NEW YORK — The ad market is certainly cloudy, but there’s a silver lining. The day has dawned for those elusive cross-platform deals that media companies, led by CBS, have been chasing for years.
We’ve seen two big ones in as many weeks. Fox just inked a $90 million advertising and marketing pact with giant Tricon Global Restaurants, owner of fast-food chains Kentucky Fried Chicken, Pizza Hut and Taco Bell.
The one-stop-shopping accord, covering the Fox broadcast and cable networks, follows an even bigger deal at Viacom. The conglom signed Procter & Gamble in a cross-media advertising pact said to be worth a whopping $300 million.
These deals are the fruit of vertical integration pursued by major media companies in recent years. They are starting to flow now as creative alternatives in a sluggish economy, as networks fight for every ad dollar amid a particularly slow upfront marketplace.
Such deals are likely to snowball. Ironically, advertisers may be holding back in the traditional upfront marketplace, but no one wants to be the odd man out if cross-promotion packages turns out to be the new, big thing.
The Tricon pact for the 2001-02 broadcast season covers media buys on the Fox network’s primetime lineup, Fox Sports (including the NFL and NASCAR), syndicated shows and Fox cable nets. Fox owns Fox News Channel, FX and Fox Family.
Agreement also creates marketing sponsorship opportunities across the spectrum of Fox properties.
“We’re leveraging Tricon’s position as one of the largest media buyers in the U.S. to obtain the highest-quality programming at the most attractive prices,” said Tricon VP Amy Sherwood.
Wall Street applauded the deal, as it had the Viacom pact. SG Cowen’s entertainment analyst Ed Hatch reiterated both his buy rating on Fox Entertainment stock and his 12-month price target of $35. Fox closed up 1.1% Tuesday at $28.36.
Congloms have got to be creative. About 50% of Viacom’s revenue comes from advertising. It’s about 26% for Walt Disney and 24% for AOL Time Warner, the companies say, and a big chunk for News Corp. And it will take more than a few cross-promotional deals to offset the pain of the money being lost in the current slump.
It’s been three weeks since networks presented their new primetime skeds to advertisers, yet the upfront market has hardly budged and could linger into July. Last year, with demand high, it wrapped by Memorial Day weekend with a record $8 billion haul. That’s expected to drop by at least 10% this year.
“At some point, we’re going to come out of this slump. Advertisers are going to have to spend their way out of it. Advertising has got to come back. It’s just a question of when,” insisted one network sales exec.
Not so fast. When a recovery comes, be it next month or next year, it’s not at all clear advertisers will sprint back to the party and start handing out cash.
“Once they get a taste of not advertising and notice that their bottom lines are improving and that the same number of units are moving out the door, they may hesitate,” said one newspaper exec. The current downturn is hitting newspapers, magazines, radio and outdoor advertising just as hard as it’s hitting TV.
He and others question the traditional wisdom that advertisers want to jump in ahead of a recovery curve to lock in lower prices. Often the first line cut as companies trim costs, advertising is often the last to be revived.
If they have the money, sure, they’ll jump in. If not, they won’t, said longtime media buyer Jean Pool, president of operations at Mindshare.
After all, advertisers took much longer than expected to come back to the table after the last downturn in the early 1990s.
That was an official recession, defined as two consecutive quarters of negative GDP growth. We’re not there yet. We did see meager 1% growth in the fourth quarter of last year (and 1.3% in the first three months of 2001).
“When you go from 4% or 5% growth to 1%, it’s not a recession, but sure feels like it to most people,” said one Wall Streeter.
The most upbeat forecasters say the second quarter ending in June will be the trough with zero growth and things will head up from then on. But six months ago, experts were saying the first quarter would be the absolute bottom. And for every positive stat that emerges on consumer confidence or unemployment, a raft of critics call the numbers weak and inconclusive.
That means entertainment execs are as busy perusing economic indicators as they are scanning overnight ratings or counting ad pages. It’s a rare and uneasy time when the media world collides all at once with oil supply, interest rates, tax cuts and postal increases.
On the other hand, after nearly a decade of untrammeled growth, the stock market and the economy were due for a breather.
“If you’ve been eating well for seven days, you rest on the eighth,” said Jack Kliger, CEO of Hachette Filipacchi Magazines.
As for the media, they’re all waiting eagerly for the feast to resume.
(Paula Bernstein contributed to this report.)