How High Is Upfront? At Least $8.3B, Most Say

Is a $9 billion broadcast-network prime time upfront market possible? Sellers are floating that number. It would be an 8% increase in dollar volume over last year and a whopping 32% over 2001—which sellers call "the bad year": That's when the dotcom boom went bust, and a recession followed.

Buyers paint a different picture. While few buyers are talking about price rollbacks this year, they're not guessing how much prices may rise. But they strongly doubt that the market will reach the $9 billion level, given questions about the underlying strength of the economy, the possibility of war and the fact that the networks aren't expected to sell as much inventory upfront as they did a year ago, when they sold 85% before the season began.

Discovery Communications President, Network Sales, Joe Abruzzese notes that, last year, agencies "did a pretty good job of hiding the money" until it was time to commit.

A very uncertain upfront was on the minds of attendees at last week's Association of National Advertisers conference in New York.

Fox President of Advertising Sales Jon Nesvig expects both pricing and volume to be up. He points to last year's record upfront, historic low cancellations and strong scatter market. "I think there is more of a consensus than usual that we will have a least a reasonable market this year." Indeed, many buyers, he says, have braced clients for a rate increase.

But MPG Senior Vice President, National Broadcast, Bob Riordan isn't one of them. He believes that total spending in this year's market will be "flat to down" compared with last year. His reasoning: Last year saw an infusion of some $1.5 billion or so in new upfront money vs. the year before. "I just don't see categories that would step up spending that much" for a similar gain in 2003.

MediaVest President of U.S. Broadcast Mel Berning concurs. And he says that declines in consumer confidence, auto sales and new-housing starts, as well as the potential impact of war on the economy, have advertisers concerned as they ponder ad budgets for the coming year. "You start to see cracks in consumer spending, and that's what's been driving the ad marketplace. So I think these preconceived notions about how fast and how strong the upfront market is going to be must be reconsidered."

As for pricing, Riordan and others say it is too early to predict, "especially in light of the economy we're in and the possibility of hostilities breaking out in the [Persian] Gulf."

Make no mistake: A war with Iraq could wreak havoc on this year's spending. Carat North America CEO David Verklin says his agency expects an advertising blackout for the first six days of the war and lots of ad preemptions for up to seven weeks following that. "It could happen right in the middle of the market." An open question is whether those ad dollars would get spent later or simply pocketed as profits by advertisers.

Of course, a flat market wouldn't be terrible. In fact, it would tie the record at a little over $8.3 billion, basically in line with 2000 spending levels.

But don't tell that to the sellers, who say year-long momentum should translate to an even better market in the coming year.

Like Nesvig, most sellers believe both pricing and total dollars will be up this year. Viacom President and COO Mel Karmazin told analysts recently that, with scatter so strong, "that bodes well for an even stronger '03-'04 upfront" than last year's. He's on the record predicting a 12%-15% gain in pricing, with more dollars in the market as well.

Buyers disagree, and even some sellers say Karmazin's prediction is high. "Will it be up? Yes, but I don't think anybody thinks it will be that high," said one sales executive for a broadcast network.

But the fact is, TV is "still the medium of choice and the anchor of most companies' marketing plans," said Bob Liodice, president and CEO of the Association of National Advertisers, at the organization's annual TV Advertising Forum in New York last week.

Indeed, a recent survey of 100 senior ad executives by Morgan Anderson, a New York-based consulting group, found that 63% of those polled plan to spend more money on network TV this year than last year.

Carat's Verklin told ANA attendees last week that current economic conditions have forced a "retreat to television. Times are tough, and clients worry about moving product tomorrow. Television is best at that."