By Claire Atkinson — Broadcasting & Cable, February 15, 2010

Predicting the upfront is, for media players, a favorite game of skill and luck, filled with strategy and timing. But if the pastime can normally be tabbed “Deal or No Deal,” with last year’s economy it felt more like “Jeopardy.”

That appears to have changed. Confidence in the ad market is back, if one is to judge by the number of TV companies already putting their upfront plans into overdrive. The 2010 broadcast upfront week, which kicks off May 17, is already buzzing with returning participants, including NBC and Univision.

Other indications abound. MTV’s early February upfront presentation won a positive reaction for parent company Viacom from ad agencies. And Rainbow Media’s Sundance Channel also made a play for early attention with news that it is getting into scripted programming, a la sibling AMC.

However, the question going forward is, what other factors will influence whatever terms the players on both sides can set? The nuts and bolts of the upfront is about deal-making and buying enough ratings points to reach potential customers. On that metric, TV has never been healthier. U.S. viewers watch 4 hours and 49 minutes of television a day, up 20% from a decade ago. CBS will again have a good case to present to Madison Avenue following its record ratings haul with Super Bowl XLIV and the Grammys. And yet broadcast TV is still losing viewers to cable.

While mid-February may be too soon to accurately predict where the market will land, there are already some pointers for those in the TV futures business. The ad market is under the microscope like never before, and for good reason. Indications remain inconsistent. For every gain in the fourth quarter (News Corp.’s Fox cable unit), there was a decline (Time Warner’s cable group). Super Bowl sales were big, while Olympics sales are lower than expected.

There’s lots of hope and hype, but the jury is still out as investors look to see whether marketer spending will confirm the predicted comeback in the overall economy. Here’s a handful of factors that will help those on the inside of the game know how to play their poker hand.

1. Keep Watching the Scatter Market

Ultimately, the strength of the upfront is defined by one simple equation: If demand outstrips the supply of rating points, pricing goes up; if there aren’t enough advertisers willing to put down their dollars in advance of the September start to the season, prices come down. Trying to decipher the extent of the demand for TV ad inventory isn’t easy even for those in the thick of the game.

Market-setting agencies such as GroupM, OMD and Starcom turn to the breadth of their client lists to give them a sense of what spending levels will be. On the other side of the desk, sales executives shake the trees hard for information on what their clients’ budgets will be before they count the house and attempt to set pricing.

Media buyers and sellers are all expecting the upfront sales period to be a happier affair than last year—it could hardly be worse. But before anyone puts the jumbo shrimp back on order, market-watchers will continue to look for signs that the confidence isn’t all wishful thinking.

Scatter rates are running as high as 20% above upfront pricing levels; Disney executives reported scatter rates of 30% above upfront at ABC, and in the mid-single digits at ESPN in the current quarter. In cable, a handful of earnings calls gave the market some early guidance. Discovery CFO Brad Singer said ad revenue in first quarter is running at 5% above the previous year.

That’s driving most of the confidence, according to Miller Tabak + Co. media analyst David Joyce. “The typical assumption is that scatter is driving what the level of pricing will be,” he says. Joyce thinks this upfront might look a little more like normal. It appears that sales executives will ditch the cost-conscious door-to-door road shows of 2009 in favor of somewhat splashier New York-based upfront events.

The strong demand for big-ticket TV ad buys also helps upfront optimists make their case. CBS not only sold out the Super Bowl sooner than expected, it also ran more commercial airtime than any other Super Bowl broadcaster in five years. While the network was said to have sold spots for $2.5 million to $2.8 million, networks executives insisted that some spots went for as high as $3 million. ABC’s pricing for the Academy Awards is on par with last year as well, around $1.3 million to $1.5 million per spot.

That said, even the most bullish media companies admit that it’s too soon to talk about upfront—but not too soon to make the pitch. Speaking on the firm’s latest earnings call, News Corp. CEO Rupert Murdoch told B&C, “We’ll be going into the upfront as the number-one network, and as strong or stronger than anybody else, but that’s about all we can say.”

However, one media buyer, who didn’t wish to be named for fear of being accused of posturing, explained that with so many advertisers spending so little on last year’s upfront, a strong scatter market was more than predictable: “We had to expect record activity and people can play that out as they wish, but they started with the bucket emptier than it ever was. I think it’s debatable if we’re looking at a robust marketplace.”

2. See How Marketers Refine Spending Plans

Automakers were a big presence in the Super Bowl, and with sales trending upward and ad budgets tied to sales projections, one might reasonably assume that this major category will urge the market north. The question is whether Toyota will limit media budgets in the short term and spend big later to win back customers.

Political ad dollars are expected to be much bigger in 2010 as the midterm elections loom, but that’s money that’s likely to benefit cable news outlets, which play in the upfront in a small way, as opposed to local stations, which don’t.

Ad agency buyers say they must contain the ebullience of media companies, along with the media that cover the upfront market, since the agencies consider the market to still be shaky. Most advertisers aren’t going to be jacking up their ad spending to any great level, they say.

Even with strong scatter pricing over the past two quarters, national TV ad sales overall were down in 2009. Numbers from Interpublic’s Magna suggest that the decline was 3.6% for the year, to $33.3 billion.

Magna’s longer-term outlook for TV is far from disastrous. National TV is expected to grow by 6.2% in 2010, to $35.3 billion, and 4.1% over the next five years.

But Tony Pace, chief marketing officer at Subway, disagrees: “I think the economy is weaker than the perception. I just don’t think [the true picture] will play out fast enough for the upfront market.”

As if on cue, the Association of National Advertisers on Feb. 3 released its ritual report on ad spending projections for this year. Titled the ANA Recession Survey, the report says that clients are more optimistic, but its findings are hardly a ringing endorsement of a comeback. According to the report, 53% of marketers say they are reducing their advertising media budgets. Fifty-nine percent of marketers say that their budgets will stay the same, while 19% are hopeful that budgets will increase.

“While it appears as though cutting costs may be the new reality even when times are good, our series of surveys suggest that the deepest cuts may have already been made,” ANA President Bob Liodice said in a statement that accompanied the survey.

National TV Ad Spending

3. Whatever Can Be Measured Can Be Sold