Ad Firms Wait to Get TV Spots

Will this be the year that the springtime tradition known as the “upfront” television advertising market fails to live up to its name?

Every May for as long as anyone can remember, the networks have wooed Madison Avenue with elaborate presentations of new fall lineups. And almost every year by mid-June, those same networks have sold the bulk of their commercial spots for the coming TV season. That’s why they call it the upfront, because commitments for ad buys are made months in advance.

But perhaps not this year.

“Advertisers are holding money out of the market this year because they want to experiment with other forms of media,” said Bill Cella, chief executive of ad buying powerhouse Magna Global. “Last year it was starting, and this year it’s really happening.”

Last June, the six broadcast networks took in $9.1 billion in commitments for prime-time shows for the current season. But this year, industry experts predict that total will shrink by as much as $500 million -- and not only because there soon will be just five networks.

Already one major advertiser, Johnson & Johnson, which makes Tylenol and Band-Aids, has said it will sit out this upfront. That doesn’t mean the New Jersey-based company, which spent $450 million last year on network TV ads, won’t buy any in 2006. It means that it is hedging its bets, coordinating its media campaigns throughout the year, not all at once.

Johnson & Johnson isn’t the only company that has begun to question the wisdom of buying in advance. In the past, buying early meant saving money because competition for scarce ad time later in the year often drove prices 20% to 25% higher than they were at the upfront.

But for the last two years, prices in the “scatter,” or leftover, market have been about the same as in the spring. Add to that the surge of online advertising (it rose 30% to $12.5 billion last year), and the networks have at times gone begging.

Compared with the high-water mark just three years ago, when the networks instituted price hikes of 15% and reaped $9.3 billion in just 72 hours, “there is more of a balance of power,” said Andrew Donchin, director of broadcast for ad buying firm Carat USA. “The demand for network advertising has slowed down a bit, and that gives the buyers more leverage.”

For example, Walt Disney Co.’s ABC responded Monday to a storm of protest from advertisers who had objected to the network’s attempt to set rates based on viewership numbers that include “time-shifted viewing.” ABC had wanted to count viewers who recorded and then watched a program after its initial broadcast. But when advertisers balked, ABC backed down rather than see business go to rivals Fox Broadcasting and CBS Corp., which took a more accommodating position.

“When the networks are aggressive in their pricing, that upsets the advertisers,” said Magna Global’s Cella, whose firm oversees several major buyers. “Our clients are fed up with being forced into doing things just one way.”

At the very least, that frustration appears to be causing delays. Executives at several networks acknowledged Monday that they were just beginning to talk in earnest with advertisers. Contrast that with this time last year, when ABC had sold out its inventory, and Fox and CBS were nearly finished.

If more advertisers hold back dollars from the upfront, it could have implications for the entire TV industry. The rhythms of television production in Los Angeles have long been tied to the TV advertising calendar. In the 1950s, it was the auto industry’s desire to draw attention to its new models that prompted the networks to make September the official start of the TV season.

To be ready for the fall launch, the networks unveil their lineups in May. That means pilots must be shot in February and March. Were the upfront process to be rendered moot by ad buyers’ refusal to commit so early, it could expand the window in which pilots are shot.

One of the major reasons that advertisers have been able to flex their muscles this year, said Jason Maltby, president of national TV for ad-buying firm MindShare, is that there are no new major product launches on the horizon that will drive TV buys.

“A few years ago, the two big drivers were home entertainment and prescription drugs. They were really the catalyst,” Maltby said, adding that the once-booming DVD market has cooled and the pharmaceutical industry has grown more cautious about promoting drugs on TV. “There’s nothing new in the pipeline to compensate.”

The television networks also have confused things lately by making some of their most popular shows available the next day for downloads. Advertisers aren’t sure how many viewers will switch from the TV screen to the computer screen to watch their favorite shows, said Leland Westerfield, broadcasting analyst for Harris Nesbitt, an investment banking firm.

“That causes a bit of hesitation in a market that’s not otherwise robust,” said Westerfield, who predicted that less than 2% of viewers would switch formats altogether. “But that viewership comes in a key younger demographic: teenagers and 18- to 34-year-olds.”

To be sure, once the first advertisers start ordering commercial time, others will follow for fear of being shut out of the most popular shows, such as Fox’s “American Idol” or ABC’s “Grey’s Anatomy.”

This year also will probably see a new distribution of wealth among the networks. Fox, which finished the season in first place among the key demographic group of 18- to 49-year-old viewers, is expected to increase its rates and its overall haul because of the strength of its schedule, which includes “24,” “The Simpsons” and the crabby-doctor drama “House.”

Advertisers predict that NBC, which finished fourth in the ratings, will have another bruising year. And the overall take will inevitably be smaller because the WB and UPN are about to merge into one network, the CW, which means that advertisers would have 10 fewer hours of programming to buy into.

In addition, Spanish-language networks are expected to increase their share by as much as $250 million.