Lessons from an Unusual 2023 Upfront Season

The show must go on, and those ad inventories are not going to sell themselves. Despite major disruptions caused by the ongoing writer’s strike, the TV industry is putting on its annual charm offensive, trying to convince advertisers it is still “business as usual” at this year’s upfronts.

The upfronts are an interesting legacy of the linear TV era. Back then when the broadcast TV industry was dominated by the September-to-May schedule, the upfronts were the crucial events where media giants tried to secure their advertising revenues for the next cycle of programming debuting in the fall. Now, however, the traditional practice of selling TV ads months before the season begins is becoming antiquated and inefficient in the face of changing viewer habits and preferences. Pay TV household penetration rates recently hit 58.5% in the U.S., the lowest it has been since 1992, thanks to accelerated cord-cutting and viewers shifting linear TV to streaming.

Yet, Hollywood has not figured out how to actually make money on streaming, which so far has proven harder to monetize at the same rate as the traditional linear model, creating an existential crisis for the TV industry. In response, most media companies have added ad-supported tiers to their streaming services, hoping to supplement the subscription revenues with ad dollars. This shift towards a hybrid model across all major streaming services has given the upfronts a new purpose — to sell the new ad inventories available on streaming services. That is, until the WGA writers strike forced everyone to change their plans.

More Non-Scripted and International Content

There’s no denying that the upfront events this year have been deeply impacted by the writers’ strike, which, ironically, was partially driven by the same shift to streaming that has made upfronts less relevant in recent years. The lack of writers also made the upfront events a bit duller than usual; presentations have been reportedly lacking the usual glitz and star power that advertisers have come to expect at upfronts.

Given the disruption of the upcoming pipeline of scripted content — the city of Los Angeles saw a steep 69.5% decline in production permits in the second week of the strike — many networks have predictably resorted to emphasizing their non-scripted content, like live sports and reality shows. ABC, for example, unveiled a rather unconventional fall programming lineup filled with zero scripted programs and spent the bulk of its presentation talking about its extensive sports content as well as expanded non-scripted programs.

Interestingly, this sudden focus on non-scripted content may turn out to be opportune timing for Warner Bros. Discovery, whose newly rebranded Max streaming service now boasts a wide ranging slew of reality programs originally slated for Discovery+. During its talent-less upfront presentation on Wednesday, the company announced almost no news around its scripted programming (save for a premiere date for the second season of And Just Like That), and focused on its unscripted and sports content.

Netflix, on the other hand, is reportedly planning to lean on its extensive international content to weather the storm. The global streamer has been a focal point for the writers’ strike, as the company’s leading position in the shift towards streaming is regarded as a root cause for TV and film writers’ decline in wages and increased reliance on the famously volatile gig economy . In fact, a major picketing protest planned in New York caused the company to abruptly cancel its in-person upfront event and pivot to a virtual event.

Still, with a global audience base, and an extensive content pipeline, Netflix seems rather unbothered by the strikes so far. During its virtual upfront, the company trotted out dozens of scripted series and movies that it promises will deliver the eyeballs to its relatively new ad-supported tier that now has 5 million subscribers worldwide. That may seem like an enticingly sizable audience for brands, until one remembers that most ad campaigns are regional and not globally applicable. For comparison, Hulu’s ad-supported tier has about 58 million subscribers, and Fox’s free ad-supported streaming service, Tubi, reached 64 million monthly active users in February.

While unscripted content and international productions may be enough to tide things over for now, losing the marquee attraction of scripted content — which tenuously separates TV from TikTok — will start hurting the bottom line of media owners sooner or later, especially given that given that TV (and movies) are already losing ground to video games and social videos in terms of media time spent among younger audiences.

Looking ahead, the longevity of the WGA strike remains to be seen (the 2007–2008 writers’ strike lasted 100 days). Perhaps more importantly for the media companies, this is morphing into a game of chicken: when will the lack of U.S.-produced and scripted content start to impact viewership, and which side will give in first? Scripted content planned for streaming services is more likely to make it to air in the fall as these services tend to operate on varying production and release schedules compared to their broadcast counterparts. Should the strike go beyond the fall, we may even start to see streaming shows repurposed on broadcast and cable channels to fill the hours.

The AI-Generated Elephant in the Room

Another major part of the WGA strike is mounting anxiety among writers around the rise of generative AI and how its applications may change the future of content creation. While the specter of generative AI looms over the upfront events, no company actually brought it during the presentations, since no one in the industry on either side of the picketing line seems to know how to address the issue, at least not at this stage when generative AI is still very much an emergent technology whose product-market fit in the entertainment industry remains unclear.

On one side, the writers are understandably worried about the potential takeover of AI-generated content and the threat it poses on their livelihood, and therefore seek to prevent studios from using AI to create or rewrite scripts, or to train AI on existing scripts. The studios, on the other hand, are reluctant to agree to any limits on how they can use AI, lest they be boxed into some restrictive bylaws that hinder future growth, and have offered only annual meetings to discuss technological changes, but no real promises on how AI will be used in content creation moving forward.

