This is a — and possibly “the” — key question for Big Media investors coming out of the major broadcast and cable networks’ upfront programming presentations this week. As the sales pitches wore on it became clear that execs plan to spare no expense to recover from a year of dreary ratings. There’ll be 25 new programs on the Big Four networks, up from 18 planned this time last year. What’s more, “all of the broadcast networks are moving toward year-round original schedules, less re-runs [and] more frequent ‘mini-events’,” Bernstein Research’s Todd Juenger says. He adds that networks continue to depend on star power — for example CBS landed Robin Williams for its sitcom The Crazy Ones and Turner enlisted off-camera help from Michael Bay (Transformers), Dick Wolf (Law & Order), Howard Gordon (Homeland), Frank Darabont (The Walking Dead), and Jerry Bruckheimer (CSI). “These guys don’t come cheap, and we presume they must participate significantly in the back-end,” Juenger says. Execs no doubt feel confident that their bets will pay off. For example, hit dramas could play well in international syndication. Mini-series also should appeal to streaming services including Netflix and Amazon where subscribers like to binge view.
But domestic advertisers still provide lions’ share of revenues for TV shows. And if networks are optimistic about that market, it has as much to do with whether they believe consumers will buy lots of cars as with the merits of what programmers put on the screen. “Auto represents about 13% of annual TV ad spend and is seen as a pivotal player in this year’s upfront,” says Janney Capital Markets’ Tony Wible. That may be good news for the networks: Car companies appear to be headed for a big year as the economy improves and consumers take advantage of today’s low interest rates. As a result, Wible says “the tone of the upfront was more in favor of the sellers than we had anticipated” — leading him to forecast “substantial CPM [unit cost] increases that will offset recent ratings losses.” UBS Investment Research’s John Janedis forecasts that cable CPMs will be up as much as 7% with the major broadcasters “slightly better,” although some advertisers will just shift dollars for late this year from the scatter market to the upfront “which will make the total dollars look a little better.”
The Street doesn’t believe that TV networks have to worry yet about competition from companies such as Google, Yahoo, and AOL that made aggressive sales pitches to advertisers in this year’s so-called NewFronts. “Online video remains as separate from national TV buying as is local TV,” says Pivotal Research Group’s Brian Wieser. Although he expects advertisers to spend $3B this year for online video, and $3.6B in 2014, digital sales “are planned, executed and assessed separately, often funded by different line items in order to satisfy different goals.” Wible also says that Web viewing metrics “are not yet trusted by the ad community and the production value of the content is questionable in some cases.”