UPFRONT SALES UPDATE

Broadcasting & Cable says that Fox has completed selling its prime time inventory for next season.  Reportedly, Fox has sold 80% of its spots, leaving the rest for "scatter market" sales during the season when the networks hope advertising rates will rise even more as supply tightens and last-minute demand increases.  The article goes on to say Fox sold its commercial time for a 10% rise in CPM (or cost per thousand viewers reached -- usually viewers 18-49, but sometimes 25-54 or other demographics).  As ratings generally fall, broadcast networks are usually able to increase the price (keeping total dollar volume relatively steady) because advertisers want to be in hit network shows, which remain the best way to reach a mass audience.

Click "Read more" for more on the upfront process.

It took one week for Fox to complete its selling.  Reports emerged that their market "broke" last Thursday, meaning the network and the major advertising buying agencies agreed in principle to the +10% figure.  Then the hard work begins.  The entire network sales force works with Madison Avenue on individual deals with agencies and advertisers.  "So you want American Idol?  Well, we'd like to sell you Fringe."  The agency might respond, "Fringe really doesn't work for our client, but we'll heavily support your new comedies."  Back and forth it goes, buying individual shows -- bundles of shows really -- and placing spots in particular times of year.  Movie companies, for example, need to buy very specific weeks tied to launch of their movie slates.  In addition, to buying commercial time, clients can buy complete sponsorships, "billboards" before the programs, and advertising on network web sites and more importantly within streamed shows on those sites.  On and on it goes over the course of many long days and late nights (with a lot of food delivered in) until the network has "written" the business and the deals are complete.

One might expect that there would be extensive contracts to be signed with a round of lawyers.  But interestingly, almost all this business -- billions of dollars -- is done without signed contracts.  It is much more like a stock market with a string of transactions and an understanding between a small group of sellers and small group of buyers.  If each deal had to be put on paper and handled with contracts, the commercial time bazaar would grind to a halt.  Instead the buyer and seller go back and forth on a brief "plan" for each buyer, a list of spots purchased across the network schedule.  The total price of the plan is calculated by the network's "rate card" which spells out the CPM for each show at various points in the year.

With Fox basically done, the attention will shift to second-place CBS.  If they stick to their guns and go for much higher prices, the upfront will drag on closer to the Fourth of July.  If advertisers start making deals with ABC or NBC, the pressure will be on CBS to compromise more on their price stance.  And don't forget that the broadcast networks are not the only sellers.  Cable networks are also actively in the process (collectively selling about $8 billion worth of time, compared to around $9 billion for broadcast networks), and add in another couple of billion dollars for syndication (daytime talk and court shows, early evening game and entertainment news shows, and late night situation comedy repeats).  

After tens of billions of dollars are committed, it is time for a brief summer vacation and then a waiting game until Premiere Week and the first few weeks of sampling for the new shows.  The winners and losers are determined by the Nielsen sample, and shows and network schedules that are underperforming force the networks to issue "make good" spots to advertisers (commercials in successful programs) so that advertisers reach the number of viewers of they were promised now.  The "make goods" come out of the 20-25% of the time not sold during the upfront, and limit the amount of time the network can sell in the scatter market late in the fourth quarter and in the winter.  And soon it's almost time to start planning for the following broadcast season, and cycle begins all over again.