Bull or bear?

TV networks are optimistic about this year's upfront, despite stock market jitters

By Steve McClellan -- Broadcasting & Cable, 4/24/2000

The recent gyrations in the stock market have prompted some advertisers to re-evaluate their buying plans for the coming year. Nevertheless, the consensus last week was that the strong advertising economy would continue largely unscathed by the market downturn. Wall Street analysts say the healthy outlook will be reflected in this year's network prime time upfront market, which many believe will top last year's $7 billion upfront. The market will probably break early this year as it did last year, with price increases of 10% or more, analysts say.

Still, some media watchers wondered whether stock market jitters would prompt advertisers to cut ad budgets to protect profits. Others wondered whether clients might simply spend less upfront and more in scatter, if profits remain stable.

Buyers weren't as bullish as sellers, especially given the recent market turmoil. Some media buyers say clients are re-evaluating their ad budgets this year out of concern for what their profit picture is going to look like in 2001.

Over the past two years, the dotcom sector has helped drive the market. Most of the spending by the sector has occurred in the scatter market, where prices have skyrocketed. As a result, some advertisers have spent more than they otherwise would have in the upfront, where pricing is better.

One indicator of just how strong the network upfront will be is how well the syndication market does. Word circulating last week was that the syndication market could break as early as this week. If the top-tier programs sell at big increases, that's a sign that budgets are up and advertisers are looking for alternatives to network, executives say. It would also signal that there's a ton of money in the marketplace.

Sources at several networks say dozens of advertisers and agencies have indicated they want to do business starting May 22, the week after all the networks present their new schedules. Typically, the market doesn't break until June. But a seller's market forces buyers to move early, for fear of getting shut out, or paying higher prices if they delay. Some of the bigger agencies have also inquired about doing deals before the actual start of the upfront, although the networks say they're reluctant to do so without knowing what the new schedules are.

All the networks are presenting their new fall schedules the week of May 15, when NBC will unveil its new slate.

"ABC will get the early attention, because everybody will want to do business with the No. 1 network," says an executive at a competing network. "Once they know what it will cost them to deal with ABC, then they'll start dealing with everyone else."

"The network upfront market will be very strong," says Jessica Reif-Cohen, top entertainment analyst at Merrill Lynch. "All indications are, it will be up 10% to 15%" from last year's roughly $7 billion market. If the prediction comes true, the networks could have an upfront market approaching $8 billion.

Asked whether the market sell-off would force her to rethink her projections, Reif responded, "No, I'm not backing down. The networks are telling me that the initial talks with advertisers are as positive as they've ever been at this point in the game."

Geoff Jones, broadcast analyst with Donaldson Lufkin Jenrette, expects a strong upfront market. "CBS, FOX and NBC are all anticipating low-double-digit increases," he says. The network ad marketplace "overall is very healthy." As for the recent market gyrations: "I don't think it will change [the ad marketplace] materially."

Most of the networks remain very bullish on their prospects. "I think the marketplace is very strong," said Randy Falco, president, NBC Television Network. "I see every indication that there is going to be a lot of money in the upfront."

Nevertheless, some sellers and buyers expressed concern about the market and said it raises questions about how strong the market will be. "I don't think you can ignore what happened Friday [April 14]," when the Nasdaq stock exchange ended the week down 10% and went officially into "correction" mode, said Michael Mandelker, executive vice president, network sales, at UPN. "I also think you can't ignore what happened to Procter & Gamble a few weeks ago," referring to the one-day 35% drop in the company's stock price after it announced that its quarterly profits wouldn't be as strong as the company previously expected.

"There are some questions in this marketplace," observes Mandelker. "The feeling about where we are, marketplace-wise, is a little different than it was two or three weeks ago. And where this market is two or three weeks from now will be determined by what goes on CNBC."