Falling down in an ugly upfront

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Gloomy TV advertising predictions made earlier this year have all come true: The TV upfront advertising market is sinking, and TV will go still lower before a recovery ensues.

The TV primetime upfront advertising-with more thunderheads in the distance-could see at least $1 billion dollars dropped this year to some $6.7 billion to $6.8 billion, by some estimates. Pricing on most of the big three network shows is down as well, about 5% to 10% off.

TV media buyers and sellers don't expect a turnaround, in the form of firming up prices, till second-quarter 2002 at earliest. Some don't foresee a turnaround till fourth-quarter 2002.

TV networks, flummoxed by the market, are taking things one day at a time. "This market is impossible," said Mike Shaw, president of sales and marketing for Walt Disney Co.'s ABC Television Network.

For the future, Tom Wolzien, senior media analyst for Sanford C. Bernstein & Co. said the picture is more cloudy: "I'm beginning to think we have two different things going on here. The first is a cyclical turn in the economy. The second is all this IPO spending and financial spending. That all sopped up supply [last year], which drove up pricing.

"So that's all been taken away," he said. "What it does is make it difficult to understand and to forecast purely on the economy-to say when the economy does get better, how much money is going to be available."

As such, Mr. Wolzien has downgraded most media stocks including Viacom and Disney. Mr. Wolzien said he downgraded Viacom, parent of CBS and other holdings, because it is the most exposed to the whims of advertisers, with 50% or more of its revenue coming from advertising. Disney's ad sales represents only 26% of revenue, but its theme parks, which also move with the whims of the economy, represent 28% to 30% of its total revenue pie.

Only AOL Time Warner remains a buy on his list-because of its more limited exposure to advertising and its dominant position in the Internet.

Some pockets of good news have emerged. For instance, AOL Time Warner's WB network claims that in the most recent scatter periods-quarter-by-quarter buying of commercials-it's been able to maintain the same or better pricing than a year ago in the upfront, the market for time sold in advance of the fall-to-spring broadcast season. More recently, the WB showed prosperous upfront activity-grabbing 4% to 5% increases on its CPMs. Better news: For the week of June 11, the WB posted its best scatter week "ever," according to one WB executive.

CBS has been the wild card. The network had planned to sell only 50% of its upfront inventory to hold out for higher prices. That strategy largely failed. CBS sold 65% of its inventory, for an upfront haul of $1.3 billion.

According to executives, CBS was able to close the gap between itself and ABC and NBC in the adults 18 to 49 demographic. CBS limited its losses, signing deals with 2% to 3% CPM price decreases from the year before; ABC and NBC inked deals with CPM prices 8% lower than last season.

Had CBS held back a chunk of inventory, it would have changed the market dynamic. "It would be like having a 747 full of people looking to buy a plane ticket at the same time, at the same counter," said Mr. Wolzien.

This still could happen, because cable and syndication sales have yet to start, and some TV programmers might shut out from the upfront process.

This has caused media agencies to play a guessing game. "There are so many questions with this market," said Donna Salvatore, chief executive officer of Bcom3 Group's MediaVest Worldwide, New York. "Where is primetime going to end up? What is the overall volume? And the next question: How many dollars will syndication and cable be down?"

In the cable industry, cable executives look at solid sales in the automotive category and the American Medical Association's recent decision not to lobby to shut down direct-to-consumer drug advertising as positive signs.

"This is probably one of the more difficult marketplaces any of us has ever seen," said C.J. Kettler, president of sales and marketing for women's cable channel Oxygen. "We're optimistic about the scatter market if only because we know the upfront market is going to be difficult."

Executives point to early 2002 for some signs of a sustained recovery. The Winter Olympics in February on General Electric Co.'s NBC, CNBC and MSNBC could provide a jolt, although ad sales have been slow to date. Next year is also an election year where congressional and state races could bolster the coffers of local cable companies as well as those of cable news networks.

"There are indications that there will be some positive turnarounds before the end of the year, probably more in the fourth quarter than in the third quarter," said Joe Ostrow, president of the Cabletelevision Advertising Bureau. "Of course, that becomes a little bit easier in the fourth quarter because the fourth quarter last year was so bad."

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