"The markets don't comprise a consistent message," said Leland Westerfield, equity analyst for UBS Warburg. "You are talking about a two-tier market." General-interest cable networks, such as USA Network, Lifetime and A&E, are getting lower programming prices than the year before-an opposite trend than the broadcast networks.
As a result, Mr. Westerfield believes the cable industry will see a tepid 7% increase in the fourth quarter as the fall season gets under way. Overall, he sees the total cable business-national and local advertising sales-only growing 1% in 2002.
Broadcast networks witnessed a substantial increase in dollars from advertisers in this year's upfront-the process by which the majority of TV ad time is sold for the upcoming season-and they sold high levels of their available commercial time. But if two or more major networks witness significant ratings drops-such as Walt Disney Co.'s ABC and News Corp.'s Fox did with double-digit ratings declines this past year-then networks will not only owe advertisers commercial "make good" inventory but also have less inventory to sell to advertisers in scatter, or network time sold during the season.
"The broadcast sellouts were so extraordinarily high," said Dave Cassaro, senior exec VP-sales and distribution for cable player E! Networks. "Given some level of success or failure with the new-season pilots, [the broadcasters] are going to find themselves in a place where they're going to have to pay out a lot of [make-goods]. And with that, they have two choices: One is to keep selling and not pay back their debt-which most advertisers won't stand for-or to pay it back and have less to sell in scatter."
There's also the question of advertiser demand for scatter. Advertisers were burned in the second- and third-quarter scatter markets this year because of high pricing, so a common theory goes that those advertisers-looking to avoid the same situation-merely shifted dollars into the just-completed upfront. All of that could mean little money will be left for the 2002-2003 broadcast scatter markets, according to media buying and selling executives.
In the short term, some hopeful TV sales executives say the fourth-quarter scatter market should show dramatic improvement in year-over-year comparisons, mainly due to easier comparisons against the depressed period that followed 9/11.
"The fourth-quarter scatter market certainly should be stronger than what we experienced last year, when the entire economy was so negatively influenced by world events," said Steve Gigliotti, senior VP-advertising sales, Scripps Networks, which owns the cable channels Food Network, HGTV, Fine Living and DIY.
Some say that's wishful thinking. UBS Warburg's Mr. Westerfield predicts the prime-time broadcast scatter market in the fourth quarter will fall 20%.
Conditions look weak in some other areas, such as spot TV (local TV that is bought locally or through national rep firms). Though Mr. Westerfield expects spot to see an 11% increase in the fourth quarter, most of that will come from political ads. "We are basically saying underlying growth in [national spot] will be at a negative 2% in the fourth quarter," he said.
Despite the mixed signals apparent within network, cable and local TV-not to mention the dot-com collapse, fallout from 9/11 and a sagging stock market-the overall TV market is stronger now than some expected it to be.
"It was a weird confluence of events and situations that you'd never seen before," said E!'s Mr. Cassaro. "None of the prognosticators predicted this. They predicted a recovery wouldn't even start until well into 2003. Well, here we are and it sure looks like the recovery started last second quarter and has just ramped up." But it could be a slow climb.