Networks Putting On a Show for Ad Dollars

In New York today, network television executives will start rolling out one of their biggest productions of the year--but one that most TV viewers will never see.

This springtime ritual is called the “advertising upfronts.” It’s a frantic, lucrative creative bazaar where networks trot out their new fall TV shows and their star actors to dazzle advertisers. The six major networks--NBC, ABC, CBS, Fox, UPN and WB--will sell about 70% of their season’s commercials, worth some $7 billion, during intense negotiations between now and Independence Day.

The advertising derby officially begins this week as the networks take turns unveiling trailers of their new shows at venues such as Carnegie Hall, Radio City Music Hall and Madison Square Garden. Their presentations are followed by lavish parties at Tavern on the Green and other upscale Manhattan spots. The places will be filled to capacity by TV producers, Wall Street analysts, talent agents and advertising executives with powerful clients in tow, including Pfizer Inc., Maybelline, Toyota Motor Corp. and Anheuser-Busch Cos. The ad buyers will be loaded up with DVDs and videos of the new shows.

The upfronts are a critical barometer of the overall health of the television industry and of each of the networks, giving Wall Street a rough financial road map for the year ahead. It’s also a make-or-break moment for Hollywood TV production studios, which hope to win valuable spots on prime time after a year of labor.

“Our entire year in television comes down to the next few days,” said Sam Haskell, head of worldwide television at William Morris Agency Inc., a leading talent agency. “It’s like being an expectant parent in a maternity ward waiting room.”

Haskell’s agency has represented such hits as ABC’s “Who Wants to Be a Millionaire” and such flops as NBC’s short-lived “Emeril.” The buzz is that William Morris is trying to land two dozen new shows on network schedules this fall.

The networks are eager to rebound from last year, when ad sales fell 16% to $6.9billion, down from a record $8.1 billion the year before. Only two years ago, the networks were enjoying the dizzying dot-com boom when they sold out their advance ad inventory in four days.

This year, Wall Street analysts and some TV executives said the upfront advertising sales could climb 3% to 8%. But they still worry that ad sales could be disappointing because of continued uncertainty about the economy, the ongoing defection of viewers to cable channels and the emergence of a few advertising conglomerates that control about 80% of TV advertising dollars.

“There’s all this hoopla [at the upfronts],” said Ira Carlin, chairman of advertising firm Magna Global USA. “The networks are trying to create a bandwagon effect.... What’s going on now is psychological warfare. It’s this annual tug of war.”

Sometimes, trickery is part of the battle plan as the networks build hype and keep everyone guessing. Every year, bogus network schedules circulate in hotels occupied by talent agents, writers and studio executives. This year, it’s rumored that NBC will leak three different fall schedules to throw off its competitors.

In addition to locking up ad spots on hot shows such as CBS’ “CSI: Crime Scene Investigation” and NBC’s “The West Wing,” advertisers are scouting for new hit shows. “Advertisers buy place holders, so if a new show is hot, then they are on it,” Carlin said.

Networks typically sell 10 minutes of commercials for every hour of prime-time. Their ad rates vary dramatically depending on the popularity of a show and the demographics of the viewers. On NBC’s hit medical show “ER,” a 30-second ad can cost $460,600, while on CBS’ drama “Touched by an Angel,” the same ad would cost $63,200.

Ad buyers, armed with gut instincts, research data on who watches each show and early test results on who might tune in to a new one, parcel out their ad dollars with care. They look for not only the highest-rated shows but also specific types of viewers. Young viewers are the most valuable for advertisers because they are considered impressionable and apt to change their buying habits--and their brand of toothpaste, beer or cell phone.

“These [advertising] deals are pretty much made on age and sex,” said Jon Nesvig, president of advertising sales for Fox network.

NBC is top-rated among affluent viewers ages 18 to 49, and that’s why Lexus, the most popular luxury car brand, gravitates to the network.

“The best place we found is NBC for those upscale viewers,” said Roy Rothstein, a vice president at Zenith Media, whose ad clients include Lexus and Verizon Communications Inc.

CBS historically has reached older viewers with such shows as “60 Minutes” and “Touched by an Angel.” Though advertisers typically pay less to reach older viewers, the network is in the sweet spot for some pharmaceutical companies offering Viagra or arthritis drugs. CBS, however, has been making progress in getting younger viewers with shows such as “Survivor” and “Everybody Loves Raymond.”

Preparation Begins

a Year in Advance

The creative process for the upfronts began in July, when talent agencies and studios started assembling show ideas, writers, actors, producers and directors for the fall 2002 season. By Christmas, the networks had bought more than 500 scripts and then winnowed those down to 115 TV pilots that were ordered in January. Production of these pilots began in March and April, and only about 35 will make the final fall schedules.

