Media Buying: Negotiating Network Upfront

1. Media Buying: Negotiating Network Upfront

2. Buying media the communication plan Client Marketing Objectives Media Objectives & Strategies Media Mix Media Plan Media Investment

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

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

5. UPFRONT (Q4 through Q3) Long-term purchase, 3 to 4 quarters at a time Negotiated in May/June Inventory airs in upcoming broadcast year Typically best pricing Best program/network availability Audience delivery guarantees Cancellation options can be negotiated for outer quarters SCATTER (as needed) Short-term purchase, typically done in quarterly increments Negotiated anytime prior to air date Inventory airs in upcoming weeks/days Typically more expensive than the upfront Risk of limited program/network availabilities No audience delivery guarantees Inventory is firm upon order Two Ways To Buy: Long-Term & Short-Term

6. 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

7. Early Morning $5.50 A25-54 CPM $11.50 A25-54 CPM Nielsen 2003

8. Daytime $5.30 W18-49 CPM $9.00 W18-49 CPM Nielsen 2003

9. Pricing Gap Growing 3.6x 2.2x

10. Prime $9.3B Network $12.1B News $430MM Early Morn $785MM Late $710MM Day $895MM Bulk of spending still goes to network • Old client habits can be hard to break Cable $5.5B Syndication $2.3B 03/04 Upfront Reported Spending

11. The network upfront marketplace: How does it work?

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

13. 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

14. 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

15. Upfront Timeline: Macro View Mar Apr May Jun Jul Aug Negotiations Market Review Place Orders Final Budgets/ Preliminary Buying Strategy Go to “Hold”

16. Upfront Process: Micro View Gather client needs Analyze supply/ demand Evaluate networks’ schedules, strengths Evaluate networks’ schedules, strengths Form strategies & plan investments Form strategies & plan investments Submit needs & request plans Evaluate & request revisions Evaluate & request revisions Place inventory on hold

17. Evaluating networks’ schedules • Overall ratings trends: leaders vs. laggards • Which series are aging vs. growing? • How many holes must be filled? Position of strength Position of weakness Neutral

18. 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

19. 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

20. 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

21. 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) You be the buyer: The Friday Night Dilemma Which would you buy?

22. 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

23. The Shows Show B Show A

24. 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 Example #2 Which would you buy?

25. The Shows Show X: Friends Show Y: Coupling

26. 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

27. 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!

28. 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

29. The network upfront marketplace: What does the future hold?

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

31. 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

32. 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

33. 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

34. 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

35. 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