Let the horsetrading begin

by Dave Lindorff

     It all happens this week as network executives and advertisers horse-trade over the cost of TV time for the coming year, and—no surprise here--prices are again going up. The only issue is how much. Typically, as this crucial week begins, no one agrees.
     Network executives are predicting 10-15 percent hikes in the cost-per-thousand charge for a primetime spot, and advertising executives are saying the increases will likely be only in the high single-digit range.
     ‘‘It's too early for the networks to have their budgets,’‘ says Ogilvey & Mather buyer Peter Chrisanthopoulos, ‘‘so they can't honestly tell you their rates are rising by double digits.’‘
     When the dust settles, he predicts, rates will only be up in the 5-7 percent range. That's not the up to 20 percent that cable ad rates may rise this year, but with ad volume up by about that same amount, the networks still can't complain.
     Last year advertisers spent a total of $16.3 billion on network time, a jump of 6.9 percent from 1997's $15.23 billion.
     This year advertising spending on network programs is likely to rise to a record $17.3 billion, with a third of that--about $6.9 billion--likely to be booked in this week’s upfront sellathon, when rates are typically 20-30 percent lower than the later scatter period.
     Industry observers say whatever ad business is moving over to cable—the going estimate is $300 to $600 million—is more  than made up for by advertising segments that are new to network advertising. These include internet, financial planning, pharmaceuticals, and discount phone services
     In 1995 the internet sector bought no network time. In 1996 web companies spent $27 million on TV time, and in 1997 spending more than doubled, to $59 million, only to double again in 1998, rising to $120 million.
     In the first two months of 1998, internet firms like AOL.com, Amazon.com, and AT&T Worldnet have spent $63 million on network spots, up 209 percent from the $20 million they spent in the same period last year. If that trend continues, internet marketers alone could more than make up for whatever revenue the networks are losing to cable.
     Financial planners and brokers are also big TV spenders these days, putting out $138 million in 1998 and probably more this year, as is the prescription drug industry, which only last year gained government permission to advertise prescription drugs.  The industry spent $391 million in 1998, an increase of 303 percent over 1997, and was up 86 percent for the first two months of 1999.
     Long-distance telephone providers’ spending saw an increase of 43 percent in 1998 over 1997, rising from $310 million to $413 million.
     The idea of prices rising while audiences are shrinking may seem ludicrous and counterintuitive, but in fact the laws of supply and demand have not been repealed for television broadcasters. The networks in recent years have allocated about as much space to ad spots as the nation's couch potatoes will probably let them get away with, which means that available ad slots are in demand, especially for the hottest shows. New companies like Spot.com, that need name recognition, and companies with new products, are willing to pay whatever it takes to get slots on shows that are favored by their target audiences.
      Meanwhile, the increased demand for ad space is enabling the networks to squeeze  those agencies that typically book large amounts of ad space but don't particularly care what time slots they get for their clients. ‘‘This year, the networks are able to demand 20-30 percent rate increases from these bottom feeders,’‘ says one industry executive.

Source: Competitive Media Reporting

Dave Lindorff is a Philadelphia-based writer