$8.1 bil upfront holding up

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In a sign showing stability in TV advertising despite the unsettled economy, fewer ad commitments have been dropped than expected from the $8.1 billion in broadcast network prime-time TV deals agreed to last June. That's good news for networks, especially in the upcoming fourth quarter.

"I'm surprised," said Dan Rank, managing director of Omnicom Group's OMD, New York. "We're in pretty good shape."

"Not only have we not seen any breakage, we've seen advertisers want to add money rather than pull back," said Joe Abruzzese, president of advertising sales for Viacom's CBS Television Network. "I'm very surprised at that."

Major TV advertisers typically commit to buying a whole season of ad time during June for the upcoming season. But these are not purchases or even actual orders. These "holds" usually become orders by the end of August just before the new season starts.

Typically only 5% of holds are dropped before a season, according to media agency executives. For this year's $8.1 billion market, such a drop in holds would amount to $400 million. Media agency executives said that is how the new season's holds are currently tracking.

Two years ago, with the economy heading into recession, TV advertisers dropped 10% to 15% of holds-an unprecedented loss of revenue for the networks. Last season's upfront was so depressed, with less inventory sold, that dropping of holds was not a major issue.

Media executives were bracing for many holds to be scrubbed this season given a shaky economy that shows signs of heading back into recession. But holds-to-order appear on track overall, though some advertisers are pulling back. For example, Ford Motor Co. is said to be dropping some late-night buys on CBS and General Electric Co.'s NBC. A Ford spokeswoman said the company doesn't comment about these issues.

no repeat

"There's a way to go," said Rino Scanzoni, president of national broadcast for WPP Group's Mediaedge:CIA. "But the feeling out there is this is not going to be a repetition of two years ago when there was a significant amount of breakage between holds-to-order. But the jury's still out. We'll probably have a much better picture after Labor Day."

Networks are already rejoicing. Fewer dropped holds mean less inventory to sell during the season. This is coupled with the fact that in the upfront-the late spring and early summer period when advertisers place holds for the coming broadcast season-networks sold a higher percentage of the season's inventory, in the 83% to 88% range. That means an even tighter supply of commercial inventory for those buying in scatter, the time bought during the season on a quarter-by-quarter basis.

higher prices

The result: higher prices. At some networks, prices for fourth-quarter commercial time in the scatter market are running 20% to 25% above the prices advertisers locked down in the upfront.

Fall TV prices could be affected again as a result of the slow pace of concluding upfront agreements. "The market dragged on because of cable," said Doug Seay, senior-VP and director of national broadcast for Publicis & Hal Riney, New York, part of Publicis Groupe.

In turn, holds presented to advertisers from agencies for approval are now slow in becoming orders. This could help CBS, as well as other networks, make even more money.

"If we get to a sellout position we may have to force people to either make it an order or else [tell them] `we're going to sell it out from under you,"' said CBS's Mr. Abruzzese. "It's just a good business decision. If we don't get orders by Sept. 10, say, we're going to have to make some hard calls because I can sell it for more money. You either have to order it or we have to drop it."

One media executive found this position stunning: that the network, not the advertiser, would drop business. "Are you going to tell someone like Visa you're dropping its holds?" asked OMD's Mr. Rank. "This would be incredible." Visa International is a client of OMD USA.

Yet while scatter prices are strong for the fourth quarter, that won't necessarily translate to a huge gain for networks. This is because inventory is limited and many advertisers shifted scatter money into the upfront, reducing demand for scatter.

The move from holds to orders will commit advertisers to the season's buy. Advertisers then are locked in to their fourth-quarter upfront buy; they do have an option to give back a percentage of upfront buys for the first, second and third quarters. After fourth-quarter scatter sales are completed, the next big issue for networks is what happens with cancellation options for the rest of the season.

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