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Upfront downer

Analysts see networks selling less inventory and a 25% drop for Internet ads 11/01/2008 08:00:00 PM Eastern

It will be one of the weakest upfronts in the last 10 years, with fewer dollars being spent overall and pricing that may be flat or up just slightly. That's how Salomon Smith Barney broadcasting and cable analyst Niraj Gupta described the upcoming advertising upfront market, which will break after the broadcast networks unveil their new fall schedules in May.

The news is worse for Internet advertising, which will plunge 25% this year, according to Salomon Smith Barney's Lanny Baker.

Speaking at Tuesday's The Big Picture media conference in New York, sponsored by Salomon Smith Barney and BROADCASTING & CABLE, Gupta said networks might be faced with flat prices this upfront and at best might realize increases of 4%. (Many ad-time buyers say prices will fall.) Gupta, and his colleague, Salomon Smith Barney entertainment analyst Jill Krutick, said they think the networks will sell "much less" of their inventory in the upfront and thus the dollar volume will be less than last year's record $8.2 billion. But networks with ratings momentum, including CBS, Fox and Univision should do well, Gupta said.

Krutick said she has revised pretax-earnings growth estimates for the major entertainment companies for 2001 downward from the high teens to the mid teens, on a percentage basis. And the average falls to about 8% if AOL and Viacom are excluded. Both of those companies will generate 30% EBITDA (earnings before interest, taxes, depreciation and amortization) or close to it, she said.

Internet advertising will plunge 25% in 2001 to $6 billion, according to Baker, Salomon Smith Barney's Internet analyst. Baker said dotcom companies, which accounted for about 50% of last year's $8 billion in ad sales on the Web, will account for just 15% of the 2001 total.

As the world knows, it has been rough sledding in the Internet world, as investors bailed without a positive earnings story in sight. Baker said some 15,000 jobs have been cut from the sector in the past eight months.

But Baker remains convinced that the sector will rebound in 2002 "like a phoenix from the ashes," as online usage and penetration continue to grow at an average annual rate of 25% to 35%. Top performers: AOL Time Warner and, despite recent problems, Yahoo.

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