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The Internet Frenzy Ends and TV's Ad Market Hits a Wall

Television's red-hot ad market has gone into a deep freeze.

With the kick-off of the new fall season, the entire TV industry -- from broadcast and cable networks to major syndication companies -- is finding itself sitting on loads of unsold commercial time. One major ad-agency buyer said the networks are entering the fourth quarter with only 80 percent of their airtime sold -- sharply lower than the 88 percent to 90 percent that is usually the case this time of year.

It's looking so grim that there is even speculation that broadcast and cable networks may have to take the extraordinary step of selling their commercials at prices below what they got in advance sales during the upfront market this spring -- a practice known on Madison Avenue as ''dropping their pants.''

Some network executives are fearful that the slowdown, the worst they've seen in 10 years, could be the first sign of a precipitous downturn in TV ad spending next year. ''It's a reaction to bad earnings reports in the third quarter,'' said one network sales chief. ''A lot of (companies) missed third-quarter projections and clamped down on their purse strings.'' Rising oil prices and their possible long-term effect on the economy have also scared some advertisers into cutting back.

But even with those explanations, it's amazing how quickly things have turned. Less than four months ago, the broadcast networks took in a record $8 billion in advance sales -- a 10 percent increase over the previous year, and the healthiest ad market in history. But even then, unsettling signs on Wall Street were emerging. And now, an unusually large number of the advertisers who ponied up in June -- especially in the technology and financial-service industries -- have canceled their orders or moved them into next year.

One agency media director said marketing and ad spending is often the first thing to go when Wall Street earnings projections aren't met. ''It's easy to pull an ad budget and add to the bottom line,'' he said. ''If there is a battle between the financial guy and the marketing guy, the financial guy is going to win.''

Other factors also account for the sudden dry spell. The $900 million that NBC says it has taken in for the 2000 Summer Olympics may have left little for advertisers to spend in the fourth quarter on other television outlets. ''When you take a billion dollars out of the marketplace, you're going to feel it,'' said a sales executive at a competing network.

And with the presidential candidates fighting for voters in key states, as opposed to focusing on a national message, most political ad money has gone to local TV stations, rather than the networks.

Finally, the freewheeling Internet spending that drove up prices earlier this year -- remember the Super Bowl ads from companies nobody had heard of? -- is over. Many of those companies have either gone belly-up, or they don't have enough money to keep their commercials on the air.

One by-product of the dot-com invasion is an end to a gentleman's agreement that had prevailed in the TV ad business. The tradition on Madison Avenue had been that once you bought fourth-quarter ad time, you stuck to that commitment, even though months would pass before you actually signed a contract and paid for it.

But some large companies are now using the lag time to cut back. ''The whole process is being abused a little,'' the network sales chief said. ''A hold order is a moral commitment, not a legal commitment. I guess people are getting amoral.''


Stephen Battaglio, Inside.com. October 8, 2000

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