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Agencies Hem and Haw Over Prices

With apologies to Herman's Hermits, there's a kind of hush, all over the world . . . of advertising, anyway, as negotiations between the big broadcast TV networks and the big agencies for the purchase of commercial time ahead of the coming fall season are getting off to their most sluggish start in years.

By this week in 1999 and 2000, the process to determine prices for 30- second spots in prime-time programs had pretty much been completed, with agencies agreeing to pay record rates on behalf of their advertiser clients. This year, of course, the national economy is in more parlous a state, slowing the talks as the agencies decide whether to buy in advance of the 2001-02 season in the so- called the upfront market.

Typically, the broadcast networks sell as much as 75 to 80 percent of their commercial inventory before the season starts. That may fall off if agencies decide to wait simply until the series begin making their debuts in September before they buy time, in what is known as the scatter market, hoping that prices may be lower.

"For the first time in a while, the buyers have more power than the sellers," said Michael J. Russell Jr., an analyst who follows the advertising industry for Morgan Stanley Dean Witter in New York.

As a result, the agencies "are going to look for some discounting," he added, as well as "for some goodies" like additional flexibility in when and where their spots would run.

So far, the big broadcast networks - ABC, CBS, Fox, NBC, UPN and WB - are resisting the pressure from the agencies to lower prices, meaning they have not been signing many deals.

"The upfront could be down even farther than we'd projected," said Jack Myers, chief economist at Myers Reports in New York, a company that publishes media newsletters and research reports. In March, Myers Reports forecast a decline in ad revenue of 4 to 6.5 percent from what the broadcast networks took last spring when they sold commercials ahead of the 2000-01 season.

Now, Mr. Myers said, he is estimating a decline of more than 8 percent, which would be the first significant decrease in the upfront market in eight years.

Christopher Dixon, media analyst at UBS Warburg in New York, forecast a decline more than twice the revised Myers figure, predicting that the falloff in total ad revenue could be as much as 18 percent compared with a year ago.

"Last year, because of the Olympics and elections, most advertisers decided to overcommit" in the upfront market, Mr. Dixon said. "This year, it is 180 degrees reversed.

"If I were an advertiser, I'd be asking `Why should I make commitments now rather than wait a little bit?' " he added.

That will result in "an upfront market that lasts longer than most people anticipate," Mr. Dixon said, probably not concluding until the end of summer. That was the prevailing pattern before the late 1990's, when the booming economy made agencies rush anxiously to buy time ahead of the season, fearing that prices would be higher later and supply scarcer.

"The advertisers were at the mercy of the networks in the last several years," said Dennis Leibowitz, managing director for media and strategies at Credit Suisse First Boston in New York. "Now, it's going to be very slow.

"But if the networks don't panic," he added, and avoid making deals at fire-sale prices to jump-start the market, "they could do better than most people think."

Are the networks now at the mercy of the advertisers as the agencies decide it's payback time to recoup what they overpaid in recent years?

"They didn't overpay" if they wanted and needed the commercial time when consumers were in an ebullient, spending mood, said Alan J. Gottesman, who follows advertising and media companies as managing director of West End Communications/Consulting in New York.

"As for `payback time,' it's great posturing," Mr. Gottesman said, adding: "If someone came into the market only once, last year, and was coming back now, trying to get even, fine. But this is a very concentrated industry. These are people who know each other by their first names. There are buyers who have been to every Super Bowl since the Super Bowl began."

In the upfront market before the 2000-2001 season, the broadcast networks sold more than $8.1 billion worth of commercial time. The declines the analysts are forecasting would lower the ad revenue committed before the start of the 2001-02 season to $6.8 billion to $7.5 billion.

But it must be remembered that last spring brought gains of $1 billion or so for the broadcast networks over what they took in during the upfront market before the 1999-2000 season, meaning they would lose little or no ground compared with two years ago.

"Last year was like a once-in-a- hundred-year flood of money pouring into the media companies" that own the broadcast networks, said Tom Wolzien, senior media analyst at Sanford C. Bernstein in New York. They are: the Walt Disney Company, parent of ABC; Viacom, which owns CBS and UPN; the News Corporation, parent of Fox; the General Electric Company, owner of NBC; and AOL Time Warner and the Tribune Company, parents of WB.

"We're in a period of getting closer to reality, on both sides," Mr. Wolzien said. "Nobody wants to be the poster child to do the first, and worst, deal."

Still, "marketers need to advertise and media companies need to sell advertising, so there are going to be deals," he added. "It's just going to take a while."


Stuart Elliott, The New York Times. June 4, 2001

Copyright © 2001 The New York Times Company. All rights reserved.