Media Buying: Negotiating Network Upfront

Buying media the communication plan

Client Marketing Objectives Media Objectives & Strategies Media Mix Media Plan Media Investment

National TV

• National TV divided into three primary vehicles: – Network – Cable – Syndication

Network TV: Dayparts

• Network TV divided into dayparts – Early Morning – Daytime – Evening News – Primetime – Late Night – Kids – Sports packages by daypart Most Efficient Least Efficient • All national commercial time is sold in

Two Ways To Buy: Long-Term & Short-Term UPFRONT (Q4 through Q3) • Long-term purchase, 3 to 4 • Negotiated in May/June • Typically best pricing SCATTER (as needed) • Short-term purchase, increments • Negotiated anytime prior to • Inventory airs in upcoming weeks/days • Typically more expensive than the upfront • Risk of limited program/network guarantees • Inventory is firm upon order

Frequent complaints

• Negotiations too far in advance – May ’04 purchases of September ’05 inventory • Inventory purchased isn’t what runs – Program failures; reality programming • Sellers have an advantage – Can stall, pool all inventory requests to gauge market – Agencies can’t do same thing • Late nights lead to mistakes – Do you really want your agency spending your $200MM budget at 2 a.m.?

• CPMs and ratings going in opposite directions

Early Morning

50 45 40 35 30 98 44 35

Early Morning Share of Viewing

44 99 33 00 43 36 01 41 40 41 39 02 Nielsen 2003 3-Netwo rk B asic Cable

Daytime

50 45 40 35 30 98 42 39

Daytime Share of Viewing

47 46 40 39 42 38 36

$5.30 W18-49 CPM

35 3-Netwo rk B asic Cable

$9.00 W18-49 CPM

99 00 01 02 Nielsen 2003

Pricing Gap Growing Primetime A18-49 CPM Comparison

$30.00

$25.00

$20.00

$15.00

$10.00

2.2x

$5.00

$0.00

90/91 92/93 94/95 96/97 98/99

3.6x

00/01 02/03 3-Netwo rk B ro ad Cable

Bulk of spending still goes to network

• Old client habits can be hard to break Prime $9.3B

Early Morn $785MM Day $895MM

Network $12.1B

News $430MM Late $710MM Cable $5.5B

Syndication $2.3B

03/04 Upfront Reported Spending

The network upfront marketplace: How does it work?

A true supply & demand marketplace

Supply Vendor Avails Demand Advertiser Budgets Commodity Rating Points (Unlike print, cannot add more supply if demand increases) • A few scenarios . . .

Supply Down Supply Up Supply Up Demand Up Demand Down Demand Up CPM Increases CPM Decreases CPM Flat-ish

Beating The Market

• No one has perfect knowledge – Agencies do not and cannot talk to each other – Networks not supposed to talk to each other – Everyone tells the side of the story that best suits them • Good buyers collect as much info as possible – Draw upon all available resources for educated predictions Supply

• Look at historical ratings performance • Review new programs • Determine potential winners/losers • Develop projections for future • Talk to vendors

Demand

• Review general economy • Study how advertising typically reacts • Talk to investors about category predictions • Extrapolate internal budgets • Talk to vendors

Beating The Market

• Everything is negotiable – Typically judged on CPM premium vs year ago • And how that compares to results of other agencies • Accurate knowledge of future supply and demand is important – Called “Reading the Market” – Supply typically does not fluctuate dramatically – Demand sometime does • Timing is critical in securing best price – If spending up significantly, usually smartest to buy early – If down, we may wait until vendors get nervous • Diversified scale also a driving force – Not just lots of money, but the right kinds of money

Upfront Timeline: Macro View

Mar Apr May Jun Jul Aug Market Review Final Budgets/ Preliminary Buying Strategy Negotiations Go to “Hold” Place Orders

Upfront Process: Micro View

Gather client needs Analyze supply/ demand Evaluate networks’ schedules, strengths Form strategies & plan investments Submit needs & request plans Evaluate & request revisions

Place inventory on hold

Evaluating networks’ schedules

• Overall ratings trends: leaders vs. laggards

Position of Neutral strength

• Which series are aging vs. growing? • How many holes must be filled?

Position of weakness

Investment Strategies

• Seek out vendors’ “pulse points”: – Cross-daypart help • FOX weakness – Corporate synergies • NBC linkages – Weaker vs. stronger players • Creating winners & losers – Client assets - partnerships • Packaging, in-store, other real estate • Determine approximate share of buy for each player – Subject to change throughout negotiation

Submit needs & request plans

• What you submit varies by network • Play your cards carefully – Specify rating point needs OR total budget—not both!

