Spot TV looking for a silver lining

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Last year, the spot buying market was hailed as a rival to the perennially lucrative national network upfront, where media dollars are committed early and in vast quantities to secure the best position on the best programming far in advance of the actual TV season. * This year, however, the spot market is looking anemic by comparison. "We're talking rollbacks" in the current spot market, says Rich Hamilton, CEO of Zenith Media New York, jointly owned by Cordiant Communications Group and Publicis Groupe. Mr. Hamilton echoes the sentiments of many media agency executives this year as ad spending shrinks.

Spot buying has always been, as the term suggests, less predictable. But last year, the market was so busy and lucrative for TV stations that spot prices rose 8% to 10%, according to industry analysts. This was fueled by the overwhelming presence of dot-com buyers and fall-season spending for political campaigns and the Olympics.

Jump forward 12 months, and 2001 is not an election year and dot-com spenders have virtually disappeared from the scene, leaving behind a wash of inventory and fewer interested buyers. Spot prices will be down, significantly, say media executives. It could dip from 10% to 15%, according to Pete Stassi, senior VP-director of the PentaMark Worldwide division of Omnicom Group's BBDO Worldwide, or 20% to 25%, according to Jean Pool, president of WPP Group's MindShare.

"The local guys have always been a lead indicator, which doesn't make you feel good because first quarter this year for broadcasters is atrocious," says Alec Gerster, CEO of Grey Global Group's MediaCom. "As well as for newspapers. When those guys have better numbers, then I'll feel better."


"The spot market is dead," Ms. Pool says. "It is a very bad year. We saw the first indications in November, December and January 2001, which was a bell-ringer of a year. But it just died in November and has gotten even worse in January according to the latest data. [Spot buying] is down considerably, and I don't see it turning around. Even automotive is starting to pull back, one of the huge categories in the spot market. We've seen cutbacks across all clients, all categories. It's going to be a very tough year."

Carmakers and dealers, as always, will dominate the spot buying market, say ad executives, but the spending numbers won't be as large as last year. Mr. Stassi says the auto spot-buying market is off by 20% to 25%. "But it could bounce back. It's all predicated on car sales." Mr. Stassi says the winter is a slow time for car sales. "But if we have a good spring, we'll have a good fall."

"Ford is still a big spender," Ms. Pool says of her largest client. "But I know their sales are down, so it's just a matter of time." She predicts Ford dealers will be the largest spenders in the spot market this year. Ford Motor Co.'s dealer association spent $410.1 million on spot TV in 2000, up 17.6% from 1999, according to Taylor Nelson Sofres' CMR. Ford spent an additional $305.8 million in 2000, up 33.1% from the previous year, according to CMR.

George Hayes, chief operating officer at Interpublic Group of Cos.' Local Communications Inc., predicts DaimlerChrysler will once again top the chart of spenders as it did last year. CMR says the automaker was the No. 1 TV spot buyer in 2000, spending $826.2 million on spot TV, up 24.2% from the year before.


Also, there will be plenty of advertising for fast-food and national restaurant chains, and movie spending may get bumped up a notch. "When times are bad, that's when people go to the movies," says Mr. Hayes.

Local stations this year are expected to have leftover inventory. What will they do with it? "They can run promos for their own programming, which is what stations and the networks do when they are not filled out," Ms. Pool says. "They can also go after direct response if it's out there. But even the direct response advertisers are pulling back. What can they do? Well, I don't know. They can pray, and hope the whole thing blows over with just one down year. Or two down years."

Ms. Pool says the prescription drug category, which observers have suggested may put the skids on the downturn, is still under scrutiny in Washington. "That's pulling the little horns in, too," she says. "There's not a lot of good news."

What was shaping up to be a bullish market, about to catch up to network in terms of spending, has gone back in time. Ms. Pool compared sales data and found that the market is now under the figure for 1999. "That's not good news," she says. "On the other hand, stations make about 50% margins, so they are not dying."

While admitting the spot market is down, Kathy Crawford, exec VP-director of local broadcast at Interpublic's Initiative Media, does not believe it's under the 1999 rate structure, but over.

"Many of the television stations across the United States are defining themselves as being up over 1999," she says. "Overall the marketplace is soft, but that doesn't mean that individual markets aren't holding their own. In fact, in some instances they are up."


Mr. Stassi says that the fact the market is hovering anywhere near '99 levels is a good sign. "We are actually working in the 1999 rate structure," he says. "We are actually incurring deflation, which is great. Our clients are actually catching a break, opposed to last year when people were trying to gouge with the dot-coms."

So, are stations cutting prices?

"Some of the stations are trying to hold the line, because when it starts to climb again, they don't want to be giving up too much ground," says LCI's Mr. Hayes. "When that starts to crumble, when they give in and say, `Jeez, I'll take anything now' [then you've got to worry]." Mr. Hayes says the third quarter will be a crucial indicator. "You are going to start to find out once the third quarter begins. You are not going to see a lot of money come in at that point, but if it just stops dead like it did at the beginning of this year, I think you are going to see people in a panic."

Meanwhile, the Television Bureau of Advertising continues talking about merging the spot market with the upfront market. The idea is that the spot market could catch some spillover of national advertisers' spending. Dayparts in certain spots are much cheaper than network and could attract some of the network spenders looking to save money. The merging of spot and upfront would help pull the spot market up by the bootstraps. Except for the boom last year, spot has been in flat to very low growth for about six years. Network, on the other hand, has seen double-digit increases every year.

"This might be a good year to do that [merge spot buys with upfront]," says Mr. Stassi. "Only because spot prices are more efficient than some network dayparts. So it might be good leverage for the network buyer to negotiate with the networks and transfer dollars from network to spot right then and there. We've been very competitive. If you could get clients to sign off locally and nationally at the same time and be able to use spot as an alternative to network, it might keep network inflation down further."


TVB President Chris Rohrs floated the idea of a spot-upfront merger last year when the market was so tight that spot looked like a much cheaper alternative to network. Now he's revising the concept. Mr. Rohrs believes this year the spot market might find common ground with the scatter market.

"We will have a play in the scatter market," Mr. Rohrs says. "What we bring in is new dayparts. And if there is a strike, we are hearing from some advertisers that they are very interested in looking at their options. They may want to do more spot on an aggregated basis in a lot of markets and will sort of replicate their national TV buys."

Mr. Stassi has a simple solution: "I'd just like to see someone take their money out of network and put it into spot, and wake those guys up."

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