CBS: We're eating
turkey, not crow

Says ad prices are holding, so ignore naysayers

By Kevin Downey

   CBS took a gamble last summer when it held back inventory from the upfront rather than cut ad prices.
    Many people, notably buyers, are saying CBS is now eating its decision, slashing prices in the scatter market for the third of the inventory that it held back.
    Joe Abruzzese begs to differ.
    Specifically, Abruzzese begs to differ with buyers quoted of late in Media Life.
    Abruzzese, president of sales for CBS Television, says that not only are CBS ad rates holding but the cost for reaching 1,000 viewers, the CPM, is actually rising.
    "CPMs are going up," says Abruzzese. "Money is coming into the market.
     "When more money shows up, then the gamble has somewhat paid off. It is not negative, it’s positive. But nobody ever reports that."
    CBS only sold about 65 percent of commercial spots during the upfront, versus the 80 percent networks normally sell for the following four quarters.
    Faced with a stalemate over pricing, NBC broke open the upfront by offering to discount prices, and ABC quickly followed.
    But CBS balked.
    It told buyers it would rather hold back inventory in the expectation that ad demand and prices would bounce back by the fall scatter market.
    At the time, CBS's stance was seen as risky staging, by Mel Karmazin, to psych-out buyers.
    In effect, Karmazin appeared to be saying, take the prices that are now on the table. If you don't, because you're expecting prices to fall, you're going to see our inventory disappear.
    Next time you see that inventory, it will be in the scatter market, and you'll pay dearly.
    Scatter prices are usually at a 15 percent to 20 percent premium.
    The only flaw with Karmazin's gambit was that, for it to work, buyers had to believe the ad economy was going to improve.
    Few did, and just how many were moved to act by Karmazin's ploy is unclear.
    Forecasters were already predicting the ad sales slump would last well into 2002, and ultimately the networks pulled in $1 billion less than they had in the prior upfront.
    Any hopes of a revitalized fall scatter market were put to rest with the tragedies of Sept. 11, and now some forecasters are predicting that a recovery won’t begin until 2003.
    Abruzzese says that it's important to understand the nuances of CBS's upfront strategy.
    "It’s not that we held back inventory, it’s that we wouldn’t take a dive on pricing," explains Abruzzese.
    "There’s a big difference. Intentionally holding back is saying, ‘I’m not selling to you because I’m waiting.’ That’s opposed to us saying, ‘I’ll sell it to you, but I’m not going to negatively impact my pricing.’"
    Abruzzese says CBS is able to maintain prices in large part because of how the fall scatter market has evolved.
    True, overall ad demand remains depressed, but CBS has one thing working in its favor: a shift in what demand there is over to CBS.
    CPMs are driven up when demand for commercial time outpaces the number of spots available.
    As it happens, the supply of inventory, which is the number of rating points the networks have to sell, has decreased.
   This is so for two reasons.
   The networks have used some spots in the fourth quarter to make up for the commercial-free coverage that followed the Sept. 11 attacks.
    And ratings on several networks are down this season, which means some spots are not being sold but are being given back to advertisers to make up for shortfalls in ratings guarantees.
    ABC’s adult 18-49 rating, for example, is down 15 percent compared to last year.
    "What you have is a period of time in which the ratings are not as plentiful as people would have thought, especially on some of the new shows," says Michael Russell, an analyst with Morgan Stanley Dean Witter.
   "There is a tightening of supply and a tightening of demand. At this flash point moment in time, you have more of a tightening of supply than there is a tightening of demand."
    That’s causing advertisers to shift dollars to where there is available inventory, which happens to be at CBS.
    While CBS is not claiming to be commanding typical premiums in the fourth-quarter scatter market, Abruzzese says the network is increasing its ad rates to coincide with some of the increased demand that is moving over to his network.
    "We don’t have any more inventory than we did last year, and our ratings aren’t up substantially," he says. "So if your inventory isn’t up and your ratings aren’t up, the only way you can get more revenue is by raising your prices."
    A similar trend is being reported by UPN, which like CBS, is owned by Viacom.
    "Some of the networks are under-delivering on their estimates," says Adam Ware, chief operating officer at UPN.
    "As a result, they owe make-goods. So as money is starting to move out, advertisers are looking for alternatives and they are starting to look at us now.
    "If your ratings are up and you’re not changing your rates, CPMs can be forced down disproportionately. But that’s not happening to us."

November 20, 2001 © 2001 Media Life

-Kevin Downey is a staff writer for Media Life.