COST REPORT: The Impact of Upfronts on Networks

Upfronts occur every year to provide an opportunity for networks to sell their ad spots for the upcoming season. Traditionally, they take place during the last half of May but starting in 2017, they have begun as early as March and have run through May.

The upfront buying process impacts both advertisers and networks, but this report will focus on how they affect networks.

Upfronts can provide cost protection and consistency in times of social volatility and controversy, (including changes in the social trends, shifts in viewership, changes in talent, boycotts, and more) but may also limit the network’s ability to capitalize on unforeseen successes, or better-than-expected performance.

The SQAD Data Team jumped into our numbers to show recent examples that illustrate both the positive and negative effects of Upfronts on a network.

Below are three example cases that show the impact of upfronts on a network.

IN THIS REPORT:

EXAMPLE 1: The Trump Bump for Fox & Friends

Depending on the volume sold, a network may not be able to fully capitalize on unseen ratings spikes, social interest, or attention that might otherwise temporarily drive up the market value of a program’s ads.

QUESTION: Can a single viewer (Donald Trump) impact unit costs for Fox & Friends on Fox News 

 

Average Before 2017 Upfronts
(Jan-Jun)
Average Immediately After Upfronts (Jul-Sept) % Change from Jul-Sept to Oct Average After Upfronts (Nov 2017-Apr 2018) % Difference Before vs. After Upfronts
$2,445 – $2,877 $1,983 – $2,399 82.9% $3,329 – $3,988 37.5%

 

Before the 2017 Upfronts

Despite the general knowledge that the newly elected U.S. President watched Fox & Friends daily, for the first six months of Trump’s presidency (January through June 2017), combination unit costs for the show remained relatively steady, hovering around the range of $2,445 – $2,877. This is because the majority of 30-second ad values had already been locked in during the 2016 upfronts.

After the 2017 Upfronts

  • Beginning in September 2017, the data shows a clear increase in unit costs as 2017 upfront purchases begin to hit the house-keeping systems.
  • By October 2017, we see the new “normal” rate appear, causing a 83% unit cost jump to an average of $3,329 – $3,988 per 30-second ad.
  • Through most of Q1 2018, the show maintained a strong year-over-year performance.
  • Despite a slight downward trend in overall network unit costs since October 2017, averages after the 2017 upfronts were 38% higher compared to averages before the upfronts.

ANSWER: Trump’s affinity for Fox & Friends had a disproportionate impact on the unit costs compared to viewership rating, illustrated by the pre- and post- upfront trends (see graph above).

While Trump’s affinity for the show was known post-inauguration, it wasn’t until after the 2017 upfronts that we saw Fox was finally able to correct market-value in unit costs. While the market-value of the ads may have increased as a result of Trump’s viewership, we can clearly see that this did not affect the unit costs until the network could reset the ad values during the 2017 upfronts.

This may illustrate how the volume of advertising time sold during the 2016 upfronts caused the combination ad values to be artificially deflated (compared to market value) and limited the network’s ability to capitalize on their VIP viewers.

Because the U.S. President holds a 4-year term, his ongoing interest in the show has allowed the network to make a market correction during the 2017 upfront buying season. With the 2018 upfront buying season in full swing, we will have to wait and see if Fox News can continue to capitalize on its captive audience.

EXAMPLE 2: Matt Lauer Allegations & Termination 

The high volume of media sold in the upfront buying season can have a revenue insulating effect for a network in times of controversy, so long as that controversy is short-lived and the network can quickly pivot from the news cycle.

QUESTION: Did the Matt Lauer controversy affect unit costs for The Today Show?

Analyzing the combination ad cost data prior to the Matt Lauer revelations in November 2017, we see that the show was already trending 12% under the previous year, with unit costs averaging between $44,502 and $52,993 during Q4 2017. The weeks following his termination saw a decline in unit costs. However, when we take a deeper dive into our SQAD data, these declines appear to be consistent with standard holiday season adjustments.

The following analysis was done for The Today Show during the 7AM-9AM time block.

COMBINATION COSTS

 

Year Q4 Average Before Holidays % Drop During Holidays Q1 Average After Holidays (Rebound) % Difference Before vs. After Holidays
2017-2018 $44,502 – $52,993 -51.7% $35,634 – $42,434 -19.9%
2016-2017 $50,368 – $60,113 -46.8% $38,834 – $46,347 -22.9%
2015-2016 $50,237 – $58,997 -51.0% $40,248 – $47,266 -19.9%

 

We first look at the combination numbers for the show over the course of the past three years.

The Seasonal Holiday Dip

  • Q4 2017 unit costs during the holidays (Week of 12/18 to the Week of 12/25) dropped more than 50% from $43,728 – $52,072 to $21,132 – $25,164.
  • In Q4 2016, we see a 46.8% drop in unit costs during the holidays.
  • Looking back yet another year to Q4 2015, unit costs fell a similar 51% during the holidays.

Based on historical year-over-year data, the drop in unit costs around the time of the Matt Lauer controversy is most likely related to seasonal adjustments. With that said, there is something interesting to see in the recovery data after the holiday declines.

