Fall chill settles on TV marketplace

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Signs augur possible decline in overall spending

Fear of getting burned in this year's short-term national TV marketplace drove a record $15 billion into last summer's red-hot 1995-96 upfront buying season. But now the selling climate is taking on a bit of a chill.

Troubling signs are emerging in the TV marketplace that point to a possible downturn in overall media spending.

Industry prognosticators had predicted media spending--particularly national TV buys--was recession-proof at least through 1996, because of a recent surge in demand and the fact that the industry is entering an Olympics and presidential election year.

Those factors contributed to the surge in last summer's upfront, which saw total prime-time network spending increase 27% from the 1994-95 upfront to $5.7 billion and prices jump as much as 20%. Advertising Age estimates the total upfront marketplace for all network dayparts, cable syndication and fledgling UPN and WB networks was $15 billion.

But now many buyers and sellers believed the record upfront spending was merely a case of shifting budgets from the short-term "scatter" marketplace to the advance buying season and that advertisers simply inflated their upfront allocations.

Indeed, the scatter marketplace has slowed to the point that even network sales executives are describing it as "cool." "The market has gotten a little soft," said a top broadcast network sales executive.

"We are not writing as much business," said Larry Hoffner, exec VP-network sales at NBC. But, he added, "rates are holding. Fourth-quarter scatter has gotten slow, but we think there's still a little money out there."

Slow is the operative word. Media buyers said there have been virtually no scatter deals since the upfront market concluded late last summer and that any national TV deals done since then were renegotiations of those upfront commitments.

Other indicators of a slow-down include: A significant decrease in the price of fourth-quarter scatter time relative to upfront ad rates. A significant but not abnormal amount of early cancellations of first-quarter network ad buys. A record surplus of basic cable ad units that could flood the national TV marketplace and further depress pricing. Anxious phone calls last week from ABC sales executives fishing for buyers interested in opportunistic daytime scatter deals.

As for fourth-quarter scatter ad rates, buyers said scatter prices--which had been making significant double-digit increases above upfront prices for more than a year, and which rose as much as 35% above upfront prices in last year's fourth-quarter scatter market--now are being negotiated at only slightly higher, or at upfront prices. Some buyers claim to be discussing prices below upfront for surplus areas like ABC's daytime schedule.

Even basic cable is seeing a slowdown, after a record sales year that pushed total cable upfront sales up 55% to $1.7 billion.

"The heat is off," said a top cable network sales executive. "But it's not dead either," said another, noting that he expected scatter prices to still rise at moderate single-digit rates.

That moderation may not be of concern to cable networks, most of which already have made their annual sales budgets due largely to incredible pricing gains during the upfront.

As of early October, ESPN, MTV Networks and Turner Broadcasting System, which combined represent about 60% of all cable TV ad sales, are believed to have made their 1995 budgets. There are expectations that tens of millions of dollars in cable ad budgets may still remain in the marketplace, albeit at more moderate rates.

The big issue for cable and the rest of the TV industry, is the abundant ad inventory the big networks are sitting on. Because they were able to make budgets during the upfront via aggressive price increases, many of the top cable networks sold much less of their ad units than normal and are said to have as much as 30% of their total 1995-96 ad inventory left to sell in the scatter marketplace.

National syndication avails were virtually sold out in the upfront and the Big 4 broadcast networks, which sold a high percentage of their ad time in the upfront, may need to use the balance for makegoods to advertisers to compensate for ratings underdelivery this season. To date, the Big 4 are down 7.1% in prime-time ratings.

As a result, basic cable could reap a windfall from whatever remnant demand exists in the scatter marketplace, but at issue is how the balance of the inventory is managed. If the major cable networks dump their abundant ad time at cheap prices on what is already a slowed-down scatter marketplace, it could send prices and demand into a nose-dive that could affect the entire TV marketplace.

If cable networks hold back inventory and settle for slight incremental gains on what they've already taken in from the upfront, they may leave money on the table that could go to other media.

Most media executives expect cable networks to hold the line and release only a portion of their inventories to preserve pricing gains.

The extra cable avails will be managed "strategically," said a top cable sales executive. "We have alternative options to deal with excess inventory. We can use it to upgrade good advertisers. We can use it to deal with audience underdelivery problems we may be having. We can use it for opportunistic sales. And we could use if for direct marketing."

That latter category, which includes infomercial marketers, was a cable mainstay in the medium's early years, but has recently been getting bumped off of the stronger cable networks by more blue-chip advertisers. So direct marketers, who generally buy media time at a fraction of open market rates, have been finding it difficult getting time on quality TV outlets.

One thing cable sales executives said they're unlikely to do with their surplus avails is reduce their commercial loads or turn them over to their network on-air promotion departments.

Meanwhile, broadcast network executives are anxiously watching what The Baseball Network does with an abundant surplus of valuable post-season baseball units. As recently as early October, just before the regional playoffs, TBN is said to have had nearly 300 30-second units still left for sale.

Network executives fear the sales organization--a joint venture of ABC, NBC and Major League Baseball that ironically competes with ABC and NBC sales--could dump its remnant units on the fourth-quarter marketplace, drying up demand for network prime-time shows. TBN will no longer be in business after this season, and network executives said TBN may no longer care about getting maximum value for those spots.

As for first-quarter cancellation options, they have been extended beyond the Oct. 1 deadline due to holidays and because some advertisers haven't finalized their fiscal budgets for the year. But the early returns indicate a normal level of cancellations that amount to several percentage points of total first-quarter network inventory. Only 25% or less of first-quarter upfront buys are optionable.

Normally, that might not be reason for concern, but given the abnormality of this season and the other downward indicators taking place, observers said it is not a good sign.

"The nets are looking at fairly normal options, but the fact that options are being taken at all is an indication that the market is not as robust as people thought it might be," said Jack Myers, president of Myers Communications, New York, one of the ad industry forecasters that originally believed media demand would remain strong through 1996.

Mr. Myers said he believed there would be a second-wave of cyclical scatter activity later in the fourth quarter, or around the beginning of the first. But he said he still believes the overall media marketplace is softening.

Copyright October 1995 Crain Communications Inc.

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