Special Report: Dot-coms give commercials a break

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For the upcoming tv season, advertising dollars placed by dot-coms are amounting to just that--dots with no dollars. Only five to 10 Net companies placed upfront advertising commitments for this fall's TV season. The group includes well-known names such as America Online, Datek Online, E-Trade Group, eToys and Yahoo! This is about the same number of dot-com companies as purchased time ahead of last fall's TV season, say media-buying executives.

$1.6 BILLION ON TV

Advertising executives weren't expecting huge increases in dot-com TV spending for this upfront. However, potential new money dropped off substantially when the stock market plunged in March--especially on the technology laden Nasdaq listings. "From my point of view, there is a lot of anxiety [about] these companies moving forward," says Donna Salvatore, president of U.S. broadcast for Bcom3 Group's Starcom MediaVest Group, New York, the media buying agency. "It makes it difficult to sign a piece of paper that commits you that far in advance." For upfront network deals, advertisers can't change any fourth-quarter buys. Advertisers can cancel up to 50% of their media deals in the first, second and third quarters. "Most of the them are not mature enough businesses to make upfront commitments," says Tim Spengler, exec VP-national broadcast for Interpublic Group of Cos.' Initiative Media North America, Los Angeles, whose media agency handles Yahoo! among other Internet companies. Last year, according to Competitive Media Reporting, dot-com advertisers spent $1.6 billion on TV. Most of the dot-com money spent on network, cable and syndicated TV comes in the fourth quarter because most are e-commerce sites looking to do business in the high-demand Christmas season. For the first quarter of this year, dot-coms spent $804 million--up 352% from the first quarter of last year. The period includes the Super Bowl--where dot-coms made a big splash when 17 companies, from used-car site AutoTrader.-com to jobs site Kforce.com, bought spots for the big event. However, in the wake of the dot-com stock market collapse in March, analysts expect ad numbers to significantly level off in the subsequent quarters. While advertising numbers haven't been released for the second and third quarters, media executives are stunned by the current lack of dot-com buying activity. "I'm surprised the third quarter dot-com business has been so slow," says Mr. Spengler.

JUST 1% TO 2% UPFRONT

For many broadcast networks, dot-coms only contributed 1% to 2% of their entire upfront business, media executives say. This is for paid media and does not factor in barter deals that ABC, CBS, NBC or Fox have with companies in which they have investments. For instance, General Electric-owned NBC has some 30 equity Internet deals with companies such as Hollywood Stock Exchange (hsx.com). Here, NBC uses its pool of promotional spots--not commercial inventory--for such Internet companies. CBS does the same for iWon.com, a sweepstakes portal in which it is an investor. Dot-com activity on some cable networks is significantly higher than on the broadcast networks. For instance, at Cable News Network, which includes CNN, Headline News and CNNfn, dot-coms contributed 11% of the networks' total advertising revenue in the first quarter of this year--well above last year's pace. Last year, dot-coms accounted for 2% of the cable networks' ad dollars in the first quarter; 4% in the second; 7% in the third; and 12% in the fourth quarter. "We had 54 different dot-coms on in the fourth quarter; about 90% are [not upfront] advertisers," says Larry Goodman, president of CNN Sales & Marketing, a division of Turner Broadcasting Sales. Similar activity exists on other financial and general news channels, such as CNBC, MSNBC and Fox News, say advertising executives. Like CNN, cable network E! Entertainment Television Network has been garnering significant revenue from dot-coms. Neil Baker, senior VP-advertising at E!, says 11% of its first-quarter ad revenue came from dot-coms.

REASONS DIFFER

For the most recent upfront market buying for the upcoming fall, Mr. Baker says the network made eight or nine deals with advertisers, including Monster.com and Wine.com. For his network, he says, they are a bigger factor for the upcoming TV season, compared to last season. "Last year, dot-coms in the upfront were not a factor--unless you were a financial-oriented cable or sports network," he says. "We expect them to be active again in the [upcoming] fourth quarter." Yet many media executives say media decisions made on cable financial or news networks--either on a scatter or upfront basis--still don't adhere to advertising tenets. "They buy for different reasons--not for advertising reasons," says one agency executive. "They want to go public and want to get their names out there."

DOT-COM CRITICISM

Media executives have criticized dot-coms' TV buying strategy--especially when it comes to the Super Bowl. Many new companies, which had no revenue or had not even launched, simply wanted to buy one or two Super Bowl TV spots, and nothing else. Media executives say the millions involved--a network spot on ABC's telecast averaged $2.2 million--could have been spent more efficiently in other areas. In a survey it conducted, the Bonham Group, a sports and entertainment marketing consultancy, turned up negligible awareness of several lesser-known dot-com advertisers after the Super Bowl, and advised against trying to build brand-name recognition through such costly advertising channels.

BOWLED OVER

Don't look for a repeat of the plethora of dot-coms advertising in January's Super Bowl. "We had two dot-coms in the Super Bowl in 1999. Then this year we had about 17 and I expect we'll be back to two next January," says John Underwood, president-CEO of online branding consultancy ClickThings, New York. Many venture capital companies, who control the purse strings of many dot-coms, are demanding a slower, more careful approach when it comes to media spending. "I do get a sense there is a more traditional sense of [media] planning," says CNN's Mr. Goodman. "This is more important than screaming your lungs out during events like the Super Bowl."M Contributing: Kate Fitzgerald.1

Copyright August 2000, Crain Communications Inc.

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