Networks Face Double-Digit Loss

Buyers are threatening to move as much as $1.3 billion from the networks to cable, spot, and syndication in this year's upfront. That would translate into a $8 billion upfront for prime time network TV, down 14% from last year's $9.2 -9.3 billion haul.

Cable's share of that shift could be at least $700 million, hiking its total take to $6.2 billion, up 13% from last year. The rest of the displaced network dollars are heading elsewhere.

Why? Broadcast network ratings are down—again—roughly 8% through the first half of the season for adults 18-49. But prices probably won't be. Still, any attempt at price-gouging, the virtually unanimous charge by buyers in 2003, means a massive shift of money. How much of that the networks could offset with moderate price hikes remains unclear.

Another factor yet to play out is the second-quarter scatter market. Conventional wisdom holds that a weak scatter market in the spring can dampen the upfront. So far, second-quarter scatter is not strong, buyers say. Also, the fourth- and first-quarter scatter markets were particularly weak.

Granted, some of the shift in buzz stems from perceived vulnerability at NBC. It will lose its Thursday-night franchise next year when Friends departs.

NBC may disagree. Friends will be history, but the highly rated Donald Trump-fronted The Apprentice is generating heat. And in the current marketplace, say sources familiar with the numbers, NBC is selling Apprentice at 30-second unit rates comparable to Friends, which puts it around $380,000 per spot. In 2005, the network will have 32 hours of The Apprentice vs. nine hours of Friends in 2004.

The nets, it appears, aren't worried. If a cable ad rep points out broadcast TV's rising CPMs and declining audiences, advertisers should notice.

Then again…"It might look good on paper, but what advertisers are so secure in their market share they're willing to take that chance?" asks a network sales executive.

A big shift of dollars to cable would narrow the volume gap, if not the price gap, between broadcast and cable. "There is money poised to go to cable," says Ray Warren, managing director of OMD. "The rub is going to be a combination of where do the broadcast folks start out and where do the cable folks start out. On the buy side, we think there is an opportunity to offset some of the pain we suffered last year," he says. "It depends who's most reasonable. As the quality of programs and audience delivery of cable and broadcast begin to merge, and as the reach/frequency curves begin to look the same over time, the question is: What is the premium value of a broadcast rating point worth vs. cable?"

There are exceptions, Warren admits, for the biggest draws on network TV. "Some shows get premiums. You can't get 30 million people without American Idol. On the other hand, that's one hour out of 90-something hours of network programming."

While a billion-plus shift of money to cable would be cataclysmic for the networks, execs are highly skeptical. Even so, they aren't taking any chances. Network sources rule out price rollbacks, but early signs indicate they'll keep price hikes in the single digits, according to sources involved in pre-upfront conversations. They think they can negotiate with the buyers and grab the same upfront business as last year.

What gets lost in the conversation about a massive move to cable is how effective it would be. One broadcast network sales president notes that "60% of all the cable money goes to the top 10 cable networks. If you look at the other 55 measured cable services, they average a 0.18 rating in prime. And they're in 60% of the country." The verdict: "That's not a national alternative."

The early read from the net, based on talks with clients, is that the pool of dollars advertisers are ready to spend won't grow much from 2003.

Buyers agree. "It's not going to be any easier to reach people. We have to spend as much," a media buyer explains. "The real question is how it gets carved up" and whether advertisers decide they can reach people more effectively by spending more on network alternatives.

"The networks, for once, are a little back on their heels," says a New York lead TV buyer at a major agency. "Basically, they are saying let's talk, not just stupidly throw money to cable. Let's see if we can reach some agreement that can work for both sides. All the networks realize they have to be careful this year. If they are aggressive, the money could go away."