It's mid April, and Mark Kaline already has to start making decisions about the network upfront marketplace. As the chief media executive for Ford Motor Co., Kaline is one of the biggest network advertisers in a business that's going through its own internal turmoil.

Domestic auto sales aren't living up to quota, and Kaline has to make some important decisions about how much of Ford's massive marketing budget to put into advertising versus the kind of rebates and financing incentives that help move cars off his dealers' lots.

While the incentives often prove effective, every thousand dollars Ford puts behind the discounts takes away from ads that help build its brand and future sales.

Kaline may not have much time to make up his mind about his advertising plans. Last week, media buyers were already beginning to cut upfront advertising deals for the 2005-06 TV season with major cable networks, including Discovery Networks, Lifetime Television and Turner's entertainment channels. That action itself sends another in a series of mixed signals about what they think of the underlying strength of the network upfront marketplace.

Were deals getting done because the market is stronger than media buyers have been suggesting?

Or were they happening because cable networks were nervously cutting cheap deals in the hopes of stimulating the marketplace?

Networks, both broadcast and cable, are guessing, too. “We go through a very rigorous process trying to get at the total dollars in the marketplace,” says Mike Shaw, president of sales and marketing for ABC. “Ultimately, like every other supplier, we have a hard time right until the very end calling the marketplace.”

The real answer may not be known for weeks, or even months, as the upfront market begins to pick up steam. But one thing is clear: Some potentially significant cable deals will be moving before the broadcast networks even unveil their prime time schedules the week of May 16. That suggests that cable may become the lead dog in the upfront selling season.

Last week, one of the biggest media-buying shops, ZenithOptimedia Group, released a new advertising forecast, predicting that the network upfront will be “relatively flat” and that network ad dollars are being shifted to new media, especially online, cinema and new forms of out-of-home media.

As proof of soft upfront ad demand, Zenith- Optimedia cites a “tepid” scatter marketplace leading up to this year's upfront and the fact that marketers are beginning to rethink the economics of the business.

“Telecom and retail mergers, government scrutiny, high oil prices, and the weak dollar have led advertisers such as Procter & Gamble, Pfizer, Merck and Kraft to exercise cancellation options at generally higher rates this year for most dayparts and venues,” says the agency's report, which predicts broadcast-network ad spending will climb only 3% in 2005.

$3 Billion Increase?

Another upfront-sales vet says, like Shaw, that it's still hard to know exactly how the upfront will pan out, because buyers and sellers often don't know what the dynamics are until they're well into it.

That was the case in the upfront that followed the U.S. military invasion of Iraq. It was expected to be soft due to lingering economic uncertainty and fear of war, recalls Dan Hodges, managing partner of Greenwich, Conn.-based Greenwich Consulting Partners, which serves media companies and marketers.

When the initial Iraqi military action proved successful, it triggered a series of last-minute events that Hodges describes as “the perfect storm” that drove upfront spending at a frantic pace, catching many big media buyers and their clients by surprise.

Even given the relative economic uncertainties lingering around the 2005-06 upfront marketplace, Hodges believes there is enough underlying strength in the TV economy to boost the fortunes of all TV suppliers but especially cable networks.

Citing 20 years of “cyclical patterns,” strength in some key categories such as pharmaceutical products, and the fact that even beleaguered domestic automakers will need to advertise to sell their cars, Hodges predicts total TV ad spending will rise by nearly $3 billion in 2006, $1.3 billion of that from cable alone.

Whoever's right, the market motives driving upfront deals ultimately will determine whether the 2005-06 upfront proves to be a “buyer's market,” as it was last year, or more of a conventional seller's market—the big difference being that cable, not broadcast, might be the driving force.

That's certainly the case the cable industry has been making for months, in what many regard to be the noisiest, most boastful pre-upfront spin season ever.

