Upfronts canceled, TV ad commitments plummeting

Miley Cyrus and Alicia Keys at the 2016 NBCUniversal Upfronts

Paul Drinkwater | NBCUniversal | NBCU Photo Bank | Getty Images

This week traditionally marks Upfronts TV, when broadcast and cable networks present new shows slated for launch in the fall as they negotiate with marketers to sell 80% of their annual advertising inventory.

But this year, instead of star-studded events and advertisements crowding cocktails, these presentations were delayed indefinitely. Neither party is ready to enter into negotiations: production stoppages prevent broadcasters from completing full programming, and advertisers want to avoid long-term commitments given the uncertainty surrounding the pandemic . Instead, broadcasters are preparing for unprecedented third-quarter ad cancellations.

A new report from Advertiser Perceptions predicts that Covid-19 will cut initial commitments by 33% while advertisers are reluctant to commit to the long term and buy short-term ads. Of the more than 150 advertisers surveyed in early May, half say they can replace the reach of linear television with ads in streaming services and digital video ads. And 41% of advertisers surveyed say that networks will be forced to abandon the Upfront model of committing to a year of buying ads in advance.

Horizon Media chief investment officer David Campanelli predicts that between 20% and 30% of advertising engagements will be canceled in the third quarter. Most advertisers have the option in their contracts to cancel up to 50% of their ad spend, but typically 5% or less is canceled. While marketers generally have to decide whether and to what extent their advertising commitment should be withdrawn sixty days before the start of the quarter, this year a number of important marketers are asking for more time and are getting extensions up to to Friday May 15.

“Some brands like Google will exercise their option to cancel up to 50% of their advertising commitments for the next quarter,” said Michael Kassan, CEO of advertising consultancy MediaLink. Many of the most declining companies are in the travel, food, entertainment and retail industries.

Kassan says that some of the companies that cancel some of their advertising commitments “will want to reallocate some of the funds for the Olympics and other sporting events, and some will want to move these advertisements to sporting events when they” re scheduled later during this year. They could buy back in the scatter market when they see what the market looks like. “

Now, the period for buying Upfront ads could be extended to this fall, with ads purchased for the calendar year, rather than starting with new shows in the fall. eMarketer anticipates that advertising commitments will be lower and that networks will be more flexible regarding cancellations. The companies that could suffer the most from advertising engagement cancellations are local broadcasters such as Nexstar, Gray and Sinclair.

In addition, the postponement of most live sports harms all major networks as well as sports networks like ESPN and Turner’s networks.

Go digital

When marketers return, they should move further away from traditional television advertising to digital formats, where ads can be more targeted and their impact better measured.

“Just as we have seen with a faster increase in electronic commerce, in the past two months, I think the shift to alternative content platforms – supported by advertising and subscription streaming – will accelerate also, ”says Kassan of MediaLink. “This reorientation of consumers will also lead to a reorientation of advertising.”

Television giants do not have the power to demand firm commitments during a period of unknowns. “Flexibility is the new black,” says Kassan.

But the change does not necessarily mean that advertisers will put all their money into the big digital platforms like Google and Facebook, as many TV companies are establishing a growing digital presence.

“There is an outdated notion that you go on TV and you go to Google or Facebook,” says Campanelli. “It’s a bit outdated, because most of the linear TV and mainstream media companies now have a very large digital presence.”

For example, Comcast’s NBCUniversal has a set of tools called “One Platform” for buying advertisements on TV and digital platforms, as well as a streaming service mainly financed by advertising, Peacock. Rival Disney has Hulu, the majority of whose subscribers are on its advertising-funded plan. AT&T Warner Media said it would develop an ad-supported version of HBO Max, and a number of industry experts say the company is looking to speed up the launch of its ad-supported option to address the concerns of cash-strapped consumers and subscription fatigue.

We will learn more about digital advertising providers – and how they hope to attract traditional TV advertisers – when they host their “Newfront” ad presentations, which were postponed from May to June 22-26. They will arrive virtually of course.

Disclosure: NBCUniversal is the parent company of CNBC.

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