Upfront Season Opens in a Bullish Mood

Why This Matters The bulk of TV's national ad inventory for next season gets sold during the upfront, setting the tone for the industry's financial outlook.

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As upfront season begins, television advertising sales executives are bullish, pointing to a strong economy and a rising stock market.

In the annual commercial-buying bazaar last year, advertisers committed about $18 billion to TV, and paid double-digit price increases to many of the top networks.

But media buyers aren't expecting this year's market to be a rerun of last year with respect to pricing. Scatter dollars swamped the market in 2016, allowing some networks to garner double-digit increases in ad rates on a cost-per-thousand viewer basis.

Before negotiations start, the industry will have to work out several key issues, including metrics for measuring viewing that increasingly occurs on mobile and on devices hooked up to over-the-top streaming sources.

Better Yardsticks Needed

Buyers and sellers are looking for better ways to compare the impact and effectiveness of TV commercial impressions and digital ad impressions.

Data is also a big buzzword, and there are questions about how big a role it will play in this year's market.

This year's upfront kicked off on March 2 as Viacom's Nickelodeon hosted media buyers in New York.

If kids are a leading indicator, Viacom's head of sales, Sean Moran, predicted a strong advertising market.

With deregulation coming out of Washington, you're seeing that increase a lot of corporate spending, Moran said. You're seeing a lot of analyst reports that are showing great earnings. You see the stock market at an all-time high with no signs of slowing down. And you look at the major indicators for different categories, like telco and transportation and auto and others. Those are all moving in the right place.

Those factors will also help the general ad market.

Bruce Lefkowitz, executive VP of ad sales for Fox Networks Group, said he expects spending to rise in this year's market as sponsors shift some ad dollars they had been pouring into digital advertising back into TV.

Last year, there was a stealthy reset of TV's value, with a few market leaders leading the way, Lefkowitz said. I think this year, the reset will be broader and I think you're going to see more money moving back to television.

According to Pivotal Research Group senior analyst Brian Wieser, TV ad revenue was up 6.5% last year to $69 billion, including political and Olympics-related activity. He said spending should flatten in 2017, with TV's share of total ad spending slipping to 32% from 33% in 2016.

It's early, but Wieser predicted volume in the upfront would be down slightly, with pricing up in the mid-single-digit range. I'm sure it might change if we look at it again in a few weeks, he said.

Said Horizon chief investment officer Marianne Gambelli, It's a bit early for posturing, but I'm sure all of that will begin to unfold soon enough.

I think this year's market will be a lot more moderate than last year, she said. The TV market hadn't seen that kind of strength in a while, which was caused largely by scatter dollars moving up into upfront. Fourth-quarter scatter was soft, however, first quarter is seeing a bit more activity. So it's still way too early to predict.

Advertiser Perceptions, a research company that studies attitudes in the ad industry, found in January that more media buyers expected to increase spending on broadcast, cable and digital video than were looking at cuts.

Market optimism spiked during last year's upfront, according to Andy Sippel, senior VP of media consulting at Advertiser Perceptions. Though optimism has dropped a bit recently, these scores remain relatively high, he said.

When it comes to broadcast, 34% of buyers and clients expect to increase spending, compared with 14% who expect to cut back. In cable, 32% expect an increase, with 12% projecting decreases, according to Advertiser Perceptions.

Fox's Lefkowitz said the role of data would be a wild card in this year's upfront.

Determining Data's Place

Will it be an epic step forward or a baby step forward? Lefkowitz asked. There's a clamor, but people are still figuring out how to effectively utilize it. And that goes from the clients to the agencies to the vendors.

TV networks have been ramping up their data efforts in order to combat competition from digital advertising, which has promised analytics that show exactly who is seeing ads and how they're reacting to them. For the past few years, advertisers have discovered that numbers from Facebook and other digital platforms haven't been accurate and that because of viewability issues and fraud, they're not getting the bang for their buck they expected.

Last month, NBCUniversal announced that it would set aside $1 billion worth of advertising inventory that will be sold as part of data-driven packages.

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Ad dollars follow audiences, Lefkowitz said. If you look at the rise of cable, it was a cost-efficient alternative to broadcast television. Digital was also a flight to efficiency because there was so much supply out there.

But it was also a flight to efficiency under the guise of effectiveness. Advertisers thought they could do more with digital ads and get better metrics and data, he said. But in my opinion, the effectiveness bloom is off the rose.

While some advertisers pay for digital ads that are seen for only a second or two, 30-second TV ads appear on a full screen for 30 seconds.

A two-second impression cannot be as effective in communicating a message as a 30-second television impression, Lefkowitz said. There's

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