TV Ad Revenues Take a Hit

After preemptive advertising rate cuts by the NBC and ABC television networks this week, buyers rushed into the market, gobbling up the discounted air time for the fall season.

When the dust settled, the consensus among top network executives was that total advertising revenues would be down by as much as 15%, to $6.5 billion, from the record $8.2 billion last year.

It’s the first time in a decade that “advance” advertising sales for the fall season will be down--a reflection of the weakening economy.

CBS has so far remained mostly on the sidelines. With some of the biggest ratings gains last season, CBS is refusing to give advertisers any discounts. It has threatened to hold most of its advertising inventory for sale later this year, hoping that the economy turns around.

NBC, ABC and Fox expect to finish their advance selling next week.

Typically, the broadcast networks sell 75% or more of their prime-time advertising inventory between Memorial Day and July 4 in an annual ritual known as “the upfront” selling season.

This year’s downturn is more severe than either Wall Street or the television networks predicted last month, before broadcasters unveiled their fall schedules to Madison Avenue.

“This is depressing,” said Jessica Reif Cohen, an analyst at Merrill Lynch who had predicted a 10% decline in advance advertising sales. “We don’t see the ad market picking up before the second half of next year.”

Network executives said Walt Disney Co.’s ABC is taking the biggest hit, with advertising sales dropping $500 million to between $1.6 billion and $1.7 billion. On the strength of “Who Wants to Be a Millionaire,” ABC sold $2.3 billion in advance advertising last summer--more than any other network.

But a sharp 20% decline in ratings last season, a faded “Millionaire,” and a disappointing new schedule for fall forced the network to give discounts of 6% to 10% over last year’s rates, according to network executives.

Although a weak economy gave advertisers the advantage over networks and stalled the start of upfront selling, NBC got the market rolling this week. The top-rated network caused a stampede among buyers and sellers after cutting its rates by 5% to 8%. NBC said it figured it could risk going first because its rates are higher than any other network’s.

By late Friday, NBC had sold about 70% of its advance inventory. The company expects to sell all but 30% of its prime-time inventory in the next two weeks for a total of $1.9 billion. That is down from last year’s $2.2 billion.

NBC’s ratings have also fallen, with its 17-year stronghold on Thursday night weakened last season, challenged by CBS’s audacious move of “Survivor.”

Emboldened by the ratings momentum of “Survivor” and “CSI: Crime Scene Investigation,” CBS has taken an unusually risky strategy during the upfront selling season by waiting. Network executives say CBS has sold only an estimated $400 million to $500 million of advertising so far, compared with last year’s total of $1.6 billion.

Rival networks question whether CBS will be able to squeeze the increases it has been seeking out of advertisers who have already extracted discounts from the other networks.

Mel Karmazin, the chief of CBS owner Viacom Corp., has been adamant that CBS will get a greater share of the upfront pie and higher rates this year because of the network’s gains last season. CBS spokesman Dana McClintock said the company has sold advertising packages for the upcoming “Survivor3” and “Survivor4” series for a combined $25 million per sponsor. That is an increase over the $12 million charged for the ad packages on “Survivor2.”

Network executives estimate that CBS could still wrap up the upfront season with $1.5 billion to $1.6 billion in sales, which would make it flat with last year.

Fox is also expected to remain flat, at $1.3 billion.

Unlike last year, advertisers were expressing interest in Fox’s “Temptation Island,” which brought in strong ratings among the 19- to 49-year-old viewers advertisers covet but made buyers nervous because of its content.

The WB network said that 30 new advertisers had signed up and that rates were up modestly. Officials said the network would finish the year slightly ahead of last year’s $425 million.

UPN said it would also sell more than its $157 million in advertising sales last year.

“We’ve been doing very well in a very difficult market,” said Dean Valentine, chief executive of UPN.