Do you feel swept away by the rush to plan and the drama of the TV Upfront season? It’s that time of year again and with your agency you are making the decision whether or not to participate in the Upfront. Do not let history or agency assumptions be your only guide; budget flexibility, pricing, accountability, and more will be affected. Read on for the critical questions that will help you take stock of the negotiating marketplace that will meet your needs this year.

Overview: Upfront versus Scatter

Upfront is a term that describes the practice of buying and selling of national TV advertising time on an annual basis for the October-September broadcast year. This marketplace begins each May with TV networks’ presentations of new season programming and ends (usually) with orders placed at the end of summer. (Worth noting, Upfront may also refer to some annual advertising deals made on a calendar year basis.) The term Upfront has come to imply deal structures based on many of the benefits of participation, most notably pricing advantages and impressions guarantees. However, these benefits as well as numerous other terms are subject to negotiation.

The big ad agencies achieve marketplace clout by bundling together the annual budgets of all their clients and participating in the Upfront. Press in May and June covers much posturing from both agencies and networks, and any changes in the way TV is negotiated are up for discussion. (Consider for instance, the industry-wide conversion from Live to C3 ratings which began with the 2007-08 Upfront; see separate MMI white papers on ratings currencies and DVR trends.)

Scatter, another option, represents the buying and selling of advertising on a shorter-term basis. Scatter advertising can be negotiated and ordered at any point in time and has historically (though not always) been characterized by pricing premiums (vs. Upfront) and sporadic impressions guarantees.

Seasonal advertisers who buy TV only a few weeks of the year, or advertisers who place a higher priority on budget and media flexibility than marketplace pricing may choose to buy in the Scatter market.

You may also want to keep in mind Upfront participation is not an “all or nothing” decision. You can negotiate only key dayparts, or only a portion of your budget. Ask the following questions from an overall as well as a key daypart/base campaign perspective.

Am I able to project spending to any degree six quarters out (i.e. through September of next year) and am I typically a multi-quarter advertiser?

If so, you are likely a good candidate for participation in the Upfront. This may be an option for you even if you do not advertise all four quarters and even if your media plans are incomplete or subject to change.

Is low pricing my top priority for this investment? Do I have a low CPM “Base” I need to protect?

One of the key benefits of Upfront participation is pricing. Costs-per-Thousand impressions (CPMs) are the currency of TV buying, and a trend for a standard demographic in Primetime Network and Cable shows the Scatter market to demand a pricing premium in at least eight of the past twelve quarters. As was the case in many business sectors, mid-2009 proved to be an anomaly in National TV – where Scatter pricing was lower than Upfront.

Many advertisers who have been consistently buying TV Upfront for years have established what is known as a low “Base”. Their negotiations focus on mitigating CPM inflation year-over-year, and they enjoy CPMs that routinely beat industry benchmarks (for example, consumer packaged goods or automotives). In order to maintain these “grandfathered” rates, an advertiser has to be a continuously active Upfront advertiser on each given network. (At negotiation time, agency may also refer to “protecting a base” as rationale for continuing to buy a network or “resetting a base” as justification for opting not to buy one.)

How much of a priority is financial flexibility to my organization?

Upfront participation requires budget estimates to be provided to the agency by early spring in order to be well prepared to negotiate in May. These budgets must then be committed by August.

Most Upfront contracts do, however, include Cancellation Options for later quarters. For an advertiser who requires budget flexibility, the most favorable possible terms can be an integral part of the negotiation. The percent of dollars cancellable, required notification dates, and absence of CPM penalties for budget reductions, and even “expansion clauses” providing CPM protection for budget increases are all areas for consideration. (It should be noted that an advertiser who constantly orders and then cancels will likely lose leverage over time.) The example below shows a typical scenario (note that option percentages and lead time vary between broadcast and cable and even by individual cable network or ownership group).

Assessments of performance in the Upfront negotiations frequently center on CPM increases, but when an agency is able to leverage budgets and/or market conditions to improve its client’s position in these areas, the benefit to the advertiser may be substantial.

Conversely, your organization may make a conscious decision to hold budgets for later Scatter negotiation if there is a financial benefit to the company that outweighs the anticipated pricing premiums.

Are impressions guarantees a priority? Are guarantees structured favorably for my organization?

Typically, Upfront buys are guaranteed to 100% on an annual basis. Quarterly “guidelines”, or goals, may be stated, but network accountability is actionable only after the completion of the final quarter. It is incumbent upon your agency to appropriately steward impressions to be delivered when you need them within what is a longer-term network obligation.

Scatter buys are not always guaranteed. However, this is negotiable, and the greater the investment on a network the more leverage the agency has. Economic conditions (supply and demand) also play a role.

Broadcast Network Scatter is rarely guaranteed (though may be negotiated to roll up with an Upfront, another Scatter quarter, or another brand within the same parent company).

In contrast, Cable Scatter is often guaranteed, since with the breadth of networks available the agency has good negotiating leverage to demand it.

Where Scatter buys are guaranteed, the advertiser benefits from immediate actionability of any audience shortfall restitution due.

Do I place a high priority on advertising in or sponsoring specific or high-profile programming?

Upfront advertisers typically receive first pick of the most valuable TV inventory, or programs. If your strategy calls for advertising focused in specific shows or high-rated, “watercooler” content, you are well served to reserve this time via the Upfront.

Further, if you are seeking associations with programming that go beyond commercial time (i.e. sponsorships, product integrations), you will likely be required to make an annual or Upfront commitment.

For Scatter advertisers, high-profile programming is sometimes more subject to availability. Of course, the longer the lead-time, the better chance there is of securing desirable inventory or being able to negotiate more of it into your network package.

As with most investment decisions, understanding the advantages and disadvantages of each TV negotiation type is critical. The appropriate scenario or mix of Upfront vs. Scatter for a given advertiser may change from year to year based on marketing plans, economic conditions, budget issues, competitive situations, and a variety of other factors. Advertisers should assure that their agencies have an appropriate understanding of conditions which might impact buying strategy, and they should expect their agency to provide an informed assessment of market conditions and a thoughtful, detailed recommendation regarding the best course of action leading in to each year. Anything less risks opportunity costs (sub-optimal inflationary management, lost flexibility, etc.) which few advertisers can afford.