Peacock Net Faces Costly Make-Goods

Jan 10, 2005  •  Post A Comment

By Claire Atkinson

Advertising Age

NBC is on the hook to advertisers for at least $50 million in make-goods, according to industry sources, and some are predicting that figure could grow to as much as $500 million if ratings for 18- to 49-year-old viewers continue to slide in the second half of the season.

The once proud Peacock Network is struggling this season to adjust to a new TV reality in which CBS and ABC are formidable contenders and it no longer can boast of its “Must-See TV” Thursday night lineup.

One major agency buyer estimated NBC will need to give advertisers additional inventory of at least $50 million due to its ratings deficiencies, but added, “That could be north of $200 million” by the end of the season.

Keith Turner, president of NBC Universal sales and marketing, called the $50 million figure “ludicrous.”

“It is nowhere near $50 million. It is about where we have been historically and it is no surprise,” he said. “We planned for this. We knew `Friends’ and `Frasier’ weren’t coming back.”

Michael Gallant, media analyst at CIBC World Markets, took an even dimmer view of NBC’s prospects. “The weakness goes beyond Thursday night, though they’re doing better in other dayparts. NBC could have a dollar decline of between $400 million to $500 million without a pickup in the second half of the season,” he said. “When you look at Thursday nights and the CPM advantage they’ve had, they’re going to have a hard time. I see Viacom’s CBS getting one more lift and ABC closing the gap.”

Buyers said the General Electric network is holding firm on premium pricing despite a 9.8 percent year-on-year drop in the lucrative 18 to 49 demographic. While NBC remains optimistic about its schedule, some buyers believe it is taking a big gamble as the industry begins maneuvering in advance of the spring upfront. NBC booked $2.9 billion during the May 2004 upfront, when buyers secure time in advance of the coming TV season.

“In terms of price premium, CPMs stand 15 percent more expensive than the other two,” he said, referring to ABC and CBS. Asked whether that would remain the case if NBC’s ratings were to continue to slide, Mr. Turner said, “That depends on the marketplace.”

Despite the shortfalls, NBC’s stance is that its clients are happy. “We’ve always considered ourselves user-friendly,” Mr. Turner added.

“NBC has taken the optimistic view and is writing whatever extra [scatter] money they can. But they are not competing effectively,” one senior buying executive said, adding that NBC is under management pressure to hold the line as long as it can and that the network is having a tough time adjusting to its loss of longtime market dominance. “It is a tough thing for them to come off, to start competing with CBS and ABC.”

However, come February and March, this buyer predicted, NBC could be in a worse position if its inventory is filled with make-goods-ad slots given free to advertisers to correct a shortfall in ratings guarantees. That could lead to a lack of buyer confidence going into the upfront.

NBC made bold predictions about its schedule at last year’s upfront, but it is currently in third place in the 18 to 49 race and, like Fox, has lost viewers in the demo while ABC, CBS and UPN have gained. The WB is flat.

According to Nielsen Media Research information provided by Horizon Media of New York, the fourth quarter finished with CBS No. 1 in the demo with a 4.0 rating, ABC with a 3.9 and NBC with a 3.7. Fox came in fourth at 3.4. One buyer felt Fox had a good chance of making up losses with the return of “American Idol,” but did not feel that NBC had a similar killer show on its schedule, although top 10 18 to 49 performer “The Apprentice” returns for a second outing this season.

Last week’s positive performance of NBC’s midseason replacements, “Medium” and “Committed,” might give network executives some cheer. “Medium” premiered with 16.1 million viewers and drew a 6.3 rating for the 18 to 49 demo, double the season average in 18 to 49 for that time period. The drama, about a woman who uses her psychic abilities to help law enforcement, ran a close second to CBS’s “CSI: Miami.” Tuesday’s comedy “Committed,” about a kooky single girl and her offbeat friends, pulled a 4.5 rating in the demo and 10.1 million viewers. A second episode Thursday gained a 5 rating in the demo and 11 million viewers overall.

Other midseason series still to debut include the Mark Burnett boxing show “The Contender” and a U.S. version of British hit “The Office.”