Cable & Barter Caught In Undertow Of Web Ad Woes

The devastating depression that has hit Big Three network tv advertising prices has spilled over into all other sectors of the medium.

Prewar projections of double-digit ad revenue growth for cable and barter syndication are fading fast. And the prognosis for 2% to 5% growth in national spot advertising revenues now seems to be the product of unbridled optimism. No sector of the tv landscape is safe from the double whammy of recession and war.

Conventional wisdom has been that when business for the major webs was robust, the rest of the biz prospered as well. Now, the converse also appears to be true.

“We’re just the pilot fish swimming along with the sharks,” says a barter sales executive. “And it looks like there will be less left over this upfront when they’re done feeding.”

“The big news is the Big Three network’s pricing has come down to the range of syndication and cable,” says DeWitt Media topper Gene DeWitt. “And that’s drawing the dollars away from those [smaller] guys.”

When ABC, CBS and NBC were easily selling time at premium prices, cable or syndication was a cost-effective way in for some advertisers buying national spot. But the deep discounting in network commercial time, which began at the end of last year, has continued unabated this quarter and is likely to continue through second quarter. The upshot is that any price advantage other areas of the tv marketplace had is vanishing.

“When the networks do good, we do good. But when they hurt, we hurt,” says Mike Weiden, who heads TV Horizons, the barter sales arm of LBS Communications.

Several advertising giants have slashed their commercial spending for second quarter. One glaring example is top-network advertiser Procter & Gamble, which, according to industry sources, canceled 50% of its network commercial commitments made in the so-called “upfront” market for second quarter. Several other major advertisers, including General Motors, Unilever and McDonald’s, also have made significant cuts in second-quarter network spending, according to sources.

Some of these cuts were unilateral. P&G, the No.1 cable advertiser and No. 2 national spot and syndication advertiser, made cuts across the board, note the industry sources.

“If P&G is making major cuts, you have to ask what message that’s sending out to other packaged goods manufacturers,” says a barter sales executive. “This could have a serious snowballing effect.”

General Motors and Chrysler reportedly are planning to make substantial cuts – between 10% to 20% – in their advertising budgets as well. And with domestic auto sales off 27.8% last month, and no manufacturer – American, European or Japanese – escaping the slump, more cuts in auto ad budgets are expected. Cuts in automotive spending will be especially painful to the national spot market, where eight of the top 15 advertisers are car companies.

Tv rep firms already are feeling the pinch. January national spot revenues at the rep firms that broker commercial time for local stations were at best flat and at worst down 10%, according to rep firm sources.

“This is the roughest market I’ve ever seen,” says Ray Johns, executive v.p. of the tv rep firm Seltel. “Everybody is screaming, ‘Where are the dollars?’ It’s a black hole with no relief in sight. The only consolation is that it’s not just us. Everybody is having a tough time.”

In addition, cable webs – with the exception of CNN – aren’t commanding the kind of double-digit price increase they’ve been getting the last few years. “If everything wasn’t so depressed, all these cable networks might be sold out this quarter and at prices 10% higher than last year,” says Lawson.

“The [Big Three] networks are begging for dollars,” adds Dan Rank, senior v.p. and director of national tv planning at DDB Needham. “If you can get network primetime at 50&cents; on the dollar, that’s getting down into cable pricing. That’s making cable networks very humble.”

The picture for cable and syndication, however, is not quite as bleak as their broadcast brethren’s. Basic-cable networks and barter-syndication sales forces sold aggressively in the upfront season. By and large, neither category has the kind of excess commercial inventory problems that have plagued the networks.

“The major barter firms sold 75% to 90% of their inventory in the upfront,” says Weiden. “Cancellations for us on second quarter options were up about 5% over last year. Sure, we’re feeling the pinch, but not as much as the networks.”

“Cable is not depressed like the networks,” says Kathy Lawson, senior v.p. of the St. Louis-based media buying firm Advanswers, adding that first-quarter commercial availability on several basic-cable networks, including the USA Network, Arts & Entertainment, Lifetime and Nick At Night, is tight.

In general, there is hope that advertisers who have cut second-quarter spending will be ready to spend those dollars when the upfront season begins. Some industry savants speculate that P&G’s second-quarter cut will be reexpressed in upfront: The company’s fiscal year ends second quarter and some view the ad cuts as a quick way to improve the company’s end-of-year bottom line.

But in the current economy, that may be wishful thinking. The price pressure on barter syndication and cable is likely to continue through the upfront season. Even a titan like GM, which has led upfront buying in seasons past, is slashing its budgets. And advertisers will be in no mood to pay the Big Three networks big increases over last year’s pricing after experiencing three quarters of scatter time being sold at significantly lower prices than upfront.

“The advertisers now have the whip hand,” says the tv chief of a major agency. “And they’re going to use it.”

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