How the COVID-19 Lockdown will Disrupt the Upfront TV Ad Market

Sheppard Mullin Richter & Hampton LLPAround 311 million people in the United States—roughly nine out of ten Americans—are under instructions to “Stay Home!”

These captive audiences have resulted in a 17% increase in TV viewership across all demographics.  Indeed, adults aged 18-34—a demographic that has been increasingly difficult for advertisers to reach on ad-supported television—spent 83 million more hours watching TV during the first week of the lockdown as compared to the last week in February.

This HAS to be great news for media networks who traditionally generate billions of dollars in linear TV advertising, right?  Maybe not.

The COVID-19 lockdown period also happens to coincide with the TV industry’s annual “upfront” marketplace.  This is the time where every big media company hosts major TV buyers, including brands and agencies, to extravagant events where the networks unveil their latest slate of programming for the upcoming season.  One could say, it’s a classic future market, where the goal is to convince media buyers to commit to ad deals for shows months away—or even the following year.  In other words, they buy the inventory up front.

Approximately $20 billion—that is billion with a “B”—in network TV advertising inventory is typically committed during this period.

However, declines in linear TV viewership coupled with the steady increase of digital native content and online, user-generated videos, have caused many to consider this upfront process as a mere relic of a bygone era.  And, even more so during this period of increased uncertainty, ad buyers may be better off waiting for the “scatter market,” when ad time is bought much closer to the air date.

Perhaps the biggest question for buyers is how robust the content will even be.  Another effect of the shelter-in-place orders are that many studios have been forced to shut down their TV and movie productions altogether.  With an already-tight production schedule looming, will this standstill result in a truncated content slate?

On the other hand, many indicators suggest that television is still the most cost-effective ad medium for large-scale campaigns.  The upfront market is a time for advertisers to lock up premium, show-based inventory before other brands can claim it.  Brands might also consider that there may well be pent up demand for content once it resumes—particularly sports broadcasts, for instance.  Thus, the ultimate driver for the upfront participation is scarcity—has this really changed?

The Myers report currently predicts a $3 billion slash of marketing and advertising budgets in 2020 because of the coronavirus pandemic.  Fears over the resultant impact on the economy are top of mind.  But, if lessons can be learned from past economic downturns, studies show that companies who cut ad spending during these times lost shares to private labels—shares they did not regain. As the old adage goes, “when times are good you should advertise; when times are bad, you must advertise.” Brand awareness is often crucial as consumers seek stability.

Even still, brands must balance the effort to remain in customer focus with shifting realities.  For instance, in order to avoid deficient supplies, some brands have asked to pull ads until they get caught up with inventory.  Similarly, to hedge their bets during this uncertain period, brands may consider redirecting linear TV investments to other inventory controlled by the TV networks, such as streaming platforms.

Media companies, for their part, should also consider offering dynamic solutions such as flexible terms, incentives for continuing to advertise, or even “make good” provisions in upfront contracts in case content is severely curtailed due to the pandemic.

While the coronavirus pandemic may prove the latest catalyst to changes to the upfront marketplace, it is unclear that it will be replaced altogether.  Only one thing appears certain, brands and networks alike are in uncharted territory.  And, an individualized, tailored approach appears crucial to successfully navigating these circumstances.

How can Sheppard Mullin help:

There is likely no one-size-fits all solution.  Whether you are a media company, a brand, an agency, or alike, Sheppard Mullin has a team of lawyers ready to help you navigate this unique time—offering analysis, advice and creative solutions customized to your needs.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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