Network TV “CashBacks” to doom the Upfront?


According to Gene DeWitt, President of DeWitt Media Strategies, the recent decisions by NBC and the CW network to give advertisers cash back in lieu of purchased ad time (12/11/07 TVBR #240),
deals a lethal blow to confidences that future ad buys will air. The reason for these returns of previously contracted ad budgets is a fall-off in TV audiences and a resulting shortfall of the ratings available for ad scheduling.

“However, the fact is that this practice also enables a network in the future to recapture media buys bought in a soft marketplace at reduced rates and resell them to other advertisers at a later date and higher price,” says DeWitt. “This shakes the foundation of trust that underlies an advertiser’s commitment to buy audience at a future date when marketing plans require ad support.”

Read the full statement from his blog, The Media Age:

A new age of media discontinuity may be dawning as the television networks, in giving cash to advertisers in lieu of promised audience or ratings, have pulled the rug out from under the foundation of trust that underlies the selling and buying of TV ad time. In giving cash instead of advertising to buyers of ad time, the networks are taking back time sold at one price in the past and reselling it to higher paying advertisers today. It’s “bait and switch” without the switch; the marketer who needs the ad time to sell goods is left with a bag or cash and no ad support.

Pre-emptions of previously purchased ad positions have long been a bane and ethical conundrum for local spot television ad sellers. Neither the media buyer nor the advertiser has ever been able to count on local stations to honor their media sales contracts. The ‘custom of the country’ for local TV stations in the U.S. has simply been to sell each spot to the last highest priced offer, reselling the same spot over and over until the last, highest paying offer is executed in the form of a telecast.

In this process, each of the early buyers of the same ad unit for ever increasing amounts, is “pre-empted” by the seller and offered a replacement spot or makegood, often in an inferior time period. As a result, one of the most expensive components of spot buying is the scheduling and rescheduling of makegoods. However, even in this swamp of reneged promises and towers of paperwork, one has usually been able to count on some sort of ad schedule airing approximately during the desired time periods.

However, the new network cash-back formula makes it impossible to count on the seller to ever deliver the promised goods. Any time ad rates increase over time, a network can now pre-empt an early ad buyer for a higher-paying latecomer. This situation makes much of the discussion about the Writers’ strike’s possible effects on the Upfront moot. In the “Cash Back Age” there really is no basis for an upfront, which is after all supposed to be at core a guarantee of audience at some future date. Let the buyer beware. A new, more risky media age is dawning.

I predict that the next few months will represent the most tumultuous period ever in the history of television. It is time for our industry—media sellers, ad buyers and advertisers—to sit down and to address the need for a new and reliable basis for doing business in the future, nothing less than a new foundation for television advertising commerce.