With the specter of high-profile advertiser defections-and an iffy economy-media buyers say the broadcast networks would do well to brace themselves for more possible losses going into the fourth quarter.
Two major advertisers, AT&T and Toys R Us, have already made significant cutbacks on their proposed upfront media buys-AT&T by about $110 million and Toys R Us by about $40 million.
Typically, 1 percent or 2 percent of upfront buying commitments don’t become actual orders by the time the season starts. Advertiser pullbacks so far have added up to a deduction of about $190 million of the estimated $9.4 billion 2004-05 network upfront prime-time market.
With the cuts by AT&T and Toys R Us, the upfront slippage is almost at the 2 percent level with a few weeks still to go. With the networks generally selling less upfront inventory this year-77 percent to 83 percent-than in past upfronts, they could have more inventory to sell this fall than they had planned, media buying executives said.
Network executives from CBS and ABC declined to comment. But analysts say what really hurts the networks are the smaller cutbacks that will go virtually unnoticed.
“Certainly $100 million is big news,” said Peter Butchen, senior VP and group director of national broadcast for Initiative Media, New York. “What probably affects things more is the quiet slippage-$5 million here, $10 million there.” All of which could likely happen before the start of the season, executives said.
For most advertisers, their 2004-05 upfront buys start airing the week of Sept. 13-the first week of the broadcast year for the fourth quarter. Some advertisers start the season a week later, when Nielsen says the new season begins. But advertisers now wait until Labor Day, which this year is Sept. 6, to convert their upfront commitments to actual orders.
“It’s incredibly late,” Mr. Butchen said. “That’s two weeks before the official start of the season. It’s getting later and later every year. It used to be in July.”
Flexible Fourth Quarter
As a result, the fourth quarter is actually the most flexible quarter for advertisers. Traditionally, the fourth quarter is thought of as 100 percent firm, which means advertisers can’t cancel their buys. But advertisers get around this by buying, or going to “order” very late, close to the start of the period. This ends up being a good last-minute option for advertisers. In recent years many companies have used this preference to make last-minute changes to bring end-of-the-year financial statements into line.
“It’s less firm than any other quarter,” said one veteran media agency executive. “There is basically a 21-day option, rather than a 90-day option you have for the other quarters. Clients figured that out a couple of years ago.”
For the new season, the posturing has already begun among media buyers and sellers.
For instance, Bruce Lefkowitz, executive VP of advertising sales for Fox Cable Entertainment, doesn’t necessarily agree the economy is so … so-so. He said revenue from Fox Cable’s fourth-quarter scatter advertising deals is actually 20 percent higher than it was a year ago. Other networks, including The WB, are reporting some advertisers who are adding to upfront buys, according to media buying and selling executives.
But pullbacks by major advertisers such as Toys R Us are being felt. ABC, which has a big deal with Toys R Us, will be among the networks hit especially hard. Executives said the Toys R Us move could also hurt some cable networks, such as Lifetime, TNT, TBS, Oxygen and the Hallmark Channel.
A significant amount of Toys R Us television money is placed in the fourth quarter. For many years, the toy retailer aimed its advertising at older women and mothers-those who buy most toys for young children. More recently Toys R Us has been looking to shift money to kids programming networks on cable.