Networks' bad-news season

Fox posts $31M loss; ABC puts make-good spots in 'Millionaire,' sees soft ad market

By Steve McClellan -- Broadcasting & Cable, 11/13/2000

Weak reruns and a soft ad market meant bad news from two major networks last week. FOX Television Network posted a $31 million operating loss for its first fiscal quarter (ended Sept. 30), in contrast to a $20 million operating profit in the year-ago quarter. Meanwhile, ABC is in make-good mode for Who Wants to Be a Millionaire? and foresees softness in the market for the remainder of the year.

Scatter prices in the current quarter are below upfront rates, Disney president Robert Iger told analysts Thursday. Last season, scatter prices were up 25% or more over 1999 upfront prices. He also confirmed that network advertisers are not picking up options for first-quarter upfront inventory at the rate ABC had expected. "Option pickups for [the January-March quarter] are running slightly behind what we expected," he said. "But it's not large enough to be overly concerned at this point."

As for the make-goods in Millionaire, Iger said the show is sold out at lower levels than most of ABC's other programs so there is room within the program to fit the make-good spots.

FOX officials attributed the network's profit decline to weak rerun programming and ratings in the quarter and to higher promotion and marketing costs for launching the new fall season.

FOX also said it will show a loss of $70 million on post-season baseball in the next reporting period (fiscal second quarter, October-December). News Corp. President Peter Chernin attributed the loss to playoff series and World Series that went only five games and to post-Olympics sports "fatigue" for both advertisers and viewers. Exacerbating the bad baseball picture was the late premiere of the new season, which kept viewers away.

Nevertheless, Chernin considers the 2000 baseball post season an "aberration" and believes that Fox's new six-year Major League Baseball rights package will break even financially and be a huge promotional platform. In the future, he said, FOX will get rebates from MLB for post-season series that do not go at least six games.

Despite the relative weakness of the post-season package this year, it still provided a "great launch pad" for the new season, Chernin said. "Our network ratings are up over 18%" in households and among viewers 18 to 49 for the first five weeks of the season, he said, adding that FOX is the only network among the Big Four to show growth in that core demographic.

According to Chief Financial Officer David Devoe, FOX expects its television segment to generate operating profits "slightly below last year's operating results" for fiscal year 2001. He projected that the owned TV stations will show 3% to 7% profit growth for the full year but qualified that projection, saying it's "dependent on the post-January advertising environment."

Growth rates for cable-operating profit should exceed 100%, Devoe said. Total operating profit at FOX Entertainment Group is expected to be $1.150 billion to $1.275 billion for the year, "based on current market conditions." That would be up at least 75% from fiscal 2000.

Meanwhile, Iger and Disney President Michael Eisner tried to put a positive spin on the ad market, saying they believe it will bounce back after the first of the year.

Eisner said he is puzzled by "the-sky-is-falling comments about advertising by some of our competitors. I think that's a little premature." The softness, he said, is "totally explainable" and, Disney believes, short term: "We don't see this dismal-looking future beyond this momentary softness."

Iger believes that advertisers simply shifted more of their budgets into the upfront so as not to get burned by huge scatter-price increases the way they did last year. And if more advertisers cancel their first-quarter options to buy time, that could work to ABC's advantage-if, as he believes, ad spending surges early next year. If things break that way, ABC could be in a position to benefit from a rising scatter market, Iger said.

He also said the network is implementing plans to do some "smart stunting" with Millionaire, creating special events like another celebrity week and other theme weeks to boost ratings and return the show to "appointment viewing."

Reporting earnings results for its fiscal year 2000 (ended Sept. 30), Disney said its broadcasting and cable division posted record revenues and profits for both the fiscal year and the fourth quarter.