Marketer's Tactic Signals Big Shift In a TV Ad Ritual

[SOURCE: Wall Street Journal, AUTHOR: Julia Angwin julia.angwin@wsj.com and Suzanne Vranica]
The upfront took root in 1962, when in a promotional gambit, ABC decided to launch all its programs just after Labor Day -- the week new car models were unveiled and advertised. The process became more formal in the late 1970s when networks began guaranteeing advertisers the size of its audiences. If ratings for a given show fell short, the networks would make up the difference by running, free of charge, extra commercials. This arrangement gave marketers some protection against the risk of buying ad time in advance. It was nonetheless a sellers market. To get space on an established hit, networks often made companies also buy time in weaker slots. In effect, advertisers had to place bets on untested shows. With only about 22 hours in a network's prime-time schedule, advertisers worried about being locked out altogether and rushed to finalize deals. Networks hold back about 20% of their inventory to sell later in the year, but prices often rise as shows become hits. In recent years, the upfront system enabled networks to maintain control even as their audiences declined. In the 2004-2005 television season, which ended last May, broadcast networks attracted 35% of the TV audience, down from 57% 10 years ago, according to Nielsen Media Research. In the same period, the big four broadcast networks nearly doubled upfront sales to $8.3 billion from $4.5 billion, says Goldman Sachs. Past efforts by advertisers to change the upfront have failed. In 1975, faced with price increases of 25%, ad agency J. Walter Thompson decided to boycott the upfront, according to Erwin Ephron, an industry consultant. But prices didn't fall later in the year and the agency ended up paying a lot for weak programs, he recalls. Allstate is the nation's second-largest insurer after State Farm Mutual Automobile Insurance Co. It's a typical network-TV advertiser, a mass-market brand that wants potential customers to see an Allstate ad once a week. Even with a shrinking audience, network TV is one of the few ways to do that. In recent years, the insurer says it has spent about $100 million to $125 million of its annual $275 million advertising budget on national TV. Not all of that is spent on the upfront; Allstate also reserves funds to buy ads later in the year. Allstate began thinking about cutting its upfront commitment last January. The company's analysis suggested prime-time ads had become less effective than other, less expensive outlets. The insurer has steadily cut upfront spending since 2003 and put more money into cable, Web sites and special marketing ventures, such as sponsoring Nascar events.
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