Mad dash: Upfront hits $9.3B

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The strongest broadcast prime-time upfront in years concluded with a 15% increase to a wildly strong $9.31 billion, but with the economy moving at low single-digit growth rates some analysts fear other media will pay the price for TV's success.

"It hasn't made sense for the last 18 months. The media economy has been out of sync with the general economy," said Mel Berning, president-national broadcast for Publicis Groupe's MediaVest Worldwide.

Merrill Lynch expects real gross domestic product this year to improve only slightly to 2.1%, and most marketers said they had no plans to raise ad budgets.

"There is a disconnect with what the manufacturing industry has been doing with its pricing, and media pricing," admits one veteran network sales executive. "Where is all this money coming from? The hell if I know."

One media executive who sells TV, print and online has an idea: "They are taking money out of magazines, from direct media and promotional budgets. But there also appears to be a lot of money coming out of scatter that is moving up."

Whereas a strong upfront is usually viewed as an indicator of the health of the overall ad market, this year's robust commitments worry other media executives."Obviously dollars will shift between mediums," said Nick Matarazzo, senior VP-director of corporate sales, Hachette Filipacchi Media U.S. One senior magazine executive, who insisted on anonymity, was puzzled by marketers flocking to TV: "The upfront continues to increase, which blows me away, because [TV] audiences continue to decrease, and marketers seem to disregard that."

Network advertising sales executives are happy, but not all were gloating.

"It is difficult for advertisers to deal with these price increases," said Jon Nesvig, president-advertising sales for News Corp.'s Fox Broadcasting Co. "But the flip side is that TV is still working for them. They are obviously looking for alternatives. But it's still important to get the reach that only broadcast provides."

validation?

While the networks view the past week as a validation of their business model, others view the market differently.

"The cost of doing business, which is the cost-per-thousand, has gone up tremendously, but that is driven by the fact that so many people are throwing so much money at an ever decreasing supply," said Jon Mandel, co-managing director of Grey Global Group's MediaCom, New York. "If someone is a genius they'll say instead of buying the [gross rating points] I can't buy in TV, instead... I'll spend it in radio or print, out of home, whatever."

The soaring market leaves questions in the minds of some media sellers and buying executives whether the upfront commitments will stick. Some believe advertisers may have been stampeded into buying too much inventory and could have buyers' remorse in a couple of months, said media buying executives. This happened in the 2000-2001 broadcast season when some $500 million was dropped before the start of the season. Advertisers could do that again or cancel money after the season begins.

"It's something we've factored in, how much is going to stick in the fourth quarter and the rest of the year," said Jo Ann Ross, president-advertising sales for Viacom's CBS. "We thought last year's money wasn't going to be real. But from `hold' to order, we didn't see that."

some hope

The idea of cancellations do give other media executives hope. "You have to remember that money placed in the upfront has thoroughly generous cancellation policies. Advertisers are buying themselves insurance that they will get access to enough television, should their marketing plans indicate they'll need it," said Jason Klein president-CEO of the Newspaper National Network.

Categories that increased TV spending for this upfront include retail, pharmaceutical and some telecommunications, according to media buying and selling executives. The automotive and movie categories were flat.

Media buyers and sellers report that CBS, Fox, Walt Disney Co.'s ABC and General Electric Co.'s NBC sold more than 80% of their inventory. With the upcoming season including both elections and the Olympics, executives anticipate scatter will be even more scarce than this past year.

Domino's Pizza is one marketer already planning to circumvent the scatter market by buying upfront. "We know there will be more demand because politicians will be competing with companies for ad space so there will be more people competing for time," said a Domino's spokesman.

Another restaurant marketer who declined to be identified pointed to the past sticker shock of the scatter market as the driving force behind this robust upfront market. "I expect that the scatter market will be tight on inventory next year, and that there will be little money left to spend anyway," the executive said.

Some major cable networks such as Vivendi Universal's USA Cable are 70% sold. But others are holding back in the hopes of filling the scatter shortfall anticipated at the broadcast networks. AOL Time Warner's TNT and TBS are about 40% sold. Discovery Networks has inked about 50% of its upfront deals. Hearst Corp. and Walt Disney Co.'s Lifetime has 44% of its inventory sold.

Projections are that cable networks will ink deals with CPM increases of 8% to 11%, depending on the network. Last year, cable garnered $4.4. million in upfront spending.

contributing: mercedes cardona, jon fine, bradley johnson, kate macarthur

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