The What-If Scenario No One Wants to Talk About - Broadcasting & Cable

The What-If Scenario No One Wants to Talk About

A cable network sales chief lays out potential situation for lower ad revenue if the economy flounders
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The drumbeat of reports signaling that the economy is faltering has grown loud enough that at least one senior cable advertising sales executive is now willing to admit that television is likely to be affected.

“I’m very fearful that this is going to be the last great quarter we have in a while,” said the executive, an ad sales chief at a prominent company that owns several large cable networks, who asked that his name not be used.

Until now, the national TV ad market has been largely unaffected by the concerns about slow growth, mounting debt and lingering high unemployment—all of which contributed to the stock market having recently concluded its worst quarter since the 2008 financial crisis.

CBS’ always optimistic CEO Leslie Moonves summed up the stance of most major media companies when he spoke at an investment conference last month. “I know the world wants us to say, ‘Gee, the economy is down and our advertising is down.’ That’s just not the case,” Moonves said. “The advertising climate is very strong.”

But last week, at least one analyst, David Joyce of Miller Tabak + Co., said he is in the process of “running ad growth slowdown scenarios on our models.” For the near term, he’s still expecting third-quarter earnings reports to be solid, and he reiterated buy ratings on many media stocks. But because of macroeconomic fears, Joyce lowered his target prices on the media stocks he is recommending, including Comcast, Disney, News Corp., CBS, Time Warner Viacom and Discovery.

What would an ad market slowdown look like? The cable sales exec said it has already begun, with volume in the fourth-quarter scatter market down about 10% from a year ago. Pricing, he added, remains well above upfront levels.

The sales executive noted that economists are beginning to predict negative gross domestic product for the fourth quarter and an unemployment rate back up to double-digits. “I think if we have the negative GDP and unemployment hits 10%, it could get a little ugly January through June,” he said. “All the economics are going to be forecasting recession, and that’s just going to make everybody skittish.”


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The next gauge of market strength is likely to be calendar upfronts, which will start to be negotiated in November. (Calendar upfront buys start in the first quarter, unlike the broadcast upfronts, which begin in the fourth quarter.)


“I think calendars are going to be down year-onyear,” the sales exec said, noting that a lot of calendar money was moved up to the broadcast upfront. Nervous though they may be, clients will still be willing to commit ad dollars in the calendar upfront, “but they’re going to want more latitude in terms of options and other outs,” the sales exec said.

At this point, the networks will be able to resist the pressure from clients and buyers for better terms on calendar upfront deals.

“They’re going to find they’re not going to get the kind of reaction they want because calendars represent such a small piece of the pie,” the sales exec said. To increase the pressure for bigger options, he expects that some buyers will try to convince their clients to let them cancel as much of their first-quarter buys as possible.

“It’s not going to be a watershed moment, but I think they’re going to take some more options,” the exec said. “If I were running a buying group, I would exercise as many options as I could, so it helps me negotiating outs on calendar deals and plant the seed for what might be coming down the road.”

The sales exec said he is budgeting for a 20% decline in scatter for the first half of 2012. That will offset some of the gains made in the last upfront, and pave the way to a 2012-13 broadcast season upfront in which network sales executives will be concerned about achieving their volume goals.

“I think clients and buyers are going to be able to make hay in the broadcast upfront,” the sales exec said. “I think every seller is going to be nervous about volume, and if they say ‘We’ll give you the volume, but we want to be able to get out of 50% or 55% of the first quarter [25% is now customary] and make it reasonable for us in case the shit hits the fan.’”

“I think they’re going to get a lot of flexibility. I think they’re going to get everybody in cable to bend over backwards, and the option game will change.”

E-mail comments to jlafayette@nbmedia.com and follow him on Twitter: @jlafayette

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