During the last two weeks, network presidents, their bosses and their staffs have been holed up in screening rooms around Los Angeles and New York, grading each show to plug holes in their schedules. Producers and actors won’t know if their shows make the cut until a day or two before a network presents its fall lineup this week.

In New York, NBC presents its fall schedule first, today at Radio City Music Hall. NBC, owned by General Electric Co., is expected to put on relatively few new shows because of its solid lineup, which includes “The West Wing” and “Will & Grace.” But the network is looking to find a replacement on Thursdays for its top-rated sitcom, “Friends,” which is headed into its final year.

“[NBC’s] best shows are getting long in the tooth, and they need a next generation of hits,” said Tim Spengler, a top ad buyer at Initiative Media North America, which spends $2 billion for clients such as Maybelline and Home Depot Inc.

ABC will unveil its fall schedule on Tuesday at the New Amsterdam Theatre. The theater, which holds 1,800, is hardly big enough for the droves of ad buyers, talent agents, network and studio executives and reporters who will stampede the venue. ABC, owned by Walt Disney Co., is in the worst shape among the major networks after losing 24% of its prime-time audience this season. ABC needs a big lineup change, with new shows every night.

CBS, owned by Viacom Inc., rolls out its schedule Wednesday at Carnegie Hall. CBS Chief Executive Leslie Moonves, a former actor, loves the drama and theater of the upfront presentations and is the most insistent about keeping the lineup a secret. Moonves orders staff members who deal with the media to leave their cell phones and pagers in a hotel room so they won’t be tempted to slip details of CBS’ new plan. A velvet curtain covers CBS’ list of the new fall schedule until Moonves regally lifts it at a news conference before the formal presentation.

Fox network, owned by News Corp., presents its offerings on Thursday. Fox is coming off a disappointing season and has plenty of gaps to fill with “The X-Files” and “Ally McBeal” finishing their run this spring.

Every network has some weakness. But the established networks--CBS, ABC, NBC and Fox--charge the highest rates because they bring in the biggest TV audiences. Last year, NBC was the big winner at the upfronts, selling $2 billion of commercials, followed by ABC with $1.7 billion, CBS with $1.4 billion, and Fox with $1.3 billion, according to the Jack Myers Report, an industry newsletter.

NBC and CBS are expected to fare better this year than ABC and Fox because of their stronger ratings.

One unknown is whether the networks can maintain the rates they charge, given an overall advertising slowdown, competition from cable and the consolidation of major ad agencies. In the last decade, scores of agencies have been bought up by four international conglomerates.

“We are so large that we have a good idea of what the market is, because we are the market,” said ad buyer Spengler.

“The only thing worse than paying too much is not getting on a [popular] show,” said Joe Abruzzese, CBS’ president of network advertising sales. “There’s nothing worse than going back to a client and saying, ‘I couldn’t spend your money or get you on “Everybody Loves Raymond” or “Survivor.”’”

Major Networks Must Compete With Cable

Back in the 1980s ABC, NBC and CBS had all the negotiating power with ad agencies because of their dominance over prime-time. Today, upstart networks such as UPN and WB provide alternatives, as do cable channels that charge lower rates and have more defined audiences.

Indeed, a year ago cable channels grabbed $4 billion, or 37% of the total upfront ad market, compared with only 19% a decade ago. But cable networks sell only half their commercial time well in advance, giving advertisers more flexibility to wait and buy ads on the open market.

But Jamie Kellner, president of AOL Time Warner Inc.’s Turner Broadcasting System, which oversees WB and cable channels including TBS, CNN and Cartoon Network, acknowledges that “cable still gets the [advertising] leftovers.”

Some network TV executives have broken from the springtime tradition of selling most of their ad inventory. In a risky maneuver last year that astonished his rivals, Mel Karmazin, president of Viacom, which also owns UPN, sold 10% less of his network TV inventory than usual at the upfronts. Karmazin bet that the economy would bounce back and that his slate of new shows would pull in high ratings and therefore higher ad rates.

His strategy could have backfired because of the shaky economy. But the ratings at ABC and Fox plummeted, forcing the two networks to give advertisers extra air time for failing to meet ratings guarantees. That left only CBS and NBC with ad inventory to sell on the spot market, which, some say, inflated prices.

Another evolution in the ad auction frenzy is bulk deals that go beyond prime time. Today’s media giants, such as AOL Time Warner, Viacom, News Corp. and Disney, own everything from broadcast networks to cable channels, radio stations, billboards, magazines and music companies.

In the last year, companies have experimented with bundling ads across their vast holdings in so-called cross-platform deals.

Now there are reports of a $1-billion advertising deal being negotiated by Disney and ad conglomerate OMD USA Inc., which represents such clients as consumer products maker Procter & Gamble Co. and Pizza Hut Inc. If so, this would be the biggest advertising deal ever, tripling the previous record.

Times staff writer Brian Lowry contributed to this report.