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A smidgen of sunshine

Modest spending hikes are predicted for the broadcast networks this year 4/14/2002 08:00:00 PM Eastern

A year ago, economists began admitting what broadcasters already knew: The country was in a recession. In recession, advertisers tend to spend less, and, last year, they spent a lot less: $1 billion less in the broadcast networks' upfront market than in the previous year.

Now things seemed to have stabilized a bit. Analysts are predicting modest spending increases for this year's network prime time upfront—between 1% and 5%—as are sellers. Buyers, of course, will be doing their darnedest to hold the line on cost increases.

"We believe the U.S. advertising recession is at its end," said UBS Warburg broadcasting analyst Leland Westerfield in a recent report. He currently projects a 4% increase in ad spending for this year's network prime time upfront market. If that's the case, it would make up less than a third of last year's 12.5% decline.

But the networks will take it. "It's hard to say where we'll be two months from now, but there are some positive signs," said one network sales executive who asked not to be quoted by name.

Agency executives say modest spending increases are possible. "Growing is better than declining, of course, but I don't see huge growth yet," said Tim Spengler, executive vice president, director of national broadcast, Initiative Media North America.

Generally speaking, there is more optimism among advertisers now than a year ago, he said. However, "most of our clients didn't have a great fourth quarter, and there hasn't been a lot of great earnings announcements even since. So I'm going to be cautious about how much growth there's going to be. It's really predicated on corporate profits, or at least that's one of the major indicators."

One positive sign is that second-quarter scatter spending is up 10% to 20% depending on the network. "In a vibrant market, that would signal double-digit increases in the upfront to come," said another network sales executive, also declining to go on record. "But, in this market, there's no way that's going to happen. Coming out of the year we've had, the market still favors buyers, at least psychologically. Also, I think, if we tried to push double-digit rate increases, the buyers would plow a ton of money into cable and syndication."

Morgan Stanley media analyst Richard Bilotti estimates that the six broadcast networks will post close to a 4% gain in total upfront sales (all dayparts), to $7.4 billion. Bilotti says the big gainers will be CBS (up 35%) and UPN (up 29%). NBC should also be in the plus column with a net revenue gain to 4.5%, he said in a recent report.

The biggest losers, based on ratings performance this season, may be ABC (down 15%) and Fox (down 9%). The WB may also be down slightly as well, Bilotti reports.

For prime time, Bilotti projects network sales will be up 5.8%, to almost $5.9 billion. Again, co-owned CBS and UPN should be the big gainers, with sales hikes of 43% and 29%, respectively. ABC and Fox will both be down double digits. The Morgan Stanley analyst says ABC may be down almost 20%, while Fox may take a 10% hit, based on this year's prime time ratings performance.

Meanwhile, sellers report healthy spending by the automotive sector, always a good sign as it's one of TV's biggest ad categories. In fact, says one sales executive, if anything good came of the recession, it was the fact that the automakers showed last winter that TV advertising moves product as it did with their 0%-financing campaign. (No doubt, the generous terms didn't hurt.)

Nevertheless, advertisers, the carmakers in particular, say they aren't going to stand for yearly rate hikes. At last month's Television Bureau of Advertising conference in New York, GM's Michael Browner told broadcasters that, with continuing audience fragmentation and erosion, "it's especially critical that cost control be implemented for both of us. It's not reasonable or possible for our costs to continue to rise."

2002: An up upfront?
Network Chg. from 2001*
*Forecast prime time net sales
Source: Morgan Stanley
ABC -19.7%
CBS +43%
NBC +12%
Fox -11%
WB -1%
UPN +29%