Special Report ­ Upfront Market: Cable gains are affecting the upfront market dynamics

It's the busy season for children's television. With scarcely a breather from fall launches and November sweeps, the networks, producers, advertisers and ad agencies are gearing up for the big February rush. That's when the networks conclude deals with producers and...
January 1, 1997

It’s the busy season for children’s television. With scarcely a breather from fall launches and November sweeps, the networks, producers, advertisers and ad agencies are gearing up for the big February rush. That’s when the networks conclude deals with producers and lock down new schedules for the coming fall. The networks then offer their wares in the $700-million upfront ad market, leaving clients and their agencies scrambling to evaluate year-end ratings and business results, and trying to predict how much and where to spend their ad dollars for next season.

Kids TV has never been more volatile, and this year promises a few extra curve balls.

A fundamental shift in kids’ viewing habits has sent ratings at the broadcast networks into a tailspin, as cable services Nickelodeon and Cartoon Network rise to the top of the heap.

To cloud the issue, broadcasters assert that the real problem lies with A.C. Nielsen and its ability to monitor young viewers. As well, new federal requirements for educational shows are expected to disrupt viewing patterns and make life difficult for the networks and producers.

On the eve of the upfront market, the mood in the kids business is one of cautious optimism tempered by nagging worry. Yes, the game is bigger and more exciting, but the risks have never been greater.

Among distributors, power is consolidating into a few very big hands: Disney, Viacom’s Nickelodeon, Fox/Saban and Time Warner/Turner. Each of these giants sees a bright future in the kids business, and downplays the considerable competitive risks. Producers are concerned about the dwindling pool of buyers, but are heartened by new opportunities on the educational side and in growing worldwide markets.

The success and growth of kids TV ‘have attracted more people into the business,’ says Gary Krisel, head of children’s TV at DreamWorks SKG, which has clear aspirations to become a major player. ‘But that has led to fragmentation. Now we’re in a period of transition, and there will be a shakeout.’

With fewer mass-market options, advertisers and marketers recognize that reaching kids has never been trickier, with viewership fragmented and kids spending more time with video games, home videos and the Internet. Marketers will spend more time and money going after kids on-line or through radio, print or promotions. But advertising executives agree that TV will remain their primary vehicle.

‘We’re increasing our business with Nickelodeon and really haven’t seen a decline in our broadcast dollars,’ says Richard Taylor, Burger King’s director of youth and family marketing worldwide. ‘Kids advertising is very effective, and we’ve never been more confident in it.’

Ad buyers and marketers looking to the upfront see a landscape vastly different from the one they faced a year ago. Each of the broadcast-based outlets Fox, ABC, CBS, WB and Disney’s syndicated shows has lost some of its share of kids viewing, based on the November sweeps numbers. Fox has gained slightly on Saturday mornings, but lost a heavy 24 percent on weekdays, dropping its average by about 18 percent overall. ABC has fallen 10 percent, WB has slipped 22 percent, Disney is off 26 percent and CBS’s rating has been cut in half.

Advertisers who are wondering where all the kids have gone can stop their search. ‘We’ve got ‘em,’ says a grinning Sam Moser, Nickelodeon’s vice president of sales. The network has increased its audience 12 percent this season, on top of a 32-percent gain last season. It now controls 57 percent of all kids gross ratings points, up from 53 percent a year ago. Its biggest challenger, Fox, provides 11 percent of kids gross ratings points. Cable’s Cartoon Network has grown smartly as well, both in ratings and in the number of homes reached.

‘It is indisputable that we’re in the driver’s seat for this upfront,’ says Moser. ‘There isn’t a major kids advertiser who hasn’t said, ‘How bad are you going to be to us this year?’ But we want advertisers to feel they’re winning too. We’re the only service that’s given advertisers what they’ve paid for,’ he adds, alluding to the embarrassing rating shortfalls and cash rebates from broadcasters. Moser acknowledges that more than two-thirds of his ad inventory is already committed from two-year deals he cut a year ago.

Nick added to its programming strength with a new block of prime-time shows, including Hey Arnold! and KaBlam!, which routinely beat all other networks in kids demographics at 8 p.m. Nick even runs a strong second to Fox on Saturday mornings, even though it offers a slate of reruns.

‘[Nickelodeon is] overwhelmingly dominant,’ says one major buyer. ‘We’re sitting here in mortal dread of what they’ll ask for. If they say it’s plus-50 [a 50-percent hike in cost per thousand (CPM)], how do you walk away?’

