Mon Dieu! TV ad prices sink as inventory loosens

'The
cuts are higher than normal. Coupled with a slower-than- expected ad market, it’s making for scatter price rollbacks, in some cases.'

Mon Dieu! TV ad prices
sink as inventory loosens

Weak scatter and cancellations give buyers edge

By Kevin Downey

    If there is an upside to the ongoing economic slowdown, it's to the benefit of media buyers.
    TV ad prices are at last coming down.
    After years of unprecedented rate increases, media buyers now have the leveraging power to demand lower costs from the broadcast networks.
    They are getting them.
    The cost for advertisers to reach 1,000 homes, the CPM, is coming down as TV commercial inventory opens up.
      Buyers are declining to reveal figures, noting that declines vary from network to network. They are also reluctant to describe the declines are significant, though they say that could change.
   Demand for commercial inventory has been cooling for the better part of three quarters in the scatter market, which is when ad dollars outside the upfronts are sold.
    But unsold inventory may hit the networks hardest in this spring’s network TV upfronts when about three-fourths of the coming year’s ad time is secured by advertisers.
    While many buyers and analysts were expecting things to pick up by the time the upfronts rolled around this May, they now say things are looking even more grim for the networks.
    Not only is the scatter market not improving, but more inventory is coming on to the market, as many of last year’s upfront commitments for the second quarter are being cut.
    In fact, second-quarter upfront advertising commitments are being canceled at nearly double the normal pace.
    "The cuts are higher than normal. Coupled with a slower-than-expected ad market, it’s making for scatter-price rollbacks, in some cases," says one broadcast buyer.
    Michele Toller, senior national media manager at Empower Mediamarketing, says: "There’s definitely more money being canceled. It’s pacing about 5-7 percent above normal."
   Upfront advertisers are generally allowed to cancel up to 50 percent of their second-quarter upfront commitments. The actual rate of cancellation, however, is typically less than 10 percent.
   "The networks generally think 8-10 percent will be canceled. But it looks like it will be about 15 percent."
    The result of opened-up inventory means buyers are no longer being squeezed out by dot.coms that once had a seemingly endless supply of ad dollars. And it means buyers are no longer paying top dollar to get ad time on the networks.
    While most buyers and analysts have been predicting the network TV upfronts would be down this spring from last year’s record $8.2 billion, most were unsure if that would be because of lower CPMs or because of fewer advertisers participating in the upfronts.
   "Right now we’re guessing the [upfront] market will be flat or down a little bit," says Toller. "It will depend and it will vary by media. But it will definitely be a buyer’s market."
    It’s becoming clearer that the upfront slowdown will be due primarily to falling CPMs.
    That started coming into focus when some major ad dollars committed in last year’s upfronts for the second quarter were cut.
    While a pullback by faltering dot.coms hit the networks in the third- and fourth-quarters last year, now the cuts are coming from a wide array of companies, including many of the traditional top spenders.
    The most noteworthy is General Motors, which reportedly is cutting up to $80 million from its second-quarter commitments.
    DaimlerChrysler has also made dramatic cuts in the second quarter but the cancellations are coming from most ad categories.
   "It’s a sign of economic instability, if you will. The first thing cut at a lot of companies is advertising, so all sectors will be impacted," says Toller.
    "Obviously, there’s GM and Chrysler but in the retail sector, JC Penney has exercised options, and so have Kmart, Wal-Mart and Target."
    The CPM fall, however, might not be as steep as it would otherwise have been, ironically, because the networks might have less to sell because of falling ratings.
    "In a true sense this is a supply-and-demand business," says another buyer. "Commercial inventory is remarkably static from year to year."
    But he says available rating points are where supply fluctuates. Each of the big-three broadcast networks has had ratings declines this year and may need some of the opened-up inventory to give to advertisers as make-goods, meaning they will give away ad time to make up for missed-ratings guarantees.

-Kevin Downey is a staff writer for Media Life.

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