NBC Predicts Huge Shortfall in Its Ad Revenue This Year

National Broadcasting Co. projected on Tuesday a shortfall this year of up to $200 million in advertising revenue because of weaker prime-time performance and problems it blames on the Nielsen ratings system.

NBC President Robert C. Wright confirmed the estimate, which he earlier had disclosed privately to NBC-affiliated stations during the annual convention being held in Washington. The figure represents an 8% drop from 1989’s record $3.3 billion in advertising revenue.

Wright declined to specify how profit would be affected by the revenue shortfall but said it could have a “big impact” on the bottom line. NBC expects pretax profit of more than $500 million this year.

“The advertising market has been pretty healthy,” Wright said. “But we’ve been hit by a Nielsen problem and a ratings performance that is the other half of the issue.”

Wright termed the impact on lost advertising revenue as “enormous. We’re talking about a railroad train full of sales.”

Advertising is sold with guaranteed ratings, and under current practice, the network awards free commercial time to advertisers if ratings aren’t met.

Senior NBC officials, who asked not to be identified, said the network would be able to offset a portion of the projected revenue shortfall by tighter control of overhead expenditures, such as travel and office expenses. The network also is not filling certain jobs, although a hiring freeze is not in effect.

Furthermore, NBC has made “inventory adjustments” by adding 12 commercial spots in prime time each week. The additional commercials would bring in about $50 million more in advertising, one executive said.

NBC also is “slowing down” its capital expenditure in some of its new cable ventures, such as a joint venture with Cablevision Systems Corp. to roll out a network of local cable news channels. The executive said the network was not planning any cutbacks in programming development or expenses.

The revenue shortfall is concentrated at the NBC Television Network rather than at its seven network-owned stations.

The downbeat assessment was made against the backdrop of the gloomiest affiliate convention since NBC moved into first place five years ago. Although still No. 1 in prime time, NBC has seen its margin of victory erode and now faces stiff competition from ABC, CBS and even Fox Television.

During the first quarter of 1990, NBC prime-time ratings were down 10% compared to the same period a year ago. For the second quarter to date, the network ratings declined 14%. And among the valuable age group of 18-to-49-year-olds who advertisers covet, NBC has fallen behind ABC.

Although NBC has slipped competitively against ABC and CBS, which came in second in the May sweeps, all three networks claim that the deeper problem rests with the so-called Nielsen people-meter ratings measurement system. The networks say Nielsen has not been able to adequately explain the fall in the number of viewers, which also affects cable networks, and are threatening to abandon the current measurement system in favor of a new one.

One executive said between 40% and 50% of the ratings shortfall is due to problems with the Nielsen ratings system.

The bad news, however, could actually turn out to help NBC.

The network is negotiating with Hollywood studios over federal rules governing who shares in billions of dollars made from TV reruns. Under current rules, networks are barred from syndicating programs and can only make a one-time sale of a limited number of shows to a distributor. As part of their lobbying and public relations campaign, the networks are trying to dispel the image that they are monolithic profit machines.

Usually unbridled cheering sessions filled with boasts and promises of great things to come, the mood at this year’s NBC affiliate conference was one of diminished expectations. From admissions over blunders on the “Today” show--including handling of Jane Pauley’s exit--to vows of returning to a more innovative schedule, it appeared to a be convention of a third-place network rather than first.

Future victories, said Wright in his opening remarks, will be “smaller than the ones in the past. The wins will be narrower.” Wright attributed those changes to a “whole new level of competition” from cable and Fox.

Wright acknowledged that 1990 would be the first year NBC has missed its projected revenue since 1985 when the network first achieved prime-time dominance. He predicted that the network would not achieve its record revenue levels of 1989 and 1988, the latter which was boosted by advertising from the Olympics.