Broadcast Upfront Could Be Down as Much as 20%

First Serious Decline Since 2001 Will Still Lead to at Least a $7B Take

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NEW YORK ( -- Early predictions for this year's TV-upfront market are grim. The betting on Wall Street is that the broadcast networks will see a 10% to 20% decline from the about $9.23 billion in commitments from marketers secured last year, which could mean the networks will be lucky to notch a take between $7.4 billion and $8.2 billion.


How the networks stack up
That would be quite a cut -- and would mark the first serious decline in upfront dollars since the economic downturn of 2001. That year, the broadcast networks secured around $6.7 billion in upfront commitments, according to Advertising Age -- noticeably down from estimates for 2000 that range from $7.8 billion to $8.3 billion. Commitment volumes represent only an intention to buy, not cash in the coffers, but they are taken as directional indicators about the health of each network as well as broadcast and cable as individual media. Last year, cable increased its take 10% and 15% to book $7.5 billion, while syndication posted about a 4.5% increase to $2.4 billion.

Add to this an abysmal automotive category (could car makers under threat of bankruptcy have to pay for their upfront buys in cash?), as well as expected reductions from retail, pharmaceuticals and financial services, and it's clear that seeing the upfront's future this year is anything but easy.

There have been dips in the more recent past: In 2006, upfront spending fell to between $9.2 billion and $9.4 billion, from about $9.5 billion in 2005. The economy wasn't the main factor at the time. Instead, marketers were demonstrating broader concerns about the effectiveness of TV advertising. For the last two years, broadcast TV upfront commitment totals have hovered in the $9.2 billion range, as advertisers wrestled with new ratings that take into account ratings erosion as well as measuring DVR playback.

This year, of course, the economy is squarely at play. National advertising is "atrocious," Wachovia analyst Marci Ryvicker said in a recent research note, and total upfront dollars "are expected to be down double digits." Meanwhile, ad rates for "scatter" advertising, or inventory purchased much closer to the time it airs, are holding at or below pricing for last year's upfront, she said. Several network executives report that demand for second-quarter scatter is coming in stronger than expected, with domestic automakers among those putting down cash. All this means more power in the hands of marketers.

Or does it? As always, there's another side to the negotiations. Look for the broadcast networks to hold back a heavier-than-usual amount of inventory in the hopes that the economy improves toward the end of 2009 and into 2010. That way, they can get better "scatter" prices -- and perhaps more revenue. After all, as network ad-sales chiefs will tell you, they are less concerned with the shadowy upfront totals everyone reports -- and which merely represent a commitment to buy, not hard cash in the bank -- and more focused on the 52-week total they deliver to their parent corporations.

"Advertisers are going to spend when they're comfortable," said Mike Shaw, president-sales and marketing at Walt Disney's ABC, during a recent industry confab sponsored by Television Week and Advertising Age. But they also might feel they have to spend sooner rather than later, suggested Marianne Gambelli, president-NBC Universal Network Ad Sales, speaking during NBC's recent "infront" sneak peek at its fall slate; after all, if the economy improves, scatter pricing is likely to increase.

The networks won't go home empty-handed. Retailers need to secure time around the holidays to goose Christmas sales, and movie studios need to get good inventory on Thursday nights to drive opening-night box-office totals. But if the economy stays in a holding pattern, marketers won't feel the urgency they have in past negotiations. "I don't see the rush," said Lisa Herdman, VP-director of national programming at independent agency RPA. "Both sides would benefit from taking a wait-and-see attitude."

Below, some dynamics to watch for as the networks pitch and the buyers hedge:

  • More market share for CBS? As the Tiffany Network will be glad to tell you, it's the only broadcast network this year that has increased its ratings in many important categories, including viewers 18 to 49. The question is, with so many marketing budgets crimped, will CBS be able to sell the ratings it's accumulated at what it considers a good price? Unless undermined by rivals seeking to make a quick sale and drive volume, CBS and ad-sales chief Jo Ann Ross have a good chance to set the tone of the market, and she has the Super Bowl to sell this year.
  • The Leno effect: With NBC introducing a five-night-a-week comedy/talk show featuring Jay Leno at 10 p.m., buyers expect ratings for the hour to decline. Will marketers flee to higher-rated ground at ABC and CBS? Will NBC stem the tide by offering up creative solutions such as live ads featuring Mr. Leno himself? The Peacock's scheduling gambit could spur share shift, or introduce advertisers to new ways of purchasing inventory. Either way, it's a game changer.
  • What role will cable play? Buyers expect cable -- particularly those channels with strong original programming -- to steal at least some dollars from broadcast. Cable offers a solid argument for advertisers looking to attract specific swaths of audience, whether it be crowds that flock to programming aimed at teens, or fans of food shows. Broadcast executives often scoff at cable's threat, and cite the broader range of programs available on their networks.
  • As marketers drill down deeper on individual shows, however, the old arguments may no longer apply. "I care more about the program than the network that it's on," Peggy Green, vice chairman of Publicis Groupe's Zenith Media, recently said. That could be cause for concern. That said, Barclays analyst Anthony DiClemente remains concerned that "broadcast-TV network pricing/volume weakness could unfortunately spread to cable TV."

    Ed Erhardt, ESPN's president-ad sales, said many clients are heartened by the influx of reports that the economy may start to see an upswing by the end of 2009, which could lend a sense of optimism to the futures market that traditionally plays out in the upfront. "The upfront is a precursor of what is going to happen in the economy, so it might surprise people that people are trying to buy into a better economy," he said. "There are companies that clearly see this upfront as an opportunity. If you are in a category where you believe you can make some hay right now, and have competitors who are either distracted or not as aggressive or wanting to sit back and wait, it will be interesting to see how the fight progresses."

  • Integration as a bargaining chip: With fewer dollars available, look for networks to try to secure relationships by opening up new product-placement opportunities. Already, ABC allowed Paramount Pictures to fly the Enterprise space ship from "Star Trek" though the "O" during the title shot on "Lost," one of its top shows. While "Lost" producer J.J. Abrams is director of the new "Star Trek," ABC has indicated it's willing to make the opportunity available to other marketers. By allowing access to key moments in favorite TV shows, networks might be able to secure ad dollars they may not get otherwise. The question remains, however, whether viewers will greet the development with as much gusto as the marketing community.
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