The bottom has dropped out of the broadcast-television scatter market. Ad executives—both buyers and sellers—say total scatter sales in the quarter could be down 35%. In dollars, that would be a drop from last year's $400 million-$460 million to $250 million-$300 million.
In 2002, huge demand was driving price hikes to 30% and higher. By comparison, the networks are now getting a mere 5% above upfront prices for current scatter buys, when they get a buy at all.
And several ad-agency executives say first-quarter scatter won't exactly be busting through the roof either.
"Scatter is as dead as the New York Jets," asserts Bob Riordan, senior vice president, national broadcast for ad buyer MPG. "There is nothing going on in the fourth quarter, and I don't see it coming back" in the first quarter.
Joe Uva, president and CEO, OMD, agrees with Riordan that the fourth quarter scatter market is moribund. He isn't ready to write off the first quarter, but he doesn't rule the possibility out, because many advertisers opted out of the scatter market for the entire 2003-04 broadcast year and instead spent their entire ad budgets in the upfront to avoid the big price increases normally associated with buying ads in scatter.
"I guess [the sellers] thought it was a negotiation tactic, but the upfront did not grow organically that big," says Uva. "The majority of that growth came from scatter money" that was shifted to the upfront.
"Do we anticipate that there will be some more scatter? We would hope so, and we think there will be," he adds.
Both Uva and Riordan also dismiss as inaccurate earlier reports of a huge influx in scatter business from the telecom sector. "That's not going to develop. That's just wishful thinking—spin—people putting things out," says Riordan.
Uva concurs, noting that the phone companies spent all their money in the upfront. Among OMD's clients is Cingular, the big wireless phone company. "So we have pretty good pulse on that."
Riordan estimates that the fourth-quarter network scatter market will be down 35%-40%. "We're already in the hard eight weeks before Christmas, and the retail money is already spent." Uva says that there could be some additional retail spending later in the quarter but not a huge influx and possibly more local than national.
Peter Butchen, senior vice president, group director, national broadcast at Initiative, says a Nielsen ratings boost in the first quarter could change things, but, for now, "I don't anticipate a huge influx of money in the first quarter. It will probably be more along the lines of what happened in the fourth quarter."
There is a silver lining of sorts for the networks in the very soft scatter market: There are lots of available ad spots that the networks can give, and are giving, to advertisers to make good on buys when the ratings have fallen below guarantees.
"Right now, it's not an issue," says Butchen of the networks' management of make-good inventory. "Since there's no money in scatter to eat up inventory, they've been making advertisers good. There's not an advertiser out there that would be below guarantee at this point."
What the advertisers have to watch, he notes, "is whether they get paid too much in the fourth quarter, at the expense of later schedules. What you have to watch out for is over-delivery in the fourth quarter and under-delivery in the second and third quarters. But, right now, there is an abundance of inventory, and that's how they're filling it, by giving it away."
Each of the four major networks has under-delivery issues for certain nights and time periods. NBC and CBS are both down double digits among adults 18-49 for the first six weeks of the season. That demo is NBC's key sales demo. For CBS, it's the second most important demo behind adults 25-54, in which the network has seen a 6% decline through the first six weeks of the season.
NBC's Thursday night is down sharply in the key demos vs. a year ago, and CBS is down sharply on Monday night.
It's still strong on Monday, though. The network with the biggest Monday problem is Fox, which had high expectations for two new programs—Joe Millionaire 2 and Skin—expectations that were immediately deflated upon their premieres. Skin
has been canceled, and Millionaire, whose finale last year was the highest-rated entertainment show of the season, has been scaled back.
Both NBC and Fox have an additional issue to contend with, according to Susan Lyne, president of ABC Entertainment. Since the upfront was announced, both networks have changed 35%-40% of their prime time schedules.
Advertisers can opt out of contracts for spots in time periods where the show changes, she told analysts last week. "It creates a volatile situation for their inventory because the advertiser can say I'm not going to do it at that price anymore." An NBC spokeswoman says the network hasn't lost revenue over the issue.
News Corp. President Peter Chernin told analysts that scatter-price increases are averaging about 5% over upfront rates, according to a transcript of the call provided by Streetevents.com. But volume of sales, he admitted, is "very low right now. There's not a lot of scatter money in the marketplace."
In that same session with analysts, News Corp. Chairman Rupert Murdoch said that baseball—with playoff ratings up 50% from a year ago and World Series ratings up 10%—"translated into considerable additional revenue at the network, well over and above our expectations."
Murdoch didn't provide a figure, but sources at the company said Fox generated $65 million in unexpected baseball revenue, for a total around the $350 million. That additional revenue, sources say, will more than offset whatever make-good bill the company ends up owing advertisers for the fourth quarter.