Second Quarter Cancellations Getting Under Way

Market still unsure of the extent of cutbacks

Initial second quarter ad cancellations are getting underway with buyers reporting a mixed bag so far. Some clients are taking money back, some are firming up and others are holding their cards until TV sales executives begin to enforce hard deadlines in the coming weeks.

In one case, a buyer at an unnamed agency rang some serious alarm bells, saying the agency's clients had requested, "As much as we can get, they want [back.] One client is in complete sell-off." That single unnamed client is asking TV partners for every cent out of the ad market to return it to the firm's bottom line. It is unclear whether that advertiser has a small or large media budget. Whether a TV network would allow a client to renege on its entire upfront deal is still open to question, though it appears unlikely.

Second quarter cancellations refer to options that are given to advertisers to reduce their upfront advertising commitments by as much as 50%. This year, the extent of cancellations, are taking on unparalleled significance as the market and Wall Street analysts try to figure out what the slumping economy will do to the ad market. One positive for the TV market is the failure of a drive by agencies to renegotiate pricing on upfront deals.

Yesterday, January 15, was the first official deadline for option taking, though that deadline has been moved backwards by some to February 1. Fox said last week it had received requests for extensions until February 15.

In a B&C survey of buyers and sellers, the market appears to expect the second quarter cancellations to be worse than first quarter, though by how much is still unknown. One agency buyer, who did not want to be named, warned against drawing too many conclusions from cancellation options explaining that there is a distinction to be made between clients taking money back to simply change their media strategies (and potentially buy cheaper spots) and those taking money out to do other things with it at the corporate level. This buyer said a small number of his clients had cut their budgets but many others were still taking a wait and see approach.

Taking money back potentially damages relationships with TV sales executives and can affect future pricing. Option taking is a sensitive and risky endeavor for clients who may later need to pump up their ad dollars to drive business. Gary Carr, SVP director of broadcast services at TargetCast said: "We firmed up our second quarter, we didn't cut." He said the networks were giving everyone time to consider their positions.

One cable sales executive said: "We've had a couple of response that have firmed or cut, but there's no critical mass." This executive was giving buyers more time to make their decisions.

Another cable sales executive who wished to speak off the record said he expected second quarter options to be higher than first, but added that the market was ticking along with entertainment, pharmaceutical and diet related products driving the market. "I'll be an optimist since we haven't seen anyone renegotiate their upfront [pricing] with an awful lot of change, so maybe we'll be O.K. At the same time,I'm a realist and everything I've heard hasn't been all that positive."