Network advertising executives are starting the year with a good reason to smile.
Clients are spending money on television in the first quarter, strengthening what has been seen as an industry in decline since the weak June upfront ad-sales market.
“It’s January 10th and we’ve got five budgets working,” said Mike Shaw, president for ad sales and marketing at the ABC Television Network. “The money keeps coming. It’s coming closer to air but it continues to come in.” The surge in scatter advertising, where networks sell ad time that wasn’t reserved during the upfront, shows that advertisers are learning to live with concerns about television commercials being skipped by digital video recorder users and the rise of Web video. Whether TV ad buyers lose the leverage they’ve enjoyed recently remains to be seen, but right now, Mr. Shaw said he’s getting higher prices for ad time throughout the day.
“I wish we had more to sell,” he said.
Some of the money being spent on TV ads in the first-quarter market could be funds that advertisers decided to hold onto during the upfront.
“Money is being redeployed on a short-term basis as advertisers have a better sense of their business situation,” said Rino Scanzoni, chief investment officer for ad buyer GroupM. He estimates that TV advertising will grow this year, but probably at a rate of only about 2 percent.
Last week, TNS Media Intelligence forecast that spending on network television would rise just 0.6 percent in 2007. TNS expects spending on cable to grow 4.7 percent and on syndication 6.6 percent.
Mr. Scanzoni estimated that in 70 percent to 80 percent of the deals, advertisers were paying the same prices they paid during the upfront. That’s an improvement from last year, when some scatter prices were below upfront levels.
Another buyer noted that companies of all stripes are putting money in the market. There were clients who held back some of their ad budget in the upfront, others who didn’t spend at all in the upfront and others who found new brands and projects they wanted to back in the first quarter.
Buyers also attribute the strong scatter market to tighter supply partly caused by networks using the first quarter to make good to advertisers owed spots because of ratings shortfalls from the fourth quarter.
Ad time usually used by the networks for make-goods in the quiet last two weeks of December instead were bought by retailers and companies that found themselves with money that needed to be spent before the end of 2006.
“First quarter is the cheapest place for the networks to make good” because there’s less demand for spots in the cold months of January February and March, Mr. Scanzoni said.
Because last year’s ads were sold on the basis of live ratings that some networks have had trouble delivering, some broadcasters are facing fairly big shortfalls.
Merrill Lynch analyst Jessica Reif Cohen noted that CBS’s ratings among adults 18 to 49 are down 12 percent so far this season.
“The poor performance to date suggested that network revenue could fall again in 4Q and that the outlook for the first half of 2007 is challenging, excluding the Super Bowl,” she warned.
Ms. Cohen reduced her estimate for CBS’s fourth-quarter revenue to a 1 percent decline from a 2 percent gain, noting, “We expect a solid scatter market to slightly help offset these rating declines.”
In a presentation to an investor conference last week, CBS CEO Les Moonves said the ratings downturn was primarily attributable to Thursday nights, when ABC’s “Grey’s Anatomy” has taken a chunk out of the audience for CBS’s top-rated show, “CSI.” He added that analysts are overestimating its impact.
“You are not going to see that revenue drop,” he said.
Buyers said that CBS is handling its make-goods well, but that Fox’s shortfalls were more of a surprise.
“Their fourth quarter was below what they expected and probably below what the industry expected,” Mr. Scanzoni said.
The scatter market appeared to be healthy for cable networks as well.
“Demand continues to be strong,” with some prices above upfront levels, said Linda Yaccarino, executive VP and general manager of Turner Entertainment sales and marketing.
She said all the leading indicators, both economic and advertising-industry related, such as the number of advertisers picking up the options to buy more of the ads they reserved in the upfront, point to the notion that “the second half of the year will be strong.”
A&E Television Networks Executive VP for Ad Sales Mel Berning said his upfront sales grew last year, and in the first quarter he’s pacing double digits above a year ago in volume.
Calendar deals, in which advertisers reserve ad time for the year in January on a calendar-year basis, rather than following the TV season, are also strong, he said.
What’s changed from six months ago?
“I can’t put my finger on any one thing,” Mr. Berning said. “Based on the amount of money being spent in the upfront, you expected that people were sitting on money. The economy was better than people anticipated and they have money to put into advertising and branding.”
Buyers said it is too soon to tell whether the strength in scatter will carry over into next season’s upfront.
“I don’t think that the first quarter is necessarily going to be the best indicator of the upfront,” said Jackie Kulesza, VP and media director at Starcom USA. “I don’t think you’ll ever again see a big rush to the upfront just for the upfront’s sake.”
Buyers have enjoyed the option of looking for bargains on the scatter market because in the past few years, some scatter prices have been lower than those in the upfront, where about 70 percent of ad time has been sold in the past.
With scatter prices no worse than even with upfront, “That’s an accomplishment,” Mr. Scanzoni said. Mr. Berning of A&E said he isn’t getting carried away.
“I think the marketplace is going to remain challenging out there,” he said. But the stronger market “does prove that there’s value in the media and the buyers and advertisers are recognizing that.”