Weiser Sees Upfront Prices Rising 8%

Despite the weak demand for national TV advertising in 2014 and more digital competition, buyers and sellers of advertising should expect a “typical” broadcast network upfront this spring with prices rising in the high single digits, says Brian Weiser, an analyst for Pivotal Research Group.

“Our pricing model indicates around 8% CPM increases” for a comparable amount of inventory,” he says.

However, he cautioned the pricing will depend by how much inventory the networks make available and will not necessarily produce commensurate increases in revenue. “[P]ricing and revenues are essentially uncorrelated for national TV owners,” he says.

Weiser says his forecast is based on advertisers being slow to change.

“This is especially true when dealing with the actions of national TV’s dominant advertisers, a relatively concentrated group of large and bureaucratic organizations from whom change can almost only ever be gradual.

Those that “care about brand building generally view the [TV] medium in its traditional form (paired with modern extensions including VOD and web or mobile-based full episode players) as best able to build and support brand-related goals across wide-reaching segments of society in a cost-effective manner.”

Buyers will go after specific programs and trying to lock down time in those program with category exclusivity, he says. And they remain at a disadvantage, he says

The networks are “relatively indifferent” to which buyers they sell, he says. “They know the entirety of the demand for their properties once buyers across different agencies have provided initial indications of interest. And they can also engage in price signaling to competitors through the use of the press and earnings calls ahead of negotiations.”

Weiser attributed the TV’s weakness in 2014 to general reductions in ad spending and an absence of meaningful new categories.

“Certainly there were some marketers who did shift spending to pure-play digital media owners and out of TV, but given the absence of scale of premium-grade content on the web that is not owned by today’s incumbent networks, there’s nowhere near enough inventory to explain the spending shifts.”

Weiser says Fox’s joining NBCUniversal with unified leadership and structure in selling may affect the market, but he is not sure how.

“This can make the two groups either more powerful (if they become harder to buy around) or weaker (if the market is weak and in an effort to capture share, price integrity goes out the window with bundled discounts ruling the day).”

Weiser dismissed Big Data and programmatic buying as significant in the market this spring.

“The most important factor will probably be the inclusion of video distributed across multiple platforms in more negotiations, whether or not it is included in Nielsen-based trading currencies,” he says.

“On balance, across the whole year, we think the 2015-16 season should see a resumption of more normalized growth. But given the weak conditions present at this time, the sellers of television advertising will probably be thankful for anything resembling a positive trend to point to, especially if it contributes to an eventual turnaround in investor sentiment towards the sector over time.”