The other side of the coin, according to Jon Mandel at Grey Advertising, one of the biggest buyers of kids media, is that ‘Nick has already sold two-thirds of its inventory, so they don’t control the market. Cartoon Network is getting added on a lot of systems and it beats Nick head-to-head on kids. And Disney is not exactly going to lie down and play dead.’ In fact, Disney is expected to announce soon a new basic kids cable channel.

But kids broadcasters have not fared as well as their cable competitors. ABC started strong with a nearly all-Disney slate of shows, but sagged as the season progressed. WB has been dragged down by a mediocre Saturday performance from Superman. Unfortunately, that show anchors WB’s new weekday block this fall. Fox’s Goosebumps has helped keep that network’s Saturday performance up, but it is not the marketing phenomenon that Power Rangers was. Meanwhile, the continued slide of the veteran Power Rangers is hurting the network’s weekday numbers.

Compounding the loss of kids rating points in broadcast is CBS’s pullback to just three Saturday hours of educational shows which historically have generated much lower ratings than pure entertainment shows per week beginning next fall. Disney’s once-proud two-hour afterschool block of syndicated cartoons will be chopped by half an hour next season and relegated to morning time periods, further lowering its kids delivery.

For ad salespeople, these ratings difficulties have improved their bargaining position to some extent. It’s pure economics: When demand is up and supply down, prices rise. ‘If you need to reach kids, we’re putting the money into our production to do it,’ says WB sales chief Jed Petrick. ‘[Broadcast] may not be at the level of a year ago, but as long as it’s the most efficient and effective means of reaching kids, advertisers will continue to buy it.’

This is no windfall for the networks, mind you. If ratings drop 20 percent and CPM rises a like amount, then the networks just about break even on the dollar price of a commercial.

Mandel of Grey Advertising and others argue that the ratings crisis is a mirage. Kids are simply watching less Saturday morning TV on the networks and more cable throughout the week. The total amount of rating points for kids age two to 11 is down less than two percent by this reckoning, even assuming no rating points from CBS. The loss of kids age six to 11 is just six percent.

If that analysis holds true, then demand alone will drive this marketplace. It’s impossible to get a true fix on demand amid the feint-and-dodge of pre-upfront posturing. A hot category, such as fast food or movies, could bring a load of dollars into this tight marketplace.

‘There’s only a problem if there’s a new $100 million in the market instead of the usual $10 to $20 million,’ says Gary Carr of Ammirati & Puris/Lintas. In this remarkably unpanicky scenario, Carr and other buyers forecast a fairly moderate upfront for February, with clients paying CPM increases over their entire packages of perhaps 10 to 20 percent, though prices on individual networks may jump much higher.

Marketers certainly have been increasing their focus on kids for several years. They are targeting kids in a variety of product categories beyond those traditionally associated with kids. ‘There’s talk of orange juice wars,’ says Mandel, ‘but there’s talk of toy cutbacks.’

WB’s Petrick points out that marketers have plenty of upcoming offerings to promote. ‘I’ve not heard that anyone’s numbers are down. Hasbro’s got a new Batman movie [through Kenner], Galoob is doing well with Jonny Quest and Mattel just bought Tyco and presumably they plan to do something with it.’

Likewise, the fast-food competition has never been keener. McDonald’s restaurants will spend heavily to support its new marketing alliance with Disney. Burger King’s Taylor says his now Disney-less chain has been looking at promotions with a ‘fabulous pool of properties’ from studios such as Warner, Fox and DreamWorks.

Even with continuing demand from advertisers, the networks are eager to offer value-added deals to advertisers. ‘I like having the advertiser involved,’ says Petrick. ‘They give us the one thing we don’t have: off-air support.’

WB has created special events such as a Thanksgiving morning block fully sponsored by Mattel. ‘We’re trying to do fun things that make the advertiser realize we’re more than just a media buy,’ he says.

‘Yes, advertisers are looking for added value. Who isn’t?’ asks Susan Frank, executive vice president of marketing and promotion for Fox Children’s Network (FCN). ‘We’ve always said we’re more than just programming. We want to be where kids are.’

To that end, FCN offers a weekly kids radio show, a monthly magazine, a kids club, a merchandising program and a newly relaunched Web page, any of which can be woven into a marketing program. Fox runs monthly sweepstakes, such as last year’s ‘Be Batman’ promo with Kenner and DC Comics, and Frank reports that ‘we get 50 percent more response with a licensed product than with a generic contest.’

