A Chilly Fall Forecast


As the networks and media buyers prepare for battle in the upfront ad market, the victor's spoils won't be much: An early survey of the field reveals only modest growth. And most of that will likely go to cable, leaving some broadcast networks scratching for gains.

Early assessments of the market—very early— indicate that upfront advertising commitments to national broadcast, cable and syndication will hit $18.5 billion-$18.7 billion, up 4%-5% from the $17.8 billion generated last year.

Of the expected gain of up to $900 million, insiders believe that cable networks stand to scoop up $600 million or more. Broadcast networks combined could be flat like last year or up slightly, by as much as $200 million. But some are likely to be down. National syndication would get the rest. The final tally will come in June.

“I don't think it will be up to the degree it was last year,” says Ray Warren, managing director, OMD, pointing to 2004's 6% overall growth. “There is clearly experimentation with other forms of media, partly over TV pricing, partly over the lack of belief that 'I need to do the same thing I did last year.'”

Changing fortunes

That's not to say there won't be plenty of drama as the networks drive their hardest bargains. CBS is No. 1, but not by much. For the first time in years, ABC suddenly has leverage: Young-adult ratings are up 14%, and advertisers are clamoring for time big-reach shows Desperate Housewives and Lost. NBC's leverage has dissipated as it has plunged from first to fourth place among adults 18-49.

American Idol has saved Fox's Nielsen averages from a disastrous fall season, but that alone won't necessarily rescue the network in the upfront. Much of the rest of Fox's lineup is a yawner.

CBS Chairman and Viacom Co-President Les Moonves crows about his network's ascent to the top. “We expect a much larger share of the market than we've ever had before,” he says, noting that up to 40% of the money advertisers commit during upfront is spent on Thursday nights. “The fact that are now dominant that night is very significant.”

Cable networks hope to repeat their success of last year. Buyers jumped to cable to evade the high broadcast rates. Instead of negotiating with cable only after finishing deals with the likes of CBS and NBC, buyers turned to cable for price breaks and committed hundreds of millions of dollars before broadcast networks had even finalized their fall schedules.

Turner Entertainment Sales President David Levy says he wrote more than 85% of his upfront business for TBS and TNT before the broadcast negotiations even commenced. He expects similar success this season.

Broadcast networks haven't lost as much audience to cable this year. Broadcasters have lost only 1.9% of their 18-49 audience this season, versus 6% last year. Meanwhile, cable continues to climb by about 4%. “It's the same trend: We're in a growth mode, they are in a decline mode,” Levy says. “There's a diminishing return from broadcast.”

There's an increasing disconnect between commercials sold during the annual spring prime time upfront and what networks actually collect by the end of the season. Every year, series get cancelled, and all advertisers have the option of rescinding a big piece of their orders.

Even though the original agreements may be altered wildly by the end of the season, the networks still collect hundreds of millions of dollars in this arcane—some say archaic—bazaar that centers on the second week in May when the broadcast networks unveil their fall schedules.

Right now, broadcast networks are still early in their program-development process, and many advertisers have yet to tell their media-buying agencies how much they're planning to spend.

Sluggish scatter market

Why such a dull financial outlook? There's little exciting in the broad economy, particularly given the slowdown among the biggest TV advertisers of all, car manufacturers. Further, advertisers are increasingly annoyed at the climbing cost of TV, sending them looking harder at other media, particularly the Internet.

“We don't see anything out of the ordinary that would make it a tremendously bullish marketplace,” said Initiative Media SVP Ray Dundas. “We see more situations where it would be flat to slightly negative.”

Perhaps the best evidence of a modest upfront is the sluggish scatter market. In a healthy market, a 30-second spot typically sells for 10%-15% more than spots sold in the previous spring's upfront. Networks report that scatter prices are flat to slightly above upfront prices and there's no shortage of inventory. “There's nobody out-of-sale,” says one broadcast sales executive.

And pricing won't be helped by the tightness of the ratings race. The worst of the Big Four broadcast networks lags the best by just 400,000 viewers. A year ago, the gap was triple that.

“Only three-tenths of a rating point separates the four networks right now,” says Randy Falco, president of NBC Universal Television Networks Group. “That dampens price. It always has. I haven't seen this kind of network parity since 1991 and 1992.”

Less animosity

The nasty tone between buyers and sellers is less pronounced than in the 2004 market. That should be evident this week as ad executives gather in New Orleans for the American Association of Advertising Agencies' convention. At the very beginning last year, agencies declared war on broadcasters and threatened to move $1 billion from broadcast to cable. They were still burning over the 2003 upfront, when advertisers sharply increased their budgets at the last second and sent upfront prices unexpectedly soaring, with costs per thousand (CPMs) increasing an extraordinary 15%.

The threats largely worked. In 2004, broadcast networks settled for CPM hikes averaging 7%. Cable networks got their now-standard 8% increase and collected an extra $600 million. (Before the upfront commenced, B&C estimated that cable would grow by $700 million.)

The upfront market balances buyers' and sellers' views of how strong the general ad market will be next fall and winter. If they think the market will be sluggish—as it is today—buyers may be able to get better prices by waiting to buy time in the scatter market. If they see a surge in demand, buyers will want to lock in prices now.

Sellers go through a similar calculus. Facing weak demand in last year's upfront, ABC President of Sales Mike Shaw held inventory back. That bet largely paid off when ABC's schedule hit in the fall and ABC had a lot more ratings points to sell.

But his success was tempered by weak demand in a relatively soft scatter market, keeping ABC from fully cashing in on Desperate Housewives and Lost.

In the coming selling season, such positioning will be common. Major broadcast and cable networks have about 1.7 million 30-second spots to sell, and buyers have $18 billion to spend.

“Everybody just can't buy American Idol,” says Moonves.