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Upfront Backlash?

Cable expects to exploit buyers' ire; broadcasters are unfazed 4/18/2004 08:00:00 PM Eastern

Gearing up for last year's upfront market, MTV Networks President Mark Rosenthal wasn't cutting any big ad deals. Agencies were holding off, reserving their clients' money until they saw how their negotiations with broadcast networks went in late May.

This year seems different. A number of buyers who feel burned by the broadcasters are talking to Rosenthal about shifting money into cable well in advance of the broadcast upfront. "We've been approached, widely and deeply," he says, "to cut early deals by a lot of agencies." He cautions that it will take a few weeks to see if that talk translates into dollars—and strong prices—but "I believe the momentum is more real than it is ever been."

Cable networks are increasingly confident about exploiting a backlash against broadcasters, who were able to jack prime time ad rates by 15% during last year's upfront market, in which advertisers lock in prices and inventory for the upcoming TV season. Buyers continue to threaten to steer substantial cash away from broadcast into cable, with some estimating that broadcasters' $9.4 billion take last year could drop between $550 million and $1 billion. B&C estimates broadcast nets will lose $700 million. That would boost basic cable's take from $6.2 billion last year to $6.9 billion.

"The market overall will be about the same" as last year, says Joe Uva, CEO of ad agency giant OMD Worldwide. "Cable will be up," he adds. The question remaining: by how much?

Broadcast networks are unfazed by agencies' threats. Fox Ad Sales President Jon Nesvig expects to ride the American Idol
ratings wave into a strong round of negotiations. Meanwhile, CBS and NBC are jousting for position as "market leader" in the coming upfront. As the top network in adults 18-49 for the past several years, NBC has usually started the market and established the pricing in it.

This year, however, CBS Chairman and CEO Les Moonves says CBS will be the leader, certainly on price, for the first time in 20 years. He boasts that the network will secure double-digit percentage rate hikes. The network is winning this season in total viewers and adults 25-54 and is a close second in adults 18-49. And, he asserts, more buys are now centered on adults 25-54 than 18-49.

But NBC Networks Group President Randy Falco dismisses CBS's bid to be the top dog. "I think we are positioned once again as the market leader," he says. "We are No. 1 in every daypart and have a substantial lead over every competitor in prime time." CBS says NBC's lead in the 18-49 demo is two-tenths of rating point.

Moonves fires another shot across NBC's bow, saying he expects that "a lot of money will shift to CBS from NBC," thanks in no small measure to the departure of Friends. Falco's response: "If you have no place to go but up, I guess I'd be saying the same thing as they are."

Buyers say Moonves is in for a rude awakening once the market starts. "That's not going to happen," says Carat CEO David Verklin, referring to Moonves's prediction of double-digit rate hikes. Verklin counters that broadcast networks' price gains might be in the "low single digits."

OMD's Uva says, "The only way [Moonves] gets there is if Nesvig goes down," referring to Fox's ad sales chief.

Morgan Stanley media analyst Richard Bilotti tells clients to ignore the positioning and wait for the results. "Anything you read in the next six weeks where a television company is specifying numbers for the upfront shouldn't be believed," he says. "The quieter they are, the better they're doing. The more they negotiate in public, the more screwed up it's going to get."

Network Downer
Morgan Stanley analyst Richard Bilotti estimates broadcast networks will get a little less money…
Network Sales Chng.*
*From 2003-04
Source: Morgan Stanley
ABC $1.5B -8.4%
CBS $2.2B -1.5%
NBC $2.8B -4.4%
FOX $1.5B -8.3%
UPN $0.2B -3.8%
The WB $0.6B -8.9%
All networks $8.8B -5.4%
Big Four $8.0B -5.2%
...but relatively strong ratings should let CBS and NBC marginally increase the price they charge for each 30-second commercial
Network Revenue per Spot Chng.*
ABC $77,965 -2.6%
CBS $108,372 4.9%
NBC $150,068 1.7%
FOX $109,653 -2.6%
UPN $26,060 -0.1%
The WB $53,039 -5.4%
All networks $95,411 0.1%
Big Four $111,092 0.8%
Changing Spots
Most broadcast networks are likely to see revenue growth versus 2003-04
Fox ABC CBS NBC Big Four
Source: Morgan Stanley's Richard Bilotti
Sports 8.0% 8.0% 8.0% 8.0% 8.0%
News/Daytime 6.0% 6.0% 6.0% 6.0% 6.0%
Primetime -0.6% -0.4% 5.7% 3.1% 2.4%
Upfront -2.6% -2.6% 4.9% 1.7% 0.9%
Scatter 8.2% 8.2% 8.2% 8.2% 8.2%
Total 3.5% 3.6% 6.3% 4.5% 4.6%


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