TV BUYING & PLANNING;LIVING ON THE EDGE;CATACLYSMIC CHANGE UPENDS BUYING RULES

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The TV business has seen headlines in the last 12 months that have generated water-cooler conversation, if not utter amazement.

These developments include ABC's production and distribution agreement with new studio DreamWorks SKG, which could give the studio ad revenues; Seagram Co.'s purchase of MCA, creating speculation about a subsequent TV distributor deal; and NBC's alliance with Microsoft Corp.'s forthcoming online computer service.

As the buyers and sellers of TV ad time devise and start executing their advertising plans for the 1995-96 TV season, they'll be conducting business in a landscape radically renovated in the last year.

Given the early activity, this current upfront selling period will be marked by not just confusion but also new buying opportunities-and plenty of cash pursuing these options.

"The entry of new networks or cable opportunities creates more competition, which is good from a buyer's perspective, and more focused options, from a planner's perspective," says Jack Klues, senior VP-director of U.S. media services at Leo Burnett USA, Chicago. "These changes represent opportunities for us."

Here's a look at some of the TV industry changes that will have immediate impact on buyers and sellers in the coming TV season:

A hot market. Advertisers' fears of being shut out of choice programs and getting caught in a tight scatter market have created expectations for a huge upfront market.

According to initial reports, sellers are getting increases in the cost per thousand viewers of 15%-to-25%. The Big 3 and Fox could combine for a record $5.4 billion, with each of these outlets bagging $1 billion or more.

"This is the strongest upfront than anyone's seen in the past five broadcast years," Mr. Klues says. "It's a stronger marketplace and there's more demand out there."

Network affiliation switches. The May 1994 agreement between Fox Broadcasting Co. and New World Communications Co. undermined the traditional 50-year relationship between broadcast networks and their local affiliate stations. Since then, markets representing about 40% of the nation's TV households have experienced or will soon see an affiliate station network change.

The aftershocks of this pact are still being felt-not just in continued affiliate switches but in ratings gains and losses.

Fox, which netted 10 Big 3 affiliates and has plans to get at least 12 more, saw its prime-time ratings jump 6% to 7.6 for the 1994-'95 TV season, according to Nielsen Media Research. On the flip side, ratings for CBS, which had to replace affiliates in 13 markets, fell 21% to 11.1.

Programing undoubtedly contributed to this shift, but many observers say distribution changes also played a part.

"We've seen that the power of local affiliates can have a tremendous affect in a network's performance," says Michael Wolf, a partner at Booz Allen & Hamilton, a management consultancy.

With the loosening of financial interest and network syndication regulations, the distinction between pro-ducers and distributors of TV programming hasn't just blurred, it's started to disappear.

The Big 3 now are able to produce programming and offer them to any TV outlet. Indeed, some pundits are predicting that "Caroline in the City," a new show developed by a CBS division, will do well this fall-for NBC, which will air the comedy.

On the flip side, studios are looking to safeguard distribution of their shows. Hence this year's emergence of the WB and UPN networks, from Warner Bros. and Paramount respectively.

"Program producers are striking back by getting greater access to distribution," says Fred Moran, VP-media & communications analyst at Salomon Bros. The launches of WB and UPN "show that the long-term advantages of [the Big 3] as distributors may not hold up indefinitely."

The rise of the station. The affiliation instabilities and distributor/producer blurring have put a new emphasis on clearances-and as a result have given local broadcast stations new power.

Stations are now being courted not only by syndicators, which have historically fought the battle for clearances, but also by networks, which must keep affiliates happy or risk losing an outlet in a TV market.

"The bad news is that advertisers will see continued fragmentation of ratings and more uncertainty about clearances, [station] lineups and uniform scheduling," says Tim Duncan, executive director of the syndication trade group Advertiser Syndicated Television Association. "The good news is that there will be more programs than ever and more satisfied viewers than ever."

A 40 share? As the Big 3's share of the prime-time audience declines, one series, NBC's "E.R.," has flitted with the 40 share mark-a level seen only by mega-events in this fragmented viewer universe.

"E.R." finished the official TV season with a 20 rating and a 33 share, but its episodes of Feb. 26, March 12 and April 9 all registered a 40 share, according to Nielsen Media Research.

Whether "E.R." can maintain its mammoth share next season remains to be seen, especially with ABC slotting "Murder One," a Steven Bochco drama, against it.

"`Murder One' is good competition," says Betsy Frank, exec VP-director of strategic media resources at the Zenith Media division of Saatchi & Saatchi Advertising, New York. "I think `E.R.' will fall slightly in ratings next season but it still has a better lead-in than `Murder One'."

Further fragmentation. As if agency media planners didn't have enough troubles trying to reach today's highly fragmented TV viewership, two emerging factors could further divide the audience: new viewing technologies and cable re-deregulation.

Direct satellite TV exploded in the last year, thanks mainly to DirecTV. In addition, the first step for Tele-TV, a joint venture between Baby Bells and Creative Artists Agency aiming to bring interactive media services into households, is to transmit existing TV offerings by wireless cable.

Meanwhile, Congress is considering re-deregulation of the cable industry, only 21/2 years after being regulated and despite the Clinton administration's opposition.

The end result of these moves could be not just distribution opportunities for the many planned cable networks looking for channel space, but also higher penetration for mid-to-large-size networks.

"The larger [cable] networks have an opportunity for expanded penetration and higher ratings," says Jack Myers, president of consultancy Myers Reports. These growing networks, he adds, "will be more of an issue to media buyers and planners than [new] niche networks, which will probably have some combination of subscriber and advertiser support."

Jennifer DeCoursey contributed to this story.

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