Dot-coms the critical upfront unknown

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Dot-com advertisers will play a more significant role in the TV upfront buying marketplace this year, say media buyers and network sellers, who, nevertheless, remain cautious about the long-term prospects for dot-com ad dollars.

Major online brands such as Yahoo!, America Online and E*Trade Securities are expected to settle on upfront deals, and a smattering of other dot-coms will cut long-term deals with networks, hoping to get better values by planning ahead.

SCATTER EFFECT

But the majority of dot-coms will spend their ad dollars in the scatter market as they did last year, says Bill McGowan, exec VP-ad sales for Discovery Communications. "I expect to see more dot-coms participating in the upfront, but it will be a handful of the larger players, and the majority will stick to scatter.

"Meanwhile, a lot of large companies are just now starting to develop their dot-com strategies, so I think we'll see a lot more growth this year from larger, established companies and somewhat less activity from these small, entrepreneurial guys whose main mission in doing TV advertising was getting exposure for their IPOs," says Mr. McGowan.

Don't expect another huge surge in dot-com ad spending like last year when total spending by Internet sites lept to $4 billion from around $650 million, according to Competitive Media Reporting. But some media buyers say total dot-com spending this year still will increase dramatically.

"Spending by dot-com advertisers will double this year versus 1999 because a lot of dot-coms didn't even begin advertising until the second half of last year," Mr. McGowan says.

"There will be less than 10 dot-coms buying in the upfront," says Tim Spengler, exec VP-director of national broadcast for Initiative Media North America, Los Angeles. "The majority will go into scatter, and I don't see the mad rush into advertising by dot-coms that we have seen over the last six quarters."

In 1999, dot-com companies spent $468 million advertising on cable TV, according to Cabletelevision Advertising Bureau. Media buyers contacted forecast total media spending for dot-coms to range from $7 billion to $10 billion in 2000.

SPORADIC BUYS

Like the dozen dot-coms that spent more than $2 million each for 30-second spots on the Super Bowl, most dot-com advertisers' media buys last year were sporadic, with uneven spending throughout the year and a disproportionate amount of action surrounding the holidays.

The falling fortunes of several dot-coms that previously were among the top spenders, such as Value America and CDnow, plus the recent ups and downs of dot-coms' stock market values, have cooled off expectations in dot-com spending overall.

CBS Corp. President-Chief Executive Officer Mel Karmazin told analysts recently that while dot-com advertising enriched the bottom line for CBS-TV last year, there were no dot-com advertisers in the company's Top 20 list of advertisers, and the company is not banking on a huge dot-com windfall this year.

Brad Adgate, senior VP-director of research at Horizon Media, New York, is taking a bearish approach to dot-com advertising, saying the ongoing consolidations among Web sites will result in less overall spending by dot-coms.

DECAY FACTOR

"There is a huge decay factor for dot-coms who have to constantly promote themselves to stay top-of-mind in a fast-moving universe, and a lot of these companies are losing a lot of money. The bubble will eventually burst, and this level of spending will not go on forever," Mr. Adgate says.

Other networks and media buyers are far more bullish. The WB says it was slow to attract dot-com dollars last year because of a lack of sales resources on the West Coast, but now it's experiencing a "healthy uptick" in dot-com advertising so far this year, and Jed Petrick, exec VP-media sales, expects that trend to continue.

"We've beefed up our sales operation around San Francisco, and we're reaping the results as a lot of dot-coms discover we can deliver the strongest audience of young adults on TV, which is a hot target for them," he says.

Without naming any advertisers, Mr. Petrick indicated WB expects to extend dot-com advertisers from the upfront season to include their dollars in the scatter market, particularly from Web sites offering music and filmed entertainment and job-hunting services.

ZDTV EXPECTS DEALS

Cable TV network ZDTV will not disclose whether it expects to land upfront media deals from dot-coms, but the company does expect a healthy increase in dot-com ads this year, despite the market's stutter.

"Dot-coms will drive a bump in the fourth quarter for us, and we think there is a lot more money from dot-coms in the pipeline -- we're just at the beginning of the dot-com revolution," says Annette Leiderman, director of East Coast ad sales for ZDTV. One advantage ZDTV offers, she says, is its policy of selling its on-air and online platforms together.

"The dot-coms are not going away," says Larry Goodman, CNN's president of sales and marketing. "The new economy is here to stay and although there will be a shakeout among players, those that remain will aggressively market their sites on TV and a slight setback in the Nasdaq won't affect those trends."

LITTLE EFFECT SEEN

He adds that he expects dot-coms' effect on the upfront to be "negligible."

Some media buyers say the billions of dollars that landed on the TV industry last year from dot-coms have given certain networks an inflated idea of the value of media.

"Dot-coms came in and spent a lot of money in the scatter market, and it's caused quite a few networks to develop an aggressive mindset in terms of pricing," says John S. Muszynski, chief investment officer of B Com3's Starcom Worldwide, Chicago.

"Some cable networks, in particular, experienced their first-ever sellout of inventory thanks to dot-coms, and now they're trying to increase prices beyond what's appropriate," he says. "They're not taking a long-term view."

Mr. Muszynski says he expects to see a "minimum" of dot-com deals in the upfront, with most dot-com advertising concentrated in the scatter marketplace.

"The dot-com money is showing signs of drying up. At some point it's going to stop raining money, and there will be a drought," says Mr. Muszynski. "Cable networks who bought into the idea that they could raise prices because dot-com money will keep falling from the sky will be left wondering what happened to traditional advertisers who went elsewhere."

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