Most observers believe the upfront season, the annual high-stakes mating ritual between advertisers and broadcast television networks, will generate fewer dollars this year than last year's record $8.2 billion. Maybe a lot fewer.
"Spending is going to be down significantly," says Dan Rank, director of television and radio buying at Optimum Media Direction, which places more than $1 billion in advertising for dozens of national clients.
The consensus among ad buyers and television-network sales executives is that this year's upfront, which begins next month, will be off as much as 10% from last year's levels, coming in at about $7.5 billion.
The problem is nobody really knows what will happen. A slowing economy, a shortage of blockbuster programs and the threat of a strike by television actors and writers leaves a lot of uncertainty in the prime time market. "The strike throws a huge curve ball, no question," notes Rank. "When you're looking ahead to fourth quarter, the networks probably don't know what programming they're going to have to put on."
Many advertisers have delayed assembling their prime time budgets as they track developments in the marketplace. At Optimum Media, only four of the firm's 29 prime time upfront clients had presented their budgets as of mid-April.
The prospect of a walkout by members of the Screen Actors Guild and/or the Writers Guild of America would mean more reruns, news, game shows and reality-type programs at a time when the viewing public is looking for new episodes of their favorite shows. Analyst Laura Martin, with CS First Boston, says that could create a huge problem for the networks in the fall.
"This will be negative for television if the strike lasts past Sept. 1," says Martin. "Most viewers are used to watching reruns and reality programs in the summer until you get into the new season when they start looking for new episodes of Friends and ER."
The networks have tried to put as positive a spin as possible on the situation. "We're pretty well prepared for it," says Jon Nesvig, president of sales at Fox Broadcasting. "We've got baseball to take us through the better part of October and a number of original scripted series already produced and available for us."
The addition of NASCAR auto racing to the Fox lineup also helps, as does the 2002 Super Bowl in January. Ratings for NASCAR have been above expectations, averaging a 7.2 rating/17 share. However, the network has not been able to turn that success into strong ad sales.
"Despite an impressive turn in ratings this season, Fox has had difficulty monetizing its ratings growth due to the weakness in advertising," wrote Merrill Lynch analyst Jessica Reif Cohen, in an April research report. Rather than reduce rates, Fox has given some of the unsold time to its affiliates—a move Cohen called a wise long-term strategy.
Newer networks such as Fox, UPN and The WB may be in a superior position because they attract younger audiences. "I love our position in the marketplace," says Bill Morningstar, senior vice president of media sales at The WB. "We are providing a unique product that is reaching young adults. It's hard to find a network like that."
"Those of us selling a younger demo are going to be in better shape because there are fewer places to reach the younger audience," adds Michael Mandelker, executive vice president of network sales at UPN. UPN is likely to be in even better shape come fall: The weblet has signed a two-year, $102.3 million deal to lure Buffy the Vampire Slayer away from The WB, the network the cult hit helped put on the map (see story in Programming).
There is an element of truth in Mandelker's assessment. If advertisers hold back, networks like UPN and The WB that have less inventory to sell should be in a better position to weather the storm. Networks with full prime time schedules may have to drop their prices in order to fill up available slots.
"This is going to be a buyers' market for the first time in many years," says John Lazarus, senior vice president of national broadcast operations at TN Media. "We are looking for" a CPM decrease this year, "as opposed to the double-digit increases we have seen recently."
That strong push upward was the result of a strong economy. Ad buyers rejoice when changing times force broadcasters to lower their rates or offer other incentives to generate ad dollars. "Soft is good," adds Rank. "Demand has far outstripped supply over the last few years, so they [broadcasters] were able to increase prices. This year, supply will exceed demand, and, when that happens, the power shifts to the buyers."
Not necessarily, broadcasters counter. Keith Turner, president of sales and marketing at NBC Television, says predictions of a deep slump are posturing. "Agencies will scream gloom and doom all they can and use every available negotiating ploy that is known to man," he says.
Joe Abruzzese, president of network sales at CBS Television, makes no bones about the upfront. "If we don't get our price, we won't sell it," he says. Mel Karmazin, president of CBS parent Viacom, has said the network might hold back a substantial portion of its upfront inventory to wait for a market turnaround.
While the possibility of a writers' and/or actors' strike is a concern, the bigger unknown is the direction of the economy. Recent interest-rate cuts and the semblance of a rally on Wall Street may signal an economic upturn that could lead to a stronger ad market. Then again, maybe not.
"We have to realize that everything is cyclical, and I don't think this particular cycle will last that long," says Mike Shaw, ABC Television Network president of sales and marketing. Besides, he adds, the market in 2001 looks so bad because 2000 was so good. "We are coming off the most phenomenal year in broadcast history," he says. "You can't take that as the new hurdle rate, add 'x' dollars to it and think you're home free. It just doesn't work that way."
Not all advertising categories are suffering to the same degree. Network executives say that ad demand for pharmaceutical clients remains strong, as does that from beverage makers and some automotive categories. "We have seen individual companies within each and any category that seem to be doing OK and other companies that seem to be having a real tough go of it," adds Shaw.
However the upfront turns out, ad buyers and network executives all remain upbeat for the longer term. "The upfront is just one part of the marketplace," notes Mandelker. "You have to take a view over the long haul, and that view looks pretty good." "The party is not over," Turner adds. "It's way too early to make those kinds of predictions."