With national TV as their cornerstone, many advertisers will beat the bushes for alternate ways to bolster their campaigns. Rose O’Connell at J. Walter Thompson predicts that ‘advertisers who haven’t taken kids radio seriously will take a good look, and that will drive up prices. . . . And the marketing and promotion dollars that came back to broadcast over the last several years will start to swing back into promotions now.’

Tom Horner, who handles the Tyco account at TeleVest, d’esn’t believe many ad dollars will flow to promotion this year, ‘but if the rating trend continues, sure. In-store promos are one of the best places to divert money if retailers are supporting your product. You see if print or radio can become a part of your mix. Maybe you look at spot TV in the top 20 or 30 markets as an overlay, or the use of local cable in those markets. Playmates did.

‘You might create specials or look for event-oriented things. And people might consider non-kids vehicles like prime-time or action shows with a dual audience like Xena: Warrior Princess or early fringe shows like Fresh Prince of Bel-Air or Full House [sold only in local markets].’

In a volatile market, adds O’Connell, ‘most advertisers buy every place because they need to reach every kid they can. Advertisers spread their money across the board.’

Another cloud of uncertainty on the horizon for kids TV is the new federal requirement for a weekly three-hour dose of educational TV. Producers, programmers and advertisers all agree that government dictates on programming can do no good for the TV business. ‘The biggest hurdle for the industry is a creative one,’ notes one media buyer. ‘How do you create ‘educational’ programs and those big brains in Washington can’t define that [term] and still deliver the entertainment elements of a Power Rangers or Animaniacs?’

‘This is coming at a particularly difficult time, with broadcasters on the ropes,’ says DreamWorks’ Krisel. Many people predict the rules will result in lower ratings for broadcast vis-à-vis the cable channels, which are unburdened by the requirements. ‘If we succeed in driving kids entertainment programming off of network TV and onto cable, who’s interest has that served?’ Krisel wonders.

The educational TV issue may affect companies in related industries as well. Science- or news-based educational shows are much less likely to produce a toy or promotional spin-off. When was the last time you saw a Beakman’s World kids meal?

Producers are also scratching their heads over other weighty questions. Declining broadcast ratings mean ‘revenues to the distributors will be lower per show, and that will have an impact on what they pay for shows,’ says Krisel. ‘Everyone will be cautious in how they spend their money. You need strong programming; otherwise, low ratings become a self-fulfilling prophecy.’

Consolidation among the networks is another big worry. ‘It significantly diminishes the number of buyers out there,’ says Sander Schwartz, Columbia TriStar’s senior vice president of children’s programming. As a result, the license fees networks pay for programs are being pushed down rapidly. ‘You have to get used to lower license fees, and production costs aren’t going down anytime soon,’ says Schwartz. ‘You have to derive more of your revenue from non-network sources.’

Schwartz is beating the bushes for bucks internationally. ‘You have to sell your shows in more places. The home video market for episodic shows has not been good, but we’ll have to take a close look and try to derive more revenue from it.’

Schwartz can’t count on money from licensing and merchandising because only a small percentage of shows generate significant dollars there.

Tommy Lynch of Lynch Entertainment, producer of the Nick hit The Secret World of Alex Mack, agrees that you can’t force licensing revenue. ‘You’ll find your proper level of marketing once you’re on the air.’

As a small, creatively driven indie, Lynch can and must seek different kinds of deals than a big studio would. ‘We have output deals where we fund them foreign and bring the shows here,’ he says. ‘We reverse the paradigm. We don’t mind sharing ownership. We’re not a Warner Bros. and if we make a little money on a project, it’s OK.’

Every one of the kids giants is producing more and more of its own programs, but every unaffiliated producer can rap about how his company can play with the big boys. Krisel touts DreamWorks’ high production standards and, of course, the Spielberg connection; Schwartz talks up Columbia’s strong financial backing and access to its parent studio’s movie projects such as Godzilla; Lynch boasts of his company’s imaginative prowess.

‘There’s a market now for creative-driven properties,’ says Lynch. ‘Our core belief is that the show is what’s important. Yes, the market has become more challenging, but it’s kind of an overwhelming opportunity because people need shows that stand out.’

That sentiment neatly captures the positions of these disparate communities in the kids TV business. As the industry gets bigger, the competition gets tougher. Producers wrestle with the challenge of creating a hit in an unforgiving financial environment, but the opportunities to recoup are growing. Networks try to keep their heads above water waiting for their vertically integrated parts to start working together. Advertisers have to look a little harder and pay a bit more to reach kids, but alternatives are expanding. Growth and change are the watchwords.

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