For ABC, Less Is More in 'Upfront' Ad Market

By Meg James

June 13, 2005 12 AM PT

Times Staff Writer

Who’s desperate now?

This year’s “upfront” television advertising market -- the period when the broadcast networks sell about 80% of their prime-time commercial spots for the coming season -- is just about over. But even before all the deals are done, a consensus is clear: this was ABC’s year.

Ending a four-year sales slump, the Walt Disney Co. network parlayed the sky-high ratings of hits like “Desperate Housewives” and “Lost” into a 30% increase in dollar commitments for prime-time ads compared with last year. But it wasn’t just ratings that drove ABC’s success, network and advertising executives say. It was smarts.

According to interviews with half a dozen top ad buyers who spent the last 3 1/2 weeks negotiating with sales teams at all the networks, ABC outmaneuvered its rivals by selling its ads at lower-than-expected rates. This strategy enticed advertisers to commit $500 million more to ABC than they had in 2004. It also forced the other networks to follow in ABC’s wake, effectively dictating not just their prices, but their tactics.

“After ABC wrote a lot of business, there wasn’t a ton of money left in the market,” said Tim Spengler, director of national broadcast for the ad buying firm Initiative. “And there was actually less money in the market than some networks initially thought.”

For years, advertisers have complained that networks routinely demand huge rate increases even as they are losing viewers to cable channels and other entertainment options. Especially as digital video recorders enable people to zip through the ads, many advertisers ask why should they continue to pay more to reach fewer viewers.

This year, ABC indicated it had gotten the message. Instead of pushing for double-digit rate hikes, as most assumed it would, ABC asked for increases of 4% to 6%. The result: rival networks suddenly realized they couldn’t ask for a bigger increase than ABC, whose prime-time viewership had soared 16%.

CBS and Fox Broadcasting quickly adjusted, dialing down their planned rate increases to match ABC’s. But NBC, long accustomed to commanding top dollar, had trouble shifting gears.

“When ABC decided to be pretty conservative in their pricing, that cut the legs out from under NBC,” said Mike Gallant, media analyst for CIBC World Markets.

Despite falling from first to fourth place in prime-time among the key demographic of 18- to 49-year-old viewers, NBC initially demanded rate increases of 2% over 2004 -- a volley that was met with widespread disbelief. After all, NBC’s prime-time ratings declined 17% this past season.

The General Electric Co. unit eventually shaved its rates to 2% to 3% below what the network had charged last year, several buyers said. But NBC only did so after CBS, Fox and even the smaller WB network had snapped up much of the available money, the buyers said.

NBC declined to comment.

NBC is the only network in the Big Four that is still finalizing its upfront sales. More than half a dozen industry sources who are tracking advertisers’ spending estimated that when the upfront process wraps up this week, NBC could see its advertising commitments drop by at least $900 million from last year’s $2.9-billion haul.

Network executives like to sign up advertisers in June to have money lined up to pay for their programming in the new season.

“Nobody wants to live hand to mouth, week after week, through the season,” said Jason Maltby, president and co-director of national television for ad buying firm Mindshare.

But for the first time in years, that’s what NBC may soon have to do. An NBC source confirmed that executives there had decided to sell fewer commercial spots than usual in this year’s upfront market, gambling that their new shows -- including an underwater alien adventure drama called “Fathom” and a quirky comedy called “My Name Is Earl” -- will become hits. If they’re right, they will be able to sell ads at higher prices later in the year.

ABC’s story couldn’t be more different. Since late March, when ABC launched its third big hit of last season, “Grey’s Anatomy,” advertisers had been eager to get a chance to buy more time. Determined to capitalize on that enthusiasm, Mike Shaw, ABC’s sales president, told Madison Avenue in early May that his shop would have the most competitive upfront prices around.

Confident of the strength of ABC’s new fall lineup, Shaw also sent advance copies of several pilots to ad buyers. That meant that even before the upfront process began, advertisers had a chance to begin pondering whether ABC’s new “Commander-in-Chief,” starring Geena Davis as the first woman president of the U.S., might lure women viewers.

A new comedy called “Freddie,” meanwhile, starring Freddie Prinze Jr., was seen to have pull with the growing Latino population. In an edgy twist, it will be subtitled to translate for the lead character’s Spanish-speaking grandmother.

But it was ABC’s decision not to break the bank that won the biggest raves from advertisers, who credited Shaw with recognizing an underlying softness in the economy. For example, Detroit automakers, pharmaceutical companies and consumer product companies such as Procter & Gamble have pulled back on some ad spending.

“ABC did a brilliant job ascertaining the state of the market,” said Elizabeth Herbst-Brady, director of broadcast investment for ad buyer Starcom USA.

Mindshare’s Maltby said ABC “played it smart. They knew it was more important to fill up the bucket and take the money that was out there, rather than holding out for some big rate increase.”

ABC won $2.1 billion in upfront commitments for prime-time shows, up from $1.6 billion last year. ABC said it collected an additional $600 million for sports programming, including “Monday Night Football,” and special events like the Academy Awards.

“We don’t think that we left a penny on the table,” Shaw said.

Viacom Inc.’s CBS had to hustle to approach its goal of $2.5 billion, selling more of its inventory to make up for the lower rate hikes that ABC had forced. The sales job was made easier, though, by its strong Thursday night lineup and by no fewer than seven shows from producer Jerry Bruckheimer, including the “CSI: Crime Scene Investigation” franchise and a new drama, “Close to Home,” about crimes committed in the seemingly tranquil American suburbs.

Fox exploited its dynamic duo -- “American Idol” and the acclaimed drama “24” -- to win upfront commitments that it said matched last year’s: $1.6 billion. The News Corp. network takes in less because it programs just 15 hours a week in prime time compared with 22 hours on the other Big Four networks. Fox turns over the 10 o’clock hour to stations for local news.

The WB, meanwhile, came “within a whisker” of matching last year’s total of $675 million, said Bill Morningstar, advertising sales chief for the network owned by Time Warner Inc. and Tribune Co., which also owns the Los Angeles Times.

The WB’s ratings were down 12% this season compared with last year in its core demographic group of 12- to 34-year-old viewers. Still, advertisers said they liked the WB’s strategy of moving two signature dramas, “Smallville” and “Everwood,” to Thursday night.

The sixth broadcast network, Viacom’s UPN, is still sealing its upfront deals. It hoped to benefit from the return of its popular “America’s Next Top Model,” hosted by Tyra Banks, and from advance praise won by its new Chris Rock-inspired comedy “Everybody Hates Chris,” appearing soon on Thursday nights.

The show, whose title echoes CBS’ recently concluded sitcom “Everybody Loves Raymond,” is based on Rock’s childhood growing up in Brooklyn.

“I’m not as pretty as Tyra,” Rock conceded, drawing laughs from advertisers who attended UPN’s upfront presentation last month. “But I’m OK, right?”

(BEGIN TEXT OF INFOBOX)

2005 upfront ad market

What the networks made during their preseason advertising sales (In billions):

ABC*

2005: $2.1

2004: 1.6

CBS

2005: 2.5

2004: 2.3

Fox**