The TV advertising market is going on a new road trip. And while all roads don't necessarily lead south, TV's engines are definitely slowing.
A survey of TV buyers and sellers found that the $8.2 billion broadcast upfront market, which hit a record last year, might see a small 1 percent gain, at best, when the annual TV buying fest resumes in late May. This would be a steep drop from gains made in May 2000, where the marketplace rose 17 percent in total dollars vs. the year before.
But a far worse - and probable - scenario could see the upfront market shrink in 2001 from the $8.2 billion level. This could be the first time in nearly a decade - since the 1991-1992 broadcast year - that the overall upfront market declines from the year earlier.
"It's possible the market could be down from the $8.2 billion," said Tim Spengler, exec VP-general manager of Interpublic Group of Cos.' Initiative Media North America, Los Angeles.
One noted prognosticator, Robert Coen, senior VP-forecasting at Universal McCann, New York, points to a scant 1 percent gain in advertising in 2001 for the broadcast networks and a 12.5 percent gain in cable vs. growth of 12.5 percent for networks and 20 percent for cable for 2000.
But these are just good guesses. Getting a good read on the market for early 2001 and the May 2001 upfront market is still a tough task.
"Anybody that is talking about it is just positioning," said Mike Mandelker, exec VP-advertising sales for UPN. "Nobody knows what is going on yet."
Mr. Mandelker said a better indication is to track sales activity in the second quarter, when the upfront market takes place.
Cable executives see a clearer picture. "Total national ratings aren't growing. Therefore, you are still going to see increases, and cable is in a better position than broadcast," said Joe Uva, president of entertainment sales and marketing for Turner Broadcasting Sales. "Cable growth will still be in the double digits."
But don't hold your breath, for the TV marketplace changed drastically in the fourth quarter. For the first time in anyone's memory, advertising deals inked during the upfront were pulled, shocking television programmers.
Typically, deals for the fourth quarter are 100 percent firm, meaning advertisers generally are not allowed to make any adjustments. But just before the fourth quarter started, about $400 million was lost across a broad range of categories, including retail, automotive, telecommunications and package goods, according to executives.
These wild TV ad fluctuations could now be part of the process for the TV ad market - a new process that could force a declining upfront market. "If you are making upfront buys in May, you are buying inventory up to 16 months out - that's difficult to do," said Steve Grubbs, CEO of Omnicom Group's OMD North America, New York.
Media analysts say that for the first time, TV advertisers responded directly, and hastily, to the slumping stock market prices of their companies. As earnings fell and stocks came tumbling down, marketers looking for an immediate expense savings quickly cut back on their planned TV advertising.
From early indications, the first-quarter national advertising market looks more stable than it did in the fourth quarter. For example, two different networks - UPN and Lifetime - both experienced normal 5 percent to 10 percent cuts in advertisers' upfront deals for the first quarter.
Lynn Picard, exec VP- advertising sales for Lifetime, said of the first quarter: "We are pacing as the same as last year. Overall, the money is trickling in a little bit slower."
Paul Schulman, president of Schulman/Advanswers, New York, said an early indicator of how the next TV season's upfront market will fare will be if new "scatter" money is placed in the first quarter.
Some networks are looking better than others. CBS is feeling good, and here's why: It has been briskly selling major big-ticket advertising inventory such as the Super Bowl in January; "Survivor: The Australian Outback," starting right after the Super Bowl and airing into February; and the NCAA Tournament in March. All these programs weren't sold in the upfront, which shows the strength of their programming. In addition, because these shows replace some of its regularly scheduled series in primetime, this tightens the remaining supply of CBS' regularly scheduled series inventory. This, the network hopes, should force up prices.
At the UBS Warburg media conference in New York in December, Sumner Redstone, chairman of CBS parent Viacom, said 95 percent of primetime was already sold out in the first quarter. For 2000, he said, overall Viacom advertising would end up 13 percent, and for 2001 he said he expected a minimum of 20 percent in overall earnings growth.
Not every network is so positive about the marketplace. Fox, for example, won't be making any new hires company-wide, chiefly because of "softening in the advertising market," according to Peter Chernin, president and chief operating officer of News Corp., owner of the Fox network.
Overall, the outlook isn't a steady one. The fourth quarter of 1999 was, according to industry experts, perhaps the best quarter ever in TV history. The rush of dot-com advertising dollars helped see to that. However, this past fourth quarter witnessed the market moving in a severe and opposite direction.
This leaves media executives looking for some normalcy. "I think if you cut the growth rate in half for next year, it's still not a terrible year," said Larry Goodman, president of CNN Sales & Marketing, a division of Turner Broadcasting Sales. "It's just not ones that we are used to. You are getting down to normal growth."
Maybe. Or maybe not. Turner parent Time Warner last month downgraded fourth-quarter earnings expectations, citing, among other problems, "recent softness in cable network advertising revenue in line with prevailing market conditions." In TV advertising, it seems, the prevailing winds are blowing south.
Copyright January 2001, Crain Communications Inc.