A "material decline is probable given ratings declines, the disruption in the development cycle due to the recent writers' strike and economic woes," Jessica Reif Cohen of Merrill Lynch said in a report published yesterday.
Next week, the broadcast networks will meet with advertisers, presenting their fall schedules in what are expected to be less lavish circumstances than in past years. Production disruptions from the 100-day Writers Guild of America strike, as well as uncertainty about the economy, have contributed to the more conservative approach. Some networks this year are eschewing Broadway-show-style presentations, which generally mark the start of negotiations to buy ad time for the new TV season.
'Bull case scenario'
In what Ms. Reif Cohen called her "bull case scenario," the broadcast networks would take in $8.79 billion in prime-time ad commitments during the upfront, down 2% from last year. Including daytime, late night and news, the broadcasters' take would decline 2% with commitments of $11.05 billion, she said.
In prime time, Ms. Reif Cohen projects Fox up 2% to $1.85 billion, but the other big broadcasters taking a hit. She sees CBS off 3% to $2.2 billion, ABC falling 2% to $2.35 billion and NBC down 1% to $1.78 billion. The CW's total is expected to decline 15% to $560 million.
Prices may rise 4% on a cost-per-thousand viewer, or CPM, basis, she said.
In Ms. Reif Cohen's "bear case scenario," upfront spending for the broadcasters in prime time would fall 14% to $7.73 billion. Including other parts of the programming day, broadcast spending would decline 12% to $9.88 billion by her reckoning.
Under the gloomier forecast, Fox's take would be down 12% to $1.59 billion, ABC sales would drop 15% to $2.04 billion, CBS would be down 15% to $1.93 billion, NBC would decline 13% to $1.57 billion and the CW would plummet 15% to $560 million.
CPMs would be flat under that scenario.
Availability of inventory
"The key question for whether commitments are really down materially may be sellout," Mr. Reif Cohen said in her report, referring to ad inventory.
"If networks truly believe in a fourth-quarter recovery, then they may decide to hold back inventory and try their luck in the scatter market," she said.
"Conversely the difficult macro environment could lead the networks to offer more flexible cancellation options for advertisers" to bring more dollars into the market.
Ms. Reif Cohen said this year's situation mirrors the bear markets of 1991 and 2001, when prices were flat, ratings were down and networks sold 5% less of their inventory during the upfront.
The analyst said that cable networks appear to be better positioned.
In her bullish scenario, the cable upfront would rise 5% to $8.06 billion. In her bear case, it would decline by 3% to $7.45 billion.
"While ratings strength and CPM increases would suggest more upside, the economic slowdown could constrain growth," she said.
Syndication is seen as coming in flat in the best case scenario and down 10% in the bearish case, Ms. Reif Cohen said.
~ ~ ~
Jon Lafayette is a senior editor at TV Week.