Post-Holiday Recovery

  • In Q1 2018, unit costs averaged between $35,741 and $42,561, 19.9% lower than the pre-holiday rates.
  • In Q1 2017, the post-holiday rebound was 22.9% lower than pre-season numbers.
  • The rebound in Q1 2016 was 19.9% lower than pre-holiday rates.

Year-Over-Year Recovery Performance

What’s interesting to note is that the post-holiday recovery for 2017-2018 season was better than the 2016-2017 season, narrowing the unit cost difference between the two years (see trends for the orange and blue lines in Graph 2).

  • Prior to the holiday season decline, Q4 2017 average unit costs were trending 12% less than the Q4 2016 average unit costs.
  • After the holidays, Q1 2018 unit costs came in only 8.4% under the Q1 2017 average unit costs.
  • In 2018, The Today Show improved their Q4/Q1 rebound trend by about 4% year-over-year.

We cannot specifically attribute the improved post-holiday recovery trend for Q1 2018 specifically to the speedy resolution of the Matt Lauer controversy. There are many factors in play for the Q1 2018 numbers beyond how NBC managed the revelations, one of which includes the Winter Olympic broadcast on NBC.

SCATTER COSTS

 

Year-over-Year Recovery Performance

To support the data showing a better-than-average post-holiday recovery, the scatter data from the same time period last year shows some key details about the existing market conditions before and after the Lauer controversy:

  • Before the holiday season and during the controversy, Q4 2017 scatter unit costs were trending 1.4% better than the Q4 2016 average unit costs.
  • After the holidays, the year-over-year costs improved further with Q1 2018 scatter costs soaring 16% higher than Q1 2017 costs.
  • The Today Show improved its Q4/Q1 scatter rebound trend by 15% year-over-year despite controversies surrounding Matt Lauer and the program.

The scatter year-over-year trend confirms the combination trend showing that the 2018 post-holiday season experienced a better recovery rate than the year prior. In the overall numbers, we see a better than expected post-holiday market correction in scatter ad costs directly after the Lauer issue.

ANSWER: It is unlikely the Matt Lauer controversy had a negative effect on the average unit costs for The Today Show.

Due to the overall consistency in trends analyzed across the years (in both combination and scatter), it appears that NBC was shielded from the negative effects of the controversy because of the protective power of upfront buying. It is possible that the data indicates the speed with which NBC handled the Matt Lauer revelations, combined with the added marketer interest in the network’s ad inventory during the Olympic Games, contributed to a better-than-expected Q1 performance in 2018.

EXAMPLE: The Ingraham Angle Ad Boycott of April 2018

Advertiser boycotts are meant to send a message to a network’s bottom line – forcing them to decide if the potential loss of revenue is worth maintaining the programming or personality at the center of the controversy.

QUESTION: Did Fox News lose revenue from The Ingraham Angle ad boycott?

 

Average Before Boycott/Break % Change During Week of Break Average After Break % Difference Before vs. After Break
$12,740 – $15,052 16.7% $14,395 – $17,007 13.0%

 

The Ingraham Angle on Fox News was faced with these questions when Laura Ingraham encountered advertiser pressure following a controversial Twitter comment she posted about one of the students from Marjory Stoneman Douglas High School, after the shooting in February.

While advertisers pulled their ads from her program, the network still had the committed funds in form of upfront purchases made months before the boycott.

Unit Costs During the Ad Boycott

The SQAD Data Team extracted ad costs from the entire first quarter of 2018 to identify any trends in the cost data. Contrary to what may have been expected, when advertisers began the boycott, the data shows an uptick in unit costs. Costs increased during the week of Ingraham’s “planned vacation” from the show – as advertisers continued to demand their ads be pulled from the time slot.

Ingraham’s Return

After Ingraham’s return to the show, unit costs sustained higher levels than before the boycott.

  • From the beginning of 2018 up until Ingraham’s break during the week of April 2, unit costs for the show averaged $12,740 – $15,052.
  • Comparing the week before her break to the week of her break, we see a 16.7% uptick in unit costs.
  • After Ingraham returned to the show, unit costs have sustained an average higher than the one before the controversy, in the range of $14,395 – $17,007, which is 13% higher than pre-break rates.

ANSWER: FOX News was not adversely effected by the ad boycott on The Ingraham Angle.

Even as advertisers pulled ads from the show, they did not pull dollars from the network thanks in part to upfront commitments. When advertisers entered their final costs into their housekeeping system, we see the unit costs did not experience a dip, as may have been expected under the circumstance.

According to the reported cost data during the time, unit costs actually increased after the boycott, to averages higher than those pre-boycott.

CONCLUSION

The above examples show that upfronts can be both beneficial and detrimental to a network. On one hand, they can provide a network with protective padding in the face of controversies or changes that would otherwise have a negative impact on revenue. On the other, upfronts can deprive networks of additional ad dollars in the event of better-than-expected performance.

Upfronts continue to prove essential to the TV industry in maintaining predictable revenue streams even in the face of unforeseen volatility and social opinion shifts.