Media Curmudgeon

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April 26, 2004

Sunday, April 25, 2004.

Sunday, April 25, 2004. The Upfront of Dorian Gray.
One of the ways that I keep up on what's happening in the media industry is to read The Jack Myers Report. The daily newsletter is read by many media industry executives and Jack is ofter prescient about media trends. He is also usually good on economic issues and media industry revenue forecasts. Jack has been writing lately about the upfront market, and on April 5, he wrote a special report titled "The Upfront Is Not Broken." And this last week his Tuesday newsletter was headlined "Scatter Soars" and Jack wrote, "In a surprising turn of the market, second quarter network scatter is 'going through the roof, according to several senior cable network executives, with prospects for the Upfront becoming more 'solid.'"

Jack also recommended in a report that the media quit writing about and glamorizing the upfront and let the networks and agencies have at it. I've known Jack for years, and he's a pretty good economic reporter and predictor of trends, but he's also, like most successful writers of newsletters, partial to the interests of his subscribers--agencies and networks included. I think Jack is hyping the upfront and that, contrary to his claim, that the network upfront market is not only broken, but it is also corrupt.

When I read Jack Myers and other media columnists and reporters talk about the upfront, it reminds me of Oscar Wilde's The Portrait of Dorian Gray and the 1945 movie of the same name starring George Sanders and Hurd Hatfield. The the upfront market seems unhealthy and doesn't age, in fact gets healthier every year, but the portrait, which represents reality, ages horribly and disintegrates. In the story Dorian Gray is an awful, corrupt person, just as the upfront market is.

The reality is that broadcast network television's audience declines substantially every year as viewers defect to cable, to video games, to the Internet, and TiVo (the generic name now for personal video recorders--PVRs) programs so they can skip commercials, thus depriving advertisers of the audience networks have promised. To make things worse, the networks increase clutter, making commercials less effective, and raise prices every year. So an eight percent decline in audience and a seven percent increase in rates, means a 15 percent CPM rate hike, or a doubling of rates every four years, which makes the upfront, as I said in my April 19 blog, a sucker's bet.

But why do advertisers make the sucker's bet? Because the system is corrupt. The dirty little secret is that the agencies and networks are in a deceitful, dishonest alliance to bilk advertisers' stockholders out of billions of dollars. First, the agencies make the vast majority of their profits by buying network television, and they want to see rates go up so their profits will go up, but the agencies obfuscate this profit in their financial reporting. Second, executives that control advertising expenditures at companies aren't stupid; they understand the game. Their payoff comes in the form of lavish entertainment by the networks: Super Bowl, Academy Awards, Final Four, set of Clint's next movie, Peter Jennings's "private" birthday party, and on and on. The agencies also throw in nice goodies such as suggesting that their clients become involved with production of television commericals that often feature beautiful, budding starlets willing to please. Imagine an automotive executive returning to Grosse Point after spending a week in Malibu "overseeing" a commercial shoot and telling his awestruck friends (behind his wife's back) about dining with Hollywood directors and helping him "cast" (with a big wink) the commercial and pick the music. Sex, drugs, and Rock 'N Roll works every time.

So, who are the suckers, the advertisers who are thus bribed by the corrupt system or the stockholders of large advertisers such as P&G, GM, Ford, and Time Warner (AOL, especially)? Obviously advertiser executives, as advised by their crooked agencies and as bribed by the agencies and networks, get their payoff, so it must be the stockholders who see $1 billion in advertising, 80 percent of which is being spent in network television, squandered every year (and getting less for more each year). In four years, if everything goes according to agency and network plans, the $1 billion will be $2 billion and the corruption will have paid of handsomely for everyone except stockholders and the public that has to put up with increasing commercialization.

So what can you do? Attend a GM or Ford or Time Warner stockholders meeting (assuming you own a share or two of stock), get hold of a microphone, and ask for one of those extravagant trips to the Super Bowl or to supervise a commercial shoot. Tell the CEO that he or she makes so much money (500 times the average worker) that he or she can afford the trip and that you can't because you own the company's non-performing stock. And, after all, you'll add just as much value as any of the company's executives will and you'll have a lot more fun.

Posted by Charles Warner at April 26, 2004 12:40 AM

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