to around 15 days, which would be cutting the window too close for networks. In light of the extensions, “anyone seriously entertaining 30 [days for cancelation windows] is nuts,” said the second network executive, noting that the movie marketers already on 30-day windows rarely ask for extensions.
Nonetheless, TV networks are willing to play ball — to a point. “There has to be a trade-off. If you want greater flexibility, you need to give something back,” said a third TV network sales executive,
Among the trade-offs being proposed by networks are to shorten cancelation windows in exchange for keeping existing cancelation amounts or to increase cancelation amounts but also ad prices. Additionally, TV network groups that own multiple linear channels as well as streaming properties are offering to work with advertisers to move money around, redirecting a campaign from one channel to another in accordance with audience shifts or subbing in different brands that an advertiser may own in the case of companies like Procter & Gamble and PepsiCo.
TV networks are wary of bending too much to advertisers’ flexibility demands, however. While they were willing to do so in the spring, they are seeing that begin to bite them in the upfront.
In the early phase of this year’s upfront conversations, networks and agency holding companies concentrated the flexibility discussions on the advertisers in categories like travel and quick-service restaurants that were most in need of that flexibility. “Three weeks ago, we were having thoughtful conversations [with the agency holding companies],” said the second TV network sales executive. “Three weeks later, they’re taking that openness and saying they want it for everybody. So the negotiation begins.”
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