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Seismic shifts might be ad trend

Apr 29, 2002  •  Post A Comment

This year’s upfront is going to surprise a lot of people for reasons which may not yet be obvious, even to executives on both sides of the negotiating table who are caught up in preparations for what has become a contrived ritual.
Power brokers in media and on Madison Avenue and Wall Street are so wrapped up in making pricing and volume projections, they have lost sight of the bigger picture, and the bigger picture isn’t what it used to be.
There has been a lot of huffing and puffing about an average 6 percent to 8 percent rise in broadcast prime-time upfront prices for a total to be spent of about $7.4 billion, cable upfront prices rising 12 percent to 14 percent for a total to be spent of about $4.5 billion and overall upfront spending up around 5 percent to $11.5 billion.
Jack Myers, a leading advertising industry consultant, has thrown cold water on the euphoria with survey results pointing to flat overall upfront advertiser spending at $10.9 billion, with the six broadcast networks bringing in $6.7 billion, or 3 percent less than they did in last year’s record slump. Cable will bring in $4.2 billion, or only 5 percent more than last year, Mr. Myers said.
However, predictions at either end of the spectrum are being made in a vacuum, with little regard for a handful of critical factors that are permanently and dramatically reshaping television ad spending-even in this year’s rebounding upfront.
Consider the following:
* Growth is relative. Even if the best-case scenario comes to pass, the so-called gains in upfront ad spending are only fractional offsets to last year’s big losses. Any amount of ad spending is going to look good when compared with the 2001 disaster, when overall upfront spending declined nearly 16 percent and overall pricing fell at least 3 percent.
Analysts say it will take more than two years of increased upfront ad spending to even come close to 2000’s record $12.8 billion in advance broadcast and cable commitments, and some say that will never happen.
Even as upfront market spending slowly recoups, the dollars spent will be more fragmented and shifted. The involuntary pause advertisers and agencies were forced to take as a result of last year’s economic downturn and the terrorist attacks have left them irrevocably more cautious and deliberate in their spending.
* Cable’s piece of the pie is increasing. If industry analysts are correct in their forecasts, the only encouraging trend that underscores real growth is that cable’s share of overall upfront ad spending will continue to grow to $5.5 billion in 2003, or 43 percent of total spending, compared with broadcast TV networks’ stagnant $7.3 billion. This year cable ad spending will make up 39 percent of the total pie.
Cable’s dilemma will continue to be that due to the continued perception that there are differences in the quality and scope of cable and broadcasting’s audience reach, cable’s volume growth will not be matched by pricing increases. Cable’s strongest costs per thousand still only represent 50 percent to 60 percent of the broadcast networks’ comparable prime-time unit prices.
* Bundling as a major media sales strategy. Bundling is no longer a novelty or an afterthought. It has become a major objective this year for many agencies, many advertisers and major media companies such as Viacom.
Viacom CEO Mel Karmazin recently met with the heads of each of the 10 largest advertising agencies to articulate a major thrust in Viacom’s overall sales strategy. Viacom wants the biggest upfront dollar commitment it can get from agencies and their clients, and it will then find ways across all the company’s media platforms to deliver a mass audience and target demographics.
Viacom is assigning teams of executives-what one top insider called “managing directorships”-to match an agency and its clients’ upfront lump-sum commitment and target goals to Viacom’s TV and radio broadcast, cable, syndication and outdoor businesses. To date, Viacom has taken a more limited cross-platform-selling tack with just a handful of advertisers-not agencies.
NBC and ABC also will be doing more of the same because the media conglomerates would rather have spending shift to their own alternative cable and syndication platforms rather than lose it to competitors. Indeed, the only way broadcast networks can offer advertisers critical mass anymore is to include their own cable syndication and radio platforms in a sales plan.
* The $500 million swing. Broadcast network and ad agency executives estimate that as much as $500 million in advertising dollars could shift from ABC and Fox (whose prime-time ratings are off about 22 percent each this season) to CBS, UPN, NBC and The WB.
How much of the $500 million in question lands at each of the broadcast networks will be a function of price, aggressive sales and program offerings at the favored broadcast networks. But enough ad dollars will be in flux to make or break broadcast network profits in this difficult year.
The artificial tightening in ad inventory created by the extraordinary make-goods at ABC and Fox will continue into the upfront and the 2002 scatter markets, resulting in more hits to the bottom line of their parent companies. ABC already has incurred more than $300 million in losses as a result of prime-time make-goods this season.
But it gets worse. ABC is expected to see its overall upfront spending drop nearly 17 percent to about $1.4 billion from last year’s $1.7 billion, and Fox could see a 14 percent decline in overall upfront ad spending to $1.1 billion, Mr. Myers said.
The biggest beneficiary of ABC and Fox’s pain will be low-priced CBS, which could see its upfront spending commitments rise as much as 14 percent to nearly $1.6 billion. Viacom’s UPN will ride CBS’s coattails to a 70 percent gain in upfront revenues to $220 million. The WB also could see its upfront revenues rise 16 percent to $560 million, analysts estimate.
Even with its top ratings and demographics, NBC could push the pricing envelope, which coupled with the absence of $740 million in Olympics ad spending next year could result in a 6.7 percent decline in its upfront spending to $1.8 billion.
* Broadcast and cable networks’ early direct appeals. CBS, UPN, The WB, NBC and the Turner cable networks are among those making especially early direct appeals to ad agencies and some individual advertisers. The result will be more tailor-made concessions or terms.
For instance, advertisers who make dual upfront commitments to CBS and UPN are being given the flexibility to interchange ads for its different brands on both platforms. Viacom also may be willing to take local money from its radio stations or owned TV stations and throw it into the mix, sources said, as long as the result is taking in more upfront money.
An aggressive bundling strategy at Viacom could generate an additional $300 million in upfront revenues, inside sources estimate. If there is a $500 million shift in ad spending from ABC and Fox to its peers, that could alleviate the pressure for CBS or NBC to write as much as $100 million in scatter business.
* It’s never going to be the same. As converged interactivity becomes the new universal information and entertainment home platform in less than 10 years, conventional media ad spending will continue to decline and shift.
The strong scatter sales largely have been a function of ABC and Fox make-goods tightening TV ad inventory. However, advertisers’ increased preference to buy more time closer to the time of broadcast predates the economic downturn. It is a trend that is here to stay.
While that allows broadcasters to charge higher prices for scatter sales, it also holds open the possibility that advertisers could-at the last minute-shift their business to other media platforms such as national or local cable, local television and radio or even print.
There will also be less need for mass marketing, since media in general gradually moves toward a personal, interactive, on-demand model that will have consumers seeking out and paying to use the products and services
they want, rather than waiting for marketers to find and pitch to them.
This profound change is as sure as the sunrise. All these factors and trends are evident today and are already reshaping conventional advertiser spending. All you need to do is look beyond the immediate upfront hype. Not doing so may turn out to be the biggest risk of all.