TV networks use muscle to win rate increases in upfront ad sales

The television industry’s springtime sales bazaar is in full swing, with broadcast network executives haggling with advertisers over commercial rates for the upcoming season.

Each year the networks try to leverage their clout -- their ability to deliver millions of viewers to a single program -- to hike their premiums. And, after initial resistance, advertisers typically agree to pay slightly higher rates so they can lock in time at a guaranteed price.

Fox, which finished the most recent TV season in first place among the advertiser-friendly demographic of 18-to-49-year-old viewers, kicked off the “upfront” market late last week. The News Corp.-owned network should finish selling its prime-time inventory as early as Friday, according to people familiar with the negotiations.

CBS Corp.’ s CBS network, Walt Disney Co.’s ABC, NBCUniversal’s NBC, and CW (a joint venture between CBS and Warner Bros. Entertainment) are about midway through their sales process, said executives with knowledge of the talks.

Networks are fetching rate increases of 6% to 8% higher than last year’s prices. CBS, in some instances, has wrangled increases approaching 10%, according to well-positioned executives.

But advertising rates -- called CPMs or cost per 1,000 viewers -- are just one part of the equation. Projections of Nielsen ratings generated by individual TV programs also determine how much advertisers pay. And ratings, among the key category of 18-to-49-year-olds, have been down in recent years -- keeping the price inflation in check.

A newly released analysis by the media buying agency TargetCast showed the average cost of a prime-time network commercial dipped 2% during the first quarter of this year compared to the previous year period.

The survey included the four major broadcast networks: ABC, CBS, NBC and Fox Broadcasting.

TargetCast found that a 30-second network prime-time spot, on average, generated $111,754. The average was $114,079 in the first quarter of 2011.

Fox Broadcasting, which aired its top show, “American Idol,” during the first quarter, posted the highest average unit cost at $198,088 for a 30-second spot.

CBS, which has the most stable schedule and attracts the largest overall audience, had the second-highest average: $115,772. ABC came in third with an average unit cost of $95,992 for 30 seconds, while the beleaguered NBC generated $86,914.

The first quarter marked eight consecutive quarters in which network ad costs were largely flat or slightly up -- demonstrating that advertisers still will pay considerable bucks for network time -- despite ratings declines.

“Over the last couple of years, pricing has really flattened,” said Gary Carr, executive director of national broadcast with TargetCast tcm. “The prices have stabilized. For the networks, it’s a hard game to play because there is increased competition. But the networks don’t seem to be going out of business. They still generate almost $25 billion a year in sales.”

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