Media Execs Showing Signs of Overenthusiasm

Mar 3, 2003  •  Post A Comment

The momentum and euphoria surrounding television advertising and the networks’ upfront market-which is still months away-is in a radical disconnect from other ad platforms and the general economy.
Call it “unreal” TV.
Rarely are broadcast network executives pumped up so far in advance about high-teens price increases for prime-time advertising, which in some cases won’t appear for another year.
But who can blame them?
With unprecedented scatter market premiums averaging 20 percent to 30 percent for all broadcast networks (and periodically reaching as high as 50 percent at CBS) and historically low cancellations, the upfront enthusiasm and confidence recently voiced by Viacom and NBC executives is understandable. They are expecting advertisers to commit more than the $8 billion they spent in last year’s broadcast networks’ prime-time upfront and possibly more than the $15 billion they spent on broadcast networks overall.
Viacom chief operating officer Mel Karmazin recently told me he expects mid- to high-teen price increases in the upfront; while NBC executives reiterate what I reported more than a month ago-they will seek 15 to 20 percent price hikes.
There is a clear sense that advertisers will continue to flock to broadcast and cable television even in a year rattled by war and further economic downturn, putting television’s good time in sharp contrast to the uncertain, even grim, marketplace. The stock market is in the worst bearish tailspin in years, consumer confidence dropped to a 10-year low this week, and corporate earnings outlooks, along with other fundamental economic metrics, are beginning to slip.
When that bubble bursts, television will have a whole new batch of problems to deal with, which is why it’s important now to take a closer look at this schism and its unlikely sustainability.
Clearly, television has become the advertising medium of default in these turbulent times.
It is a place where advertisers can invest and withdraw their money quickly, in response to the day’s or even the hour’s unsettling and changing global events with minimal risk to the image of their brands and products. That is, after all, why TV programs are produced in the first place-make no mistake about it.
Looking Smart
Advertisers are buying time in programs that attract wholesale or demographic-specific eyeballs. The fact that so many advertisers wound up paying astronomical premiums in a tight scatter market logically means more of them will spend in this spring’s upfront to lock in placement and prices that, they hope, will look smart a year from now.
But there are a few things wrong with this picture.
Just this week, the stock market soured on radio stocks that have for years been the steady darlings of advertising. Viacom sounded the first alarm during its fourth-quarter earnings call a few weeks ago when it warned its Infinity radio returns were down to stay for the year, depressed mostly by reluctant advertisers. Clear Channel this week in its earnings call weighed in with more of the same skepticism, estimating its first-quarter sales would be flat to up 5 percent as advertisers “were reluctant to book late February and March time periods in an effort to avoid advertising at the onset of any conflicts abroad,” according to Bear Stearns’ veteran broadcast analyst Victor Miller, who raised his full-year 2003 estimates for the company.
Still, radio’s temporary woes could be a portent for national and local TV.
lower forecasts
Ahead of its annual advertising conference this week, Merrill Lynch lowered its 2003 advertising growth forecasts to 3.7 percent from 4 percent in the United States and to 2.7 percent from 3 percent globally. The reasons cited included a tentative start to 2003, a deterioration of the European economy and a stronger-than-expected finish to 2002. Merrill Lynch analyst Lauren Fine forecasts network television advertising will be up 6.5 percent this year “despite cycling against incremental Olympics spending last year due to double-digit gains registered at the upfront market, a continued strong scatter market, and less-than-average cancellation rates for upfront options.”
“TV stations should be flat in 2003 as they cycle against $1 billion in political spending and, for NBC stations, Olympics-related advertising last year,” Ms, Fine said, dragging down broadcasting’s overall growth this year to only 3 percent. Cable television also is expected to see advertising increases of about 6.3 percent, she said, which is more than twice what most other advertising mediums can expect this year.
Once the conference was under way, Merrill Lynch analyst Jessica Reif Cohen noted the bullish comments made by several advertising agency executives and advertisers.
“It is highly unusual to have buyers this bullish, particularly this early, as the upfront advertising market take place in late May and early June (and in weaker markets can carry through the summer.”
“Typically, ad buyers play down the prospects, while TV networks [the sellers] talk up the market,” Ms. Cohen said in a client note Wednesday.
“With the single caveat of war disruptions, the upfront market appears headed for strong results,” she said.
Viacom and News Corp.’s Fox Entertainment Group will be the major beneficiaries in a marketplace also being heavily boosted by the frenzy over reality series, which is stimulating extremely strong pricing and sales (the season finale of “American Idol” is commanding Super Bowl-like premiums of nearly $1 million per 30 second spot), in addition to boosting sample viewing that carries over to the rest of the prime-time schedule.
Plugging this upbeat trend into television’s far more moderate macro picture is sobering. With broadcast network audience shares and ratings still in decline, and cable ratings and audience shares plateaued against a glut of advertising inventory, it would appear that what advertisers are buying has more to do with betting against war and economic fallout in other mediums rather than a vote of confidence in television.
In any event, television’s bullish advertising romp, while a shot in the arm for many media balance sheets, appears out of synch with the advertiser and consumer mindset and the economic environment at large. And at some point, all involved will get a much needed reality check.