This story first appeared in the May 10 issue of The Hollywood Reporter magazine.
The broadcast networks remain a dominant platform for media buyers. But they no longer are the dominant platform. As network executives screen dozens of pilots and cram for their annual star-studded presentations to Madison Avenue that kick off May 13, they are staring down what analysts predict will be another weak TV upfront bazaar.
Much of the blame can be placed on the sluggish economy and the ongoing fragmentation of the media environment. Last year's upfront (when networks unload the bulk of advertising inventory for the upcoming season) was boosted by the record-breaking Summer Olympics and nearly $10 billion in political spending. Broadcast networks booked $9.25 billion in primetime upfront commitments (a gain of only 1 percent year-over-year), while cable was up 5 percent to $9.8 billion, according to the Cabletelevision Advertising Bureau. This season, ABC, Fox and NBC are down year-over-year in primetime among viewers 18-to-49, while CBS, which sits atop the Nielsen charts, is flat. In a season of no new hits, flat may be the new up.
To what extent has cable stolen broadcast's thunder? Publicis Groupe's ZenithOptimedia predicts U.S. TV advertising will grow a mere 2.8 percent this year to $63.9 billion, with spending on broadcast down 2 percent and cable up 7 percent. Others aren't as optimistic: Nomura Securities analyst Michael Nathanson predicts broadcast ads will decline 2.5 percent while cable will rise 5 percent. Even perennial upfront chest-beater Leslie Moonves is tempering expectations. The CBS Corp. president and CEO has declined to make his usual double-digits-CPM-increases prediction, explaining in March at the Deutsche Bank media conference that he missed his target last year when CPM (cost per thousand viewers) rates were up only 9 percent. With a 1 percent increase in volume, Pivotal Research Group analyst Brian Wieser predicts CBS will realize 7 percent CPM increases and other networks will come in at 4 percent to 6 percent.
NBC this season has endured ridicule for its low-rated comedies and a pricey flop in Smash. But the network looks a lot better on paper thanks to a strong fall with The Voice and Sunday Night Football and a relatively steady spring with more Voice. As such, Morgan Stanley analysts predict NBC will increase its dollar share for the first time since 2002. Most of its gains are expected to come at the expense of Fox, which has had trouble launching hits as its formerly dominant American Idol experiences huge declines with new judges Mariah Carey, Nicki Minaj and Keith Urban. (THR's April 23 report that producers considered replacing Carey midseason with Jennifer Lopez will not quell doubts about Fox's most important franchise.) For the first 30 weeks of the season, Fox is down 22 percent among viewers 18-to-49 to a 2.5 rating average, edging third-place NBC (2.4) and well behind leader CBS (3.0). ABC, which is down 8 percent, has fallen to fourth (2.2).
The hot issue leading into the upfront continues to be the debate over currency on which ad buyers accept guarantees. Seven years after adopting C3 (three days of delayed viewing), TV execs want to tack on another four days of playback. Moonves has been the loudest C7 cheerleader -- 40 percent of CBS' primetime consumption comes from delayed viewing -- but he has been joined by Disney's Bob Iger and NBCUniversal's Ted Harbert. Credit Suisse analyst Michael Senno, in a March note, wrote that C7 is "inevitable at some point, but the bigger question is how much impact it will have." Many commercials are time-sensitive. Although C7 could boost ratings by 2 percent to 3 percent, Senno wrote, "price deflation could offset some of the upside." That said, having surveyed media buyers, Senno believes this year's upfront could be a carbon copy of the 2012-13 sell-off. Despite the broadcast malaise, that haul brought a 5 percent increase compared with 2011-12.
Meanwhile, the digital insurgency is accelerating at the second annual "newfront" that began April 29 and featured announcements with A-list auspices. (Ed Helms created a comedy for Yahoo; Cheryl Hines will star in another; Saturday Night Live's Seth Meyers is producing an animated comedy for Hulu.) But while digital outlets have made originals a priority -- including YouTube channels and Netflix's pricey push into series -- the shift in ad dollars from network to digital will be incremental, say analysts. There are reasons for the lag: lack of scale, dearth of quality and no accepted currency. ComScore is the biggest player in digital measurement, but "the movement of network dollars to digital remains almost impossible without a Nielsen rating," says RBC Capital Markets analyst David Bank.
Nielsen introduced Nielsen Online Campaign Ratings in 2011, and many companies use a combination of measurements to track digital, mobile and social activity and structure 360 deals. But the only digital players with modest scale using Nielsen OCR are the networks' online hubs. From a structural perspective, adds Bank, "the online players need the Nielsen ratings currency to take meaningful dollars from network TV into digital."