– Submission to each network should be a FRACTION of total needs • Give them enough info to do their jobs…but not enough to see the total picture – Knowledge is power

Evaluate plans and revisions

• Compare mix and pricing to year-ago benchmarks – Primetime the most labor-intensive analysis: • Day of week • % of units/TRPs in movies/newsmagazines/reality • % in best, worst shows on each network • Quarterly presence in each show – Avoid having all of best units in summer – Look at sweeps presence: first-run episodes are best • Competitive counter-programming – Is your only unit in The Simpsons running against the Super Bowl?

• % new shows vs. returning shows – 70% failure rate, on average

You be the buyer: The Friday Night Dilemma

Show A: • Genre action-comedy • Proven male lead – Cult following • Generous production budget • All-family fun; likely male skew • 7pm airtime (Central) Show B: • Genre action-drama • Unknown talent in front of & behind the camera • Reasonable production budget • Adult, conspiracy-driven plot; likely male skew • 8pm airtime (Central)

Which would you buy?

What I did

• The client: McDonald’s • The network: Fox • The year: 1992 • Chose to heavy-up in show A, based on all family appeal and proven male lead – Split units roughly 70/30 between the two, hedging bets in case show B proved the winner

Show A

The Shows

Show B

Example #2

Show X • Sitcom • Concept derived from show already proven successful • Thursday night time slot on NBC • Six attractive NY singles – No “name” talent in front of the camera Show Y • Sitcom • Concept derived from show already proven successful • Thursday night time slot on NBC • Six attractive NY singles – No “name” talent in front of the camera

Which would you buy?

Show X: Friends

The Shows

Show Y: Coupling

Our overall goal: Invest the client’s dollars wisely

• Similar to a financial advisor • Identify opportunities – Undervalued properties – “The next big thing” • Manage risk • Maximize ROI • Build for the future

Getting what you need: Negotiation as life skill

• “You catch more flies with honey…” • Respect person on the other side of the desk • Discussions based on fact rather than emotion… – …but recognizing the value of emotional “hot buttons” • Always recognize the value of long-term relationships over short-term “victories”

Remember during a buyers’ market… that it will eventually be a sellers’ market!

Once you’re done…be ready to revise

• Approved plans go to “hold” pending client approval • Recommended purchases are presented to client – Subject to input, revision • Approved buys are then ordered – But still subject to cancellation options for quarters 1 3 (two to four quarters out from buy) – Allows client ongoing budget flexibility • Additional needs can be purchased in short-term market - try to take advantage of opportunities

The network upfront marketplace: What does the future hold?

Serious Challenges

• Personal Video Recorders (PVRs) • Video on demand • Shifting of power to consumers • Lowest-common-denominator programming • My own viewing habits

The PVR

• Personal Video Recorders (TiVo, RePlay) allow impressive consumer control over TV viewing – Live pausing – Show title/performer searching – Commercial zapping • Up to 77% of viewers zapped commercials during replay • Networks’ once closely monitored schedules could soon become a thing of the past - Counter-programming?

– Retrieve programs you want and view them when you want • Now can do so easily at home with TiVo or Replay • Soon will be able to do so remotely on the internet – Does not bode well for the “Suddenly Susan”s of the world • Protected time slots no longer relevant

The PVR

• PVR and similar technology will have a massive effect on how planners and buyers behave – Penetration currently very small • But growing quickly – Solutions to combat this increased control • Content integration • Program sponsorship • Vignettes • Video-on-demand (VOD) testing • Tickers • Interactive commercial creative

Interactive TV: Consumers in control

• No more couch potatoes – Idea that television is a passive medium is finally shifting • Superbowl now fully interactive experience • ABC’s version of Who Wants to Be A Millionaire and its Internet companion site early example • Viewers determined which contestant on CBS’ Big Brother walked out with $500,000 • Game Show Network leading pack in development • American Idol still dominating the ratings – TV holds power to motivate viewers to crave more information - tremendous latent power • Just the ability to put a website address on an advertiser’s television creative has resulted in immediate sales growth for some categories previously thought stagnant

Is the upfront still relevant?

• Entire network programming model is threatened – Syndication back-end disappearing as reality thrives – More difficult to launch new shows as time-shifting increases • Year-round programming cycle increases uncertainty • …But consumers still connect passionately with their favorite programs – Need to be smarter about tapping into that passion – Passionate followings aren’t just in primetime…or even exclusive to TV - ex. Gawker Media Group • “Old-school” upfront less relevant, but still serves purpose of mapping availabilities and market needs – Will converge with other media (e.g. online) in the near future

The bottom line

Upfront needs to evolve along with the industry – Take steps now to align buying for the future • Discussions need to focus on the real issues – Arbitrary rules of engagement can and will be subverted by cleaver buyers and sellers • Ongoing client education is a must – Buyers are the expert advisors…but it’s their money