How Streaming is Changing the TV Upfronts
Digital players are changing the rules of the game
Something I think people misunderstand about legacy media, is that “stubbornness” was not the only reason they were slow to embrace streaming. Investors are ignoring changes in the TV Upfronts that are altering “The Deal” between networks and ad buyers to benefit digital-first players. While investors focus on 2025 revenues, this will make 2026 / 2027 profit targets difficult to achieve.
Digiday has been doing excellent reporting of the behind-the-scenes dynamics of the current 2025-2026 Upfront selling season. In the article “Future of TV Briefing: How flexibility could funnel more upfront dollars to Amazon & Netflix this year” they explain how new streamers are changing the rules to lock-in more ad dollars.
But before I get into what AMZN and NFLX are doing, I want to talk about strategy for a second. During a period of my career in television, my job included building pricing and inventory models for multiple TV networks. Let me explain why the old system was win-win for both networks and advertisers.
The Real Benefit of the TV Upfront
Networks loved Upfronts because it allowed them to sell as much as 60%-70% of their advertising inventory up to 1 year in advance using ratings “forecasts”. If ratings fell short, networks would reimburse ad buyers with free ads, called “makegoods”. It helped free cash flow to effectively use “intangibles” in lieu of cash compensation. I call this the “Beautiful Deal”.
“The Beautiful Deal”: “Promise to spend money with me today, before you see the ratings, and I will give you preferential pricing in perpetuity, so long as you come back every year.”
Investors don’t appreciate why advertisers loved this deal. Buying TV not only gave them discounted pricing, but also an implicit promise to shield them from future price hikes. Upfront negotiations begin with the prior year’s ad pricing as the baseline. The pricing formula was always some version of “Last Year’s Price” + modest escalators (2% - 5%).
New, first time advertisers are charged the market rate, opening the potential for big price hikes if a show became a breakout hit.
These forward deals let advertisers forecast small rate increases in their budgets. In exchange, networks had low advertiser churn even as ratings fell for decades. Everyone benefited.
Here is what is changing today.
Digiday reported that streamers are providing flexibility on cancellation options on Upfront commitments in a way that disadvantages the legacy networks.
“Both Amazon and Netflix allow upfront advertisers to cancel 100% of their commitments up to 14 days before a guaranteed deal is slated to start running, in line with the Interactive Advertising Bureau’s standard cancelation terms for digital guaranteed deals, according to agency executives.”
AMZN / NFLX are using flexibility to cancel as leverage to take share of wallet.
“Streaming has been more flexible, so we are thinking how can we get clients to shift more there,” said a second agency executive.”
New media companies are unburdened by what has been.
A big reason I maintain my stance that TV stocks will continue underperform, is because the rules of the game are different as the industry moves to streaming. Investors betting on a TV turnaround at Warner Bros. Discovery (WBD), Disney (DIS), Paramount (PARA), and others must adjust their expectations accordingly.
-Accrued Interest
Disclaimer: The information presented in this Substack is for educational purposes and should not be construed as investment advice. Investors should make their own decisions regarding the prospects of any company discussed here, as I am not a registered investment advisor.