Discovery Networks President of Advertising Sales Joe Abruzzese told reporters at the upfront presentation that he expects cable ad rates overall to be up 6%-7% in this year's upfront and predicts ad growth for his own networks even though several are lagging in the ratings. “We're looking for growth in rates, growth in pricing and growth in value,” he said.

Bill Abbott, executive VP of ad sales at Hallmark Channel parent Crown Media, U.S., expects cable to match broadcast with cost-per-thousand (CPM) increases. With consumer products rebounding, he estimates Hallmark will take in more than $100 million in upfront revenue this year—40% more that last—and considers domestic autos and pharmaceuticals the only questionable categories. “The market will be strong enough for everyone from broadcast to cable to benefit.”

And that's a big crowd. The Cabletelevision Advertising Bureau's calendar listed 39 upfront sales presentations by cable organizations, starting with Comcast on Feb. 15 and ending with Galavision on May 18.

Add to that an unprecedented amount of trade advertising and promotion, as well as some special research projects by the CAB and Turner Broadcasting, and the cable-industry cacophony would be deafening, without even considering the broadcasters.

Other media have also been pumping up the volume in an effort to sway advertisers and media buyers away from the broadcast networks. That includes a three-year, $40 million advertising campaign that the magazine industry broke just as the upfront planning season got under way.

The hype isn't coming just from the sales side. Media buyers have been doing their share of chest-beating, proclaiming at industry conferences and in the press that ad budgets are not rising, especially for the major broadcast networks, and that Madison Avenue has seized control of the marketplace.

Ford's Kaline agrees that the strength of the 2005-06 upfront ultimately will be determined by economics, not by the volume of marketing trumpets leading up to this year's negotiations. “Sometimes you have to get away from the noise and look at what's going on in the marketplace,” he says. Coyly, he adds, he likes “to speak softly and carry $1 billion.”

Will Fuel Crisis Hurt?

Decibels aside, Kaline points out the real economic issues confronting consumers and marketers alike, and not just in the automotive industry.

“Gasoline prices are going up,” he says, “It's not just an issue for automotive marketers. It means consumers will have less discretionary spending. If that means one less meal at a fast-food restaurant, or one less bottle of water, that's going to have an impact on the economy. And it's going to influence the way some sectors advertise.”

But external factors sometimes get forgotten in the hoopla of the upfront posturing. And there's more to come. Consider that, on Thursday, April 28, there will be two separate upfront conferences in New York in which buyers and sellers will signal their intentions, real or not, even as cable dealing get under way.

Cable networks A&E and Court TV still have time to wine and dine advertisers and media buyers in high style. Court TV, for example, will be going to extra lengths to rally the troops with a private, invitation-only dinner for about 40 of the biggest media buyers at New York's Metropolitan Museum of Art. The special guest: Former Secretary of State and retired general Colin Powell, whose speaking fee alone is estimated at $100,000.

“I've never seen anything like what's going on this year,” says Mike Drexler, CEO of Zenith-Optimedia's Optimeda unit and a veteran of upfront markets, about the lavish presentations.

Not all the flash is fluff. Turner's real marketing effort has less to do with entertainment and more to do with reshaping the way Madison Avenue thinks about buying TV.

The cable networks' big pitch is the latest in a series of audience-reach studies, Media at the Millennium. Earlier, Turner used powerful computer systems and hard-to-access Nielsen data to prove empirically that marketers could move money out of network prime time into cable without sacrificing audience reach, and save a lot of money in the process.

The 2005 version, crafted by Turner's Barry Fischer, executive VP of market strategy, uses even more-powerful computers and richer data to show how money can be redeployed from all broadcast-network dayparts into cable to improve TV advertising budgets without losing audience reach.

Turner's database is so complex, Fischer says, during one early test, the computer began to fry. “We were running it all night, and it began to smoke,” he recalls. “We had to shut it down.”

Now, for the past few weeks, Fischer and his team have been making scores of presentations to advertisers and agencies in an effort to convince them that even more money should be shifted to cable from broadcast.

Next Page >>> Page 2