Network Ad Sales Defy Gravity

The big television networks are suffering through a ratings slide, their programs squeezed between a record number of commercials, promotional messages and public service announcements, as cable continues to gain viewers.

But as they approach the new fall season, the major networks still are poised to surpass the $6 billion in advertising they booked prior to the start of the current television season. As part of the annual ritual of introducing the new fall lineup, networks pre-sell as much as 80% of the year’s advertising, in what is known as upfront sales.

“Unlike the rest of the known universe, the national TV marketplace frequently defies the laws of gravity,” said Jack Myers, publisher of the New York-based Myers Report. “While the Big Four broadcasters are all down in their average prime-time audience delivery coming into this year’s upfront, they are expected to take in more dollars.”

The laws of physics and finance are being suspended because, in an increasingly splintered society, television networks are still the best option for advertisers who need to talk to huge groups of consumers. Television also is benefiting from the overall strong economy, as well as new, cash-flush advertisers in the prescription pharmaceutical and online industries. In addition, the networks will benefit from advertising generated by the Olympic Games and a presidential election year.

An uptick would be welcome in an industry in which upfront sales--which drive 75% to 80% of total ad revenue--have been flat for two years. One of the rosiest revenue forecasts comes from Merrill Lynch & Co. industry analyst Jessica Reif Cohen, who foresees a 9% overall increase for the top seven networks. The big winners on Cohen’s list are Time Warner’s WB, News Corp.’s Fox and Univision. UPN trails the pack, with Cohen predicting a 13% loss in ad sales.

Fox, which has used such shows as “Ally McBeal” to challenge NBC for leadership in the important 18-to-49 age group, is “well-positioned” to draw an upfront-billings increase of 12%, according to a research report by Cohen. CBS, with such proven shows as “Touched by an Angel” and “Everybody Loves Raymond,” could “register stout pricing increases,” while ABC stands to “garner strong increases.”

Largely on the strength of advertising driven by Olympic coverage, NBC could reap a 4% to 5% gain, according to Cohen’s research report, which adds that “NBC will be fortunate if it holds its total billings flat in the 1999-’00 upfront excluding Olympic dollars.” WB is expected to do well on the strength of its teen-oriented programming, but UPN will suffer due to a ratings drop during the current season, Cohen said.

Moreover, the networks are packing more and more non-programming minutes--commercials, promotional messages for TV shows or public service announcements--into prime-time programs. Advertisers complain that this so-called clutter dilutes their messages, but they are not backing away from buying commercial time.

“In almost every category, including automotive, fast food and telecommunications, spending will be flat or up, which means that the marketplace--the sum of all the parts--is going to go up when it comes to the upfront,” said Tim Spengler, senior vice president of Western Initiative Media Worldwide.

Advertising industry executives are spending this week in New York, where they’re being shuttled to lunches and cocktail parties hosted by networks that are unveiling their prime-time schedules for the 1999-2000 season. When the week is over, media buyers will quickly cement advertising budgets for the new season, which begins in the fall.

This also stands to be a good year for cable because more people are watching cable channels.

Cable television will siphon $800 million in advertising dollars that might otherwise go to broadcast networks, said Joe Ostrow, president and chief executive of New York-based Cabletelevision Advertising Bureau, a trade organization. “We expect to make inroads of substance, easily in the double-digit range,” he said.

The cable-versus-broadcast debate is being heated up by a pair of new studies dealing with which viewers--broadcast or cable--are more likely to pay attention when commercials are playing.

Broadcasters champion the recently released Quad report from Nielsen Media Research, which suggests that prime-time network viewers are more likely to tune in--and stick with--a program than their cable counterparts. Cable industry executives fire back with results from a study by Los Angeles-based Western Initiative Media Worldwide, suggesting that cable TV viewers are more likely than prime-time broadcast viewers to pay attention to commercials.

Both reports are generating controversy, in part because Nielsen has close ties to the broadcast industry while Western Initiative relies heavily on cable companies for revenue.

Nielsen’s report suggests that while cable viewership is growing, cable viewers are more likely to spend time channel surfing. The Nielsen data paint a picture of broadcast viewers who make plans to watch specific shows and then set aside the remote control.

Cheryl Idell, Western Initiative’s chief strategic officer, said her research shows that cable viewers are more likely to watch TV alone, while prime-time network viewers are more likely to watch as part of a group. “When commercials come on during the highest-rated network shows, viewers start talking to other people in the room--and they’re not talking about commercials,” she said.

Western Initiative’s report also suggests that cable viewers are more likely to watch commercials because they’re more likely to be closely tied to the programming--for example, a home-improvement channel would probably feature ads for products and services of interest to a do-it-yourselfer.

One measure of the industry’s health came early in May, when observers noted that deals were already being struck, even though the upfront season doesn’t officially begin until Monday. Myers reports that “1999-2000 may already have enough momentum to qualify as one of those rare ‘pre-upfront’ markets.”

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Moving On Up

This is the week when television networks announce fall program schedules. It’s also the start of the “upfront” season, during which networks sell most of their commercial time. Most analysts predict an upswing in network advertising revenue.

Projected Prime-time Upfront Sales

For the top seven networks, in billions of dollars:

NBC

1998-1999: $2.00

1999-2000 estimate: 2.08

*

ABC

1998-1999: 1.35

1999-2000 estimate: 1.45

*

Fox

1998-1999: 1.20

1999-2000 estimate: 1.35

*

CBS

1998-1999: 1.15

1999-2000 estimate: 1.24

*

WB

1998-1999: 0.30

1999-2000 estimate: 0.40

*

Univision

1998-1999: 0.25

1999-2000 estimate: 0.30

*

UPN

1998-1999: 0.15

1999-2000 estimate: 0.13

Source: Merrill Lynch & Co.