After record network ad growth, signs point to slowdown
NEW YORK — It’s hard to believe that just six months ago network sales execs and media buyers were uncorking the bubbly to celebrate a record upfront ad market.Thanks to a booming economy, the stemming of broadcast network audience erosion, limited inventory and the halo effect of “Who Wants to Be a Millionaire” — along with a cache of cash from the dot-com boom — it was a banner year, with the six broadcast nets raking in close to $8 billion upfront, nearly a 15% gain from 1999’s record booty of just over $7 billion. But the party may be over. After almost seven years of boom times, there are some telltale signs that the broadcast TV ad sales market is softening. Last week, Morgan Stanley Dean Witter analyst Richard Bilotti downgraded his price targets for Walt Disney, Viacom and News Corp., on advertising jitters that have been spooking investors and battering showbiz shares. While some Wall Streeters complained that there was nothing new in Bilotti’s research note — which served mainly to reinforce fears that an economic slowdown combined with the dot-com implosion will slow ad spending — showbiz stocks nevertheless took a dive. “Everyone says buying and selling broadcast is cyclical,” says John Lazarus, director of national broadcast for TN Media. “Well, it just turned. The buying community is going to have a little more leverage than we had during the upfront. It’s our turn now.” The softening marketplace was uppermost in the minds of News Corp. topper Rupert Murdoch, Disney prexy Michael Eisner, Viacom prexy Mel Karmazin and USA Networks chairman and CEO Barry Diller, with each addressing the issue recently in their third-quarter earnings calls. Diller concedes that an advertising slowdown could hurt the bottom line. “We think the economy is beginning to slow,” he says. “It is inevitable that advertising will not be as robust at the end of the year and next year as it was last year and the beginning of this year. Scatter advertising is quite weak. There will be less growth than there has been in the past.” Murdoch told shareholders recently that he predicts some softening in the advertising market for the rest of the quarter but says “we are guardedly optimistic that the new calendar year will see renewed ad spending among some of our bigger ad buyers.” Karmazin and Eisner put a more positive spin on the ad market: Eisner says, in fact, he is baffled by “the sky-is-falling comments about advertising by some of our competitors. I think that’s a little premature.” The softness, he says “is totally explainable” and, he believes, short term. “We don’t see this dismal-looking future beyond this momentary softness.” Karmazin is even more optimistic, telling analysts that “the advertising business today is healthier than it’s ever been before.” Eisner and Karmazin’s enthusiasm is not shared by the media investment bank Veronis, Suhler and Associates, which recently projected a meager 4.1% increase in national TV ad dollars in 2001, compared with about 10% in 2000. That forecast, which is already looking optimistic, was based largely on the absence of the Olympics and the presidential election, which both served to boost ad dollars this year. In stark contrast to last year, when scatter prices were up 25% or more over 1999 upfront prices, scatter prices now are, in some cases, below 2000 upfront rates. A rocky stock market and the dissipation of the dot-com marketers — who have dramatically reduced ad spending since last year’s boom — make the picture gloomier. And the Screen Actors Guild strike against agencies, which delayed some clients’ ad plans, doesn’t help matters. It’s likely advertisers simply shifted a larger percentage of their budgets to the upfront to avoid the huge scatter price increases they had to pay last year. Even so, the trend doesn’t bode well for next year’s upfront. “Going into the upfront will be much different this year than it was last year,” says Chris Geraci, director of national broadcast buying for OMD USA. “The mentality is already in place for a much less inflationary marketplace.” While they admit there has been a softening of the ad market during the fourth quarter, network sales execs are optimistic that things will pick up by next year’s upfront market. “I think it’s much too early to say there is a trend that will extend well into next year,” says Mike Shaw, president of sales and marketing for ABC Television. “Scatter hasn’t even really started yet. It’s just too early to make those kinds of calls.” But TN Media’s Lazarus is seeing a different picture entirely. “We’re getting plaintive pleas from the networks: ‘Do you have any money to spend?’ This is as bad on the selling side as it’s been in a while.”
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