Media economy
So far at least, networks feel little pain
By Kevin Downey
Oct 29, 2008 - 8:24:16 AM

There’s good reason to think broadcast television would be having a lousy fall as the ad economy slumps.

But so far the networks aren’t doing all that badly. That’s because money is coming in from the robust upfront ad market in late spring and early summer, when the broadcasters locked up orders for $9.3 billion, a year-to-year increase of just over 1 percent.

Prices were up about 5 percent to 9 percent, according to Miller Tabak & Co. analyst David Joyce.

And for now at least, advertisers aren’t backing out of orders for first quarter, the time period buyers and sellers are working on.

Of course, all this could change in the coming few weeks. Spooked by the rough economy, advertisers could decide to begin canceling for the quarter, with up to a fourth of those orders subject to cancellation. The networks, mindful of advertisers' concerns, are giving them more time than usual to decide whether to back out of their upfront commitments.

“The networks are giving three to four weeks so they don’t force cancellations,” says Aaron Cohen, executive vice president and chief media negotiating officer at Horizon Media.

“First quarter is usually fairly light, with cancellations running 1 percent to 4 percent. But everyone is expecting it to go deeper this year. The question is: How deep?”

But while networks have cause for worry, it's expected that most of this will stay in place.

Advertisers are reluctant to cancel upfront deals for fear that they won't then get that air time back should the economy improve. That's because there isn’t much inventory available in the scatter market, where ad time not sold in the spring upfront market is auctioned off. Little inventory means much higher prices.

What inventory the networks did not sell in the upfront is being eaten up by makegoods as the networks compensate advertisers for not meeting audience guarantees.

“The networks realized there would be fewer opportunities to write business in scatter so they sold more of their inventory,” says Larry Novenstern, executive vice president and joint managing director of the newcast division at Optimedia. “On top of that, with about five weeks of data, ratings erosion is continuing.”

When scatter inventory is tight, prices usually rise above upfront prices, which happened last year.

“Buying time in the upfront has almost always been the cheapest way to get the broadest exposure, broadcast TV, since inventories have dwindled and scatter prices have increased strongly in recent years,” says Joyce.

The networks ended up selling more inventory in this year’s ad market than in an average upfront, perhaps 85 percent compared to 75 percent or so most years.

When coupled with declining ratings and giveaway units, there’s almost no inventory left over for the scatter market.

Which is a good thing for the networks because there is almost no advertising demand for the little inventory that is available, according to buyers and analysts.

“There are no budgets out there,” says Novenstern.