Hot Network Upfront Rotten for Local

Local TV stations are continuing to choke on the dust left by their national network parents, with most affiliates struggling to squeeze out even tiny bits of growth for the rest of the year.

The weak economy continues to overwhelm local markets. Analysts and station group executives say that, while network owned-and-operated stations should do better, affiliate station groups are expecting 2%-4% sales increases for the fall and the holiday rush.

And that's after adjusting for political advertising, which surges when many congressional, state and local terms expire during even-numbered years but disappears in years like this one. Without adjusting, ad sales for most stations would be down sharply.

The sales picture should become a little clearer this Thursday during the Television Bureau of Advertising's annual advertising forecast conference in New York, which will focus on local and regional spending and economic trends.

But there's little good news in the local market, as the networks' ad strength seems to be hurting affiliates rather than helping them. "The robust upfront to date hasn't seen much trickle-down," said James Boyle, Wachovia Securities broadcast analyst. "There won't be a spillover effect but a sponge effect: The networks are sponging dollars up out of the local market."

Indeed, the national spot market continues to be terribly weak, as it has been pretty much for the past 18 months.

Overall, Belo Corp. Television Group President Jack Sander says the market "is not pretty, but it's improving. We have definitely seen the third quarter improve over the second quarter." But he finds it disconcerting that the national spot market has not revived.

Hearst-Argyle Television CEO David Barrett contends that the disconnect is due to timing. Much of the upfront focuses on locking up commercials airing in 2004. But advertisers' local-TV spending is driven largely by immediate goals.

"How we are doing today is a more short-term book compared to the advanced bookings that are on the network people," Barrett recently told investors. "How our pacing is in the fourth quarter and how the pacing is in the first half of next year is going to be a more meaningful data point for all of us to observe."

Exceptions include major-market stations among the network O&Os. That's doubly true for Tribune Co., whose WB network and O&Os are soaring in the Nielsen ratings, particularly among young, valuable viewers. Fox affiliates are also better off than ABC affiliates, which are, in turn, far better off than affiliates of the ailing UPN.

Stations are being hurt by weakness in some major categories. Restaurants—a perennial top-five category in local TV—were off 8% during the second quarter, according to data compiled by TNS Media Intelligence/CMR. Travel, which had already slashed spending, is down 13%. Soft-drink manufacturers and snack foods have sliced local-TV spending a whopping 27%. Other slumping categories include clothing stores, supermarkets and consumer-electronics stores.

The biggest spenders, automakers, increased ad buys by 2%. Spending by car dealers was a little better, up 5%. But that's nothing compared with last year's growth driven by zero-percent-financing campaigns.

Jefferies & Co. media analyst Lee Westerfield forecasts similar trends for the third and fourth quarters. In the coming months he sees car advertising up, movies flat, and furniture and hardware up. Some surprises: Theme parks and other attractions are ticking upwards even though airline and hotel spending is still declining.

And Westerfield sees a sudden rise in advertising by telecommunications firms. That's a big change because that industry's financial free-fall has slowed but doesn't seem to have stopped and certainly won't reverse until the corporate accounts recover.

But the increase is coming from cellular-phone carriers, and stations have regulators to thank. The Federal Communications Commission has set Nov. 24 as the day when "number-portability" rules kick in. That means users can switch services and keep their old numbers. Right now, customers dumping Verizon Wireless for Sprint PCS lose their phone numbers, a significant impediment to switching carriers. But easier switching will make customers more likely to hop.

If the FCC sticks to the November switch date, cellular companies could start advertising heavily to poach customers from their rivals.