News Articles

Advertisers opt out

Networks see 20% to 25% cuts in second-quarter commitments 2/04/2001 07:00:00 PM Eastern

Major advertisers are backing out of second-quarter TV commitments at unusually high levels. It's the latest sign that ad-driven businesses are in for a bumpy 2001.

When advertisers make their spending commitments in the upfront market, they also get options to reduce portions of those commitments for the first, second and third quarters. Media executives say the second quarter is key because it's usually a good barometer of the rest of the year.

Advertisers have backed out of an average 20% to 25% of network upfront money committed to the second quarter, sources say; normally, it's 10% to 15%.

The big sectors pulling the most money out of the second quarter are automotive, telecommunications, package goods and retail, network sources say.

The biggest advertiser to do so is General Motors. A spokeswoman confirmed that the auto giant had exercised its options to pull as much as 50% of its network ad budget for the quarter. She wouldn't confirm how much money GM is pulling, but network and Wall Street sources said $50 million is a good estimate.

Analysts expect DaimlerChrysler to follow suit, in light of last week's move to slash 26,000 jobs. Network executives said it had not exercised options by late last week.

Dozens of other companies are also said to be "fine-tuning" their second-quarter ad budgets to compensate for missed revenue and profit targets-Procter & Gamble, Sears and AT&T among them. One network executive said, "You just have to watch CNBC and see who is in trouble on earnings. Those are the people that are pulling back."

It's a similar picture for cable. USA Networks Inc. CEO Barry Diller admitted last week that the current picture for cable ad sales "ain't great." And he added, "There's nothing there that you can actually count on to tell you that's going to get strong gain." He confirmed that GM opted out of 15% of its second-quarter commitment.

GM initially told the Big Four networks it would halve its second-quarter spending. Said one network executive, "They came pretty damn close to that." A competing executive said his network managed to persuade GM to reduce the planned cut by half: "Thank God, it was a big number."

Ironically, there was good news for car sales in January, which paced well ahead of what was expected. "I don't think any one is breaking out the Champagne bottles or calling off their belt tightening," said one network sales executive, "but at least it's a sign for a little bit of optimism."

Meanwhile, the networks are scouring the landscape for new business. NBC did $15 million in new business in the first quarter and will generate close to that in the second quarter as well, said one source.

As to the upfront, it clearly is not going to be the sellers' market it has been, network executives admit. Two weeks ago, Merrill Lynch entertainment analyst Jessica Reif Cohen revised her outlook, predicting a decline (instead of slight gain) from last year.

But look for the networks to take a different approach. Executives say they may hold back more inventory "to try to hold price," as one says. "And maybe the upfront won't be as fast this year. You don't want to sail into the teeth of a bad wind, so maybe we'll hold back and hope things turn around."

Some executives remain optimistic that government relief could get the economy back on track. Interest rates were just lowered again, and the new administration's tax-relief package could kick in by the third quarter. If that happens, says one senior network official, "maybe we'll start to pull out of this by the fourth quarter."

September
October