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Don't Expect TV Sellers to Exceed Last Year's $9.1B

Credit Crisis and Focus on Accountability Likely Downers for Upfront

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NEW YORK (AdAge.com) -- The upfront will not be up this year. At least, that's the conclusion two Wall Street analysts have reached.

Pointing to marketers worried about a sputtering economy, a credit crisis and a looming recession, analysts expect advertisers to hold tight to their purse strings and cut back on ad spending on TV, moving money instead to cheaper and more-accountable media venues.

Upfront shakeout
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See how Ad Age is calling the upfront for each network.
Jessica Reif Cohen, an analyst with Merrill Lynch, went so far as to detail a best-case and worst-case scenario for the networks, but both predict the final tally will be below last year's. In her best case, the broadcast networks would take in $8.79 billion in prime-time ad commitments, down from last year. Including daytime, late night and news, the broadcasters' take would decline 2% with commitments of $11.05 billion.

In prime time, she projected Fox up 2% to $1.85 billion, but the other big broadcasters would take a hit. She saw 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.

In Ms. Reif Cohen's worst-case scenario, upfront spending for 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 estimate. In 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 in that scenario.

Declaring victory
In recent years, the total commitment from marketers to the broadcast networks has ranged from $8.5 billion to $9.5 billion in advance of the fall prime-time TV schedule. This year features a dynamic that -- for advertisers and media buyers at least -- ought to be as dramatic as anything they'll watch on "Grey's Anatomy" or "Law & Order." Networks will try to command increases in CPMs, a common measure in these negotiations. And they will do so despite a rapidly dwindling supply of ratings. They will point to these price hikes and declare victory.

For the networks however, such a win could be quite hollow. "The upfront is going to be flat to slightly down," said Marci Ryvicker, a broadcasting analyst for Wachovia. "The industry is softer."

Network executives are hoping a lack of inventory will help boost the amount of money committed by marketers. When ratings begin to ebb, as they have this TV season, it takes more TV ads to reach the same number of people they might have in years past. Supply gets tighter and prices go up. That could lead more marketers to lock in more supply at lower "upfront" prices. Tight scatter usually forecasts a robust upfront market. That's what helped the total for upfront commitments for the 2007-08 season rise to about $9.19 billion, up from a relatively lackluster $8.95 billion for the previous season. But the economy might trump that this year.

No matter how much TV's top ad-sales executives talk about broadcast's broad reach and the high quality of shows such as "Lost," "30 Rock" and "American Idol," if the money isn't available, there's little they can do.

One media buyer cautions against listening to talk of network price increases. "They'll get increases on CPMs, and they are going to trumpet that. Now, does a CPM increase with reduced supply translate to increased dollars? Probably not," said Ira Berger, director-network broadcasting at Richards Group, an independent Dallas agency. "If you're down 10% in supply, and you secure a 7% increase, you're down total dollars. The networks are going to need big increases just to maintain the dollars they have."

Handicaps
Indeed, networks face a cascade of undermining factors this year. Thanks to this season's writers strike, networks will have fewer new shows to offer, which likely means it will be hard to generate much excitement among viewers in the fall. Tighter ad inventory has been more the result of a need to provide make-goods due to ratings shortfalls, not increasing demand from advertisers. And much worse: During the strike, Ms. Ryvicker said, "advertisers were actually able to go elsewhere." Their experiments have included out-of-home video and cinema advertising, not to mention re-examining their relationships with traditional media rivals such as cable and print.

Consumers are wrestling with credit issues, inflation, price hikes in gasoline and commodities, and a decelerating real-estate market, said Rino Scanzoni, chief investment officer at WPP Group's Group M. "These are all things that are going to have to really start tempering consumer spending, and we're seeing that already," he said. "I don't think that that's going to bode well for the TV market and the general market."

Media buyers have a stake in keeping the market cool, not hot. They don't want to tip their hands before negotiations commence. But even network executives have hinted that the economy will put a damper on things. While noting that the upfront ought to be "fine" during a recent "Upfront Summit" held by TelevisionWeek and Advertising Age, Geri Wang, senior VP-president of prime-time sales at Walt Disney's ABC, said, "There's no doubt we are in the middle of the recession, and the upfront might be affected."
Ira Berger, director-network broadcasting at Richards Group
Ira Berger, director-network broadcasting at Richards Group

To get a sense of how things might shake out, all you have to do is follow the ratings. Group M estimates that audiences between the ages of 18 and 49 -- advertisers' favored demographic -- will contract by approximately 13% across all five broadcast networks during the 2007-08 TV season. Season to date as of Sunday, May 4, Fox was up 5% among audiences between the ages of 18 to 49, according to Wachovia's Ms. Ryvicker. Meanwhile, ABC was down 16%, CBS down 23% and NBC down 11%.

In total households, Fox was up 4%, with CBS down 18%, ABC down 8% and NBC down 11%. Among audiences between the ages of 25 and 54, Fox was up 6%, while CBS was down 21%, ABC down 13% and NBC down 11%. Those figures would seem to suggest that Fox could charge moderately higher CPMs and might even see some uptick in volume, while the others would have to charge significantly higher CPMs just to stay in place. Most media buyers expect the fledgling CW to see its upfront volume decrease, owing to its lackluster ratings performance in the past season.

Big umbrellas
Networks have certainly been cognizant of marketers' desire to place ads in venues other than TV. So if the take for broadcast TV could be flat to down, why not cast a wider net to catch some of those escaping dollars? Both NBC Universal and CBS are set to hawk their wares company-wide, not just on their broadcast networks. CBS will talk about radio and its outdoor holdings, to name a few non-TV assets under its umbrella. For NBC, that could include its cable operations, out-of-home video opportunities or digital venues such as iVillage.

With ratings sliding on network TV, cable networks may benefit as media buyers add them to schedules in an effort to augment broadcast buys. That could bode well for large players such as NBC Universal, Turner and ESPN, which frequently match their broadcast counterparts with their original programming and got an additional ratings lift in first quarter.

"Cable did pretty well during the writers strike. We saw a nice bump when the broadcast networks took a decent hit," said John Swift, exec VP-managing director at Omnicom Group's PHD. Last year's cable upfront came in at about $6.9 billion, up at least 6% from a $6.5 billion take in the previous year. Syndication came in at about $2.06 billion.

Based on the increased share cable can claim over broadcast viewership (cable comprised 46% of prime-time viewing vs. broadcast's 34.7% share in the first quarter), another high single-digit percentage increase in upfront dollars seems likely.

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Contributing: Andrew Hammp; Jon Lafayette, senior editor, TVWeek.
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