Less is more for webs

Upfront math likely to boost 6-net coffers

Now that the nets have set their new fall lineups, the real game is ready to begin.

Advertisers and web sales execs are expected to begin the process of hammering out advanced advertising buys in the multibillion-dollar upfront market as early as today, with some insiders suggesting a huge chunk of business could be done by the end of next week.

And in a bit of twisted logic that makes Hollywood thinking seem enlightened by comparison, the willingness of advertisers to buy time on network television this year seems to be inversely related to the number of viewers actually watching the medium.

Consider: In an historic first, each of the major broadcast webs will finish the 1998-99 season next week with composite single-digit Nielsen ratings. And except for the fledgling WB, all of the nets will end up with fewer viewers than the season before.

At the same time, ad buyers are expected to purchase as much as $6.8 billion in commercial inventory on the major webs for next season during the upfront buying season.

They won’t be rushing in for the great discounts, however.

In fact, if current projections hold up, most of the six broadcast webs are actually expected to command double- digit CPM (cost per thousand) price increases as high as 15% vs. this season’s rates. Advertisers will be paying a lot more and getting a lot less.

The suits on Madison Ave. insistthey haven’t completely lost their minds.

“We live in a supply and demand marketplace,” one major media buyer explained. “The irony of the eroding network viewership is that with fewer people watching the webs, it diminishes the supply.”

Size matters

What’s more, CBS executive veep for research David Poltrack argued, “While the networks are losing some of their audience, there is no substantial challenge from any other alternative. The cable competitors that are taking audiences away from broadcasters are also competing against each other and splitting up the audience.”

As a result, no single cabler has been able to develop “the critical mass” needed to allow ad buyers to sufficiently punish the webs for losing so many viewers, Poltrack said. Cable continues to eat away at the overall share of the ad pie, but nets continue to make more money.

While the phenomenon of advertisers shelling out more money for fewer eyeballs has been going on for several years now as nets continue to bleed viewers, the increases have generally been in the 2%-5% range, with some nets staying flat.

This upfront season promises perhaps the most radical disparity ever between how many viewers are watching and how much money advertisers will likely fork over to land primetime ad spots. The double-digit CPM increases being predicted by most analysts haven’t been seen in years.

In addition to the aforementioned supply problem, what’s likely to push prices up this year is extraordinarily strong demand caused by the booming economy and the increasing emergence of several ad categories — including Internet, financial services and prescription drugs — as major buyers of network primetime.

“The value of television advertising is, to a certain extent, a function of the strength of the marketplace,” Poltrack said, noting that in boom times, companies often seek to launch new products and technologies, thus creating new demand for primetime ad inventory.

Internet companies and Web sites are particularly eager to get on network TV since the mass audiences offered by primetime help drive traffic — and thus ad spending — to their sites.

Financial-planning companies have also turned to TV as a way to reach the huge boomer market, which, faced with the prospect of retirement in 20 years, is increasingly looking for ways to invest its savings.

Likewise, the FDA’s decision to lift the ban on prescription drug advertising has resulted in a flood of “see your doctor” ads touting everything from Prozac to Viagra.

Big spenders

Other big spenders in this year’s market are likely to be auto companies, telecommunication giants and high-tech firms. Packaged good makers and toy companies will likely trim ad budgets.

Just how big this year’s upfront will end up is subject to interpretation, with opinions falling along the usual divide:

  • Network sales execs are the most bullish, almost universally projecting CPM hikes of 10-15%, with an increase of 5%-7% in overall ad volume to a total of nearly $6.9 billion.

  • Ad buyers are more cautious, if not downright skeptical. “It won’t be as big as people say,” said Jerry Solomon, president of national broadcast for SFM Media. “I don’t think there is enough money out there to justify the price increases.”

Indications so far, however, are that the optimistic expectations of the nets are likely to be met.

Early demand

Demand for ad time in the first- and second-quarter scatter market has been explosive. While that’s partially because lower-than-expected ratings for many hits shows forced some nets to reduce inventory to offer upfront advertisers so-called “make-good” ads, insiders also say it’s a sign of strong demand for commercial time.

More telling, the syndication upfront market broke earlier than expected last month, with media buyers reporting strong demand among big-ticket advertisers for syndie ad inventory, in part because of fears that the broadcast webs will hold out for significant price hikes.

How well the webs do in their upfront may in part depend on the strategy individual nets take at the negotiating table.

“If the networks come out and get greedy, they’ll scare people out of the marketplace,” said one major Madison Avenue player said.

Eye on hard line

One network expected to take a hard line on CPM increases is CBS. While the Eye’s fourth-place status among the advertiser-coveted 18-49 demo often makes it the last stop for ad buyers, insiders say CBS topper Mel Karmazin has given permission for his sales force to walk away from deals with clients unwilling to agree to significant rate hikes.

“CBS will write less business by design,” one ad industry pro said, predicting Karmazin would rather “double his sales staff” and sell leftover ad time in the scatter market than accept subpar CPM hikes.

The strategy worked for CBS last year, with the Eye reserving a large chunk of inventory that was later sold at a premium in this winter’s tight scatter market.

NBC’s serve

One marketplace source said that the strength of the market will be set by how tough market leader NBC — which faces a tough upfront market in the wake of its recent ratings declines — is on holding out for big price increases.

Most insiders believe Fox and the WB could have the best upfronts of all the webs.

While Fox’s numbers are down compared with last year, the net is seen as the player most likely to knock NBC off its perch as the top-rated adults 18-49 web. Ad buyers also like Fox’s pure concentration of young adult viewers, and could reward the net with CPM boosts of 12%-15%.

WB, meanwhile, is expected to match its stated goal of $550 million in total upfront billings, thanks to CPM hikes expected to soar as high as 20% over the net’s undervalued rates.

ABC is expected to have a so-so year, while UPN will fight to prevent price rollbacks.

Cable’s effect

Not all is rosy for the nets, of course. Depending on who’s doing the counting, anywhere from $300 million-$600 million in ad business moved out of broadcast and into cable’s coffers last year.

Marketplace sources expect the trend to continue.

“More dollars will shift to cable as the eyeballs do,” said Tim Spengler, senior VP, general manager of national broadcast for Western Intl. Media.

But while cable is expected to continue to do well, networks still have an advantage no other electronic media can offer: the ability to reach a mass audience in a short period of time.

“There’s also an ego thing involved,” admitted the Madison Ave. vet. “When you get right down to it, there’s an innate feeling that network television is the place you want to be if you want to be in the big leagues. It’s where the big boys play.”

(Cynthia Littleton and Richard Katz contributed to this report.)