Generative AI is a game-changer for the creative industries, and its use cases in Hollywood extend far beyond writing to include things like voice dubbing, language translation, and storyboarding, which present both challenges and opportunities for studios and creatives alike. Disney CEO Bob Iger recently stated that these AI innovations offer “some pretty interesting opportunities” for the company, while also acknowledging that they could be “highly disruptive” and difficult to manage, particularly in terms of intellectual property.

Obviously, there’s no putting the AI genie back into the proverbial bottle, so the ongoing debate around the best practices of deploying generative AI tools responsibly and ethically underscores the need for open dialogue and proactive measures to address these concerns in the media industry.

At the end of the day, generative AI is not a substitute for human creativity, but a complement to it. Therefore, it’s best to see generative AI as a powerful new tool that doubles as a team of tireless interns, ready to help eliminate writer’s blocks with endless ideas. And if generative AI does end up being widely adopted, one of the emergent skills for aspiring writers will be the ability to come up with the right prompt to get the best results.

More Ad Products Designed for Streaming and CTV

Putting aside the impact of the strike for a moment, this upfront season also brought a slew of new ad offerings designed for connected TV and streaming services:

Disney intends to extend Hulu’s ad targeting options to Disney+’s ad-supported tier, following the announcement to integrate Hulu content into its flagship streaming service. In addition, Disney will make programmatic ads part of every upfront deal it strikes going forward, as the company expects to reach its goal of automating 50% of its ad sales this year.

Warner Bros. Discovery unveiled a “WBD Stream” ad product suite, which promises cross-platform campaigns with reach up to 110 million adults, as well as some new ad offerings on its rebranded Max services, including takeovers and pause ads.

Two weeks ahead of its upfront event, NBCUniversal announced at the IAB NewFronts event three new ad formats (Spotlight+, Marquee, and Power Break) coming to Peacock to provide advertisers more options to effectively reach streaming audiences.

Netflix is tinkering with new streaming ad formats as well, including one that its co-CEO Ted Sarandos described as a “30-minute commercial” that will play out over several days, as it follows viewers from each Netflix show they watch to the next. The streamer has also created a Top 10 package that will enable brands to advertise specifically in Netflix’s most popular shows. On the measurement front, Netflix announced its viewership will be tracked within Nielsen’s Digital Ad Ratings (DAR) service by the fourth quarter.

So far, Netflix’s ad business has gotten off to a slow start with fewer subscribers and targeting capabilities than its competitors who have had ad-supported tiers longer. But the company has always been quite good at the tech part of the streaming business, and its recent venture into livestream events and video games may open new channels for ad revenues.

Yet, for all the new formats and ad tech improvements coming to the streaming platforms, a true shoppable CTV ad unit still seems just out-of-grasp. To their credit, NBCU unveiled a new feature called “Must ShopTV,” which will allow Peacock viewers to purchase products that are featured in its shows and movies, visible even for subscribers of its premium, ad-free tier. NBCU says in the future, this feature will log payment information for immediate purchase through TV remotes, potentially removing a major source of friction. For now, however, it is still done as a second-screen shopping experience redirected with a QR code, similar to Hulu’s shoppable ad unit and the Walmart-Roku ad offers. But as long as the actual purchase is done on a second screen, it won’t quite be the seamless experience that utilizes the full potential of the streaming interface.

That said, as media companies ramp up their ad products to make up for the relatively thin profit margins of streaming services, we expect more media companies to try their hands at transplanting the type of shoppable ad units that have become popular on social media to connected TV sets and streaming services.

Spending on upfront deals is also being increasingly undercut by the new ad channels popping up across digital platforms, which pits the legacy media companies at Upfronts against the digital-native ones that show up at NewFronts. In a recent report, Variety categorized this year’s upfront season as a tough one where more media companies will have to compete with rivals old and new for dwindling TV ad dollars. According to a survey from Advertiser Perceptions cited by Mediapost only 49% of over 300 U.S. marketers and agency executives in a February survey said they would be making upfront deals — down from 56% a year ago, projecting softer ad spending.

Somewhat ironically, while legacy media companies are trying to innovate on their streaming ad units and make them more suitable for digital environments, some digital-native media companies have been trying to revive classic ad formats from linear TV. For example, YouTube announced at its upfront event on Thursday that it is bringing unskippable 30-second commercials to YouTube Select (e.g. top-performing videos on YouTube) on connected TV. The Google subsidiary shared that over 150 million unique US viewers watched YouTube or YouTube TV on connected TVs in December 2022, and it believes that the longer format allows for better storytelling and fits into what it thinks viewers expect when they’re watching on the TV screen.

In order to remain competitive, legacy media companies need to adapt to the changing landscape by embracing digital platforms and offering innovative and targeted ad products tailored to streaming environments, as well as exploring new ad formats and channels to engage with consumers in more meaningful ways. Just replicating the linear TV ads for the streaming era is certainly not going to cut it.