The most telling evidence as to whether a recovery in advertising spending is in sight will come in the next few weeks, as the broadcast television networks and Madison Avenue begin their haggling over the purchase of commercial time worth $7 billion or more to be sold ahead of the 2002-2003 season.
The annual mix of gamesmanship, posturing and spinning that surrounds the talks - known as the upfront market - could be more frenetic and fascinating than ever because of the recent roller coaster ride on ad rates.
The best guesses so far from analysts and executives on both sides of the upfront bargaining are that agencies will agree to spend on behalf of their advertiser clients about 3 percent to 6 percent more in the coming prime-time TV season than was sold ahead of time for the 2001-2002 season.
The expected increase would represent a modest piece of good news for the networks. Last spring, the ad buyers found themselves in the driver's seat because of the sluggish economy and were able to bring down prices from the record they had reached for the 2000-2001 season, when an estimated $8 billion in ads were sold. As a result, the upfront ad revenue brought in by the six networks during last year's market declined by an estimated 15 percent, or $1 billion, to about $7 billion.
Now the networks are hoping to make up lost ground after the introduction next week of their fall schedules at lavish presentations around Manhattan. History offers some guidance. "We've never had two back-to-back down upfronts, so you would expect some growth," said Joe Mandese, the editor of Media Buyer's Daily, a newsletter published by Primedia. Mr. Mandese predicts a rebound in the modest single digits, as advertising in categories like movies, automobiles and drugs should offset continued weakness in areas like financial services, travel and telecommunications.
There are, of course, no guarantees that the estimated increase of 3 percent to 6 percent, to $7.2 billion to $7.4 billion, will occur. Continuing uncertainties over the strength of consumer demand, centered on the pace of economic recovery and the potential for further threats to national security, cloud the outlook. And the caliber of the new programs and schedules the networks present beginning on Monday will help determine the upfront's outcome.
"To say the market's up, the market's down, is missing the bigger issue in the marketplace: Can we bring Americans back to the TV screen?" said Jon Mandel, co-chief executive for United States operations at MediaCom in New York, the giant media buying agency owned by the Grey Global Group.
"During the upfront presentations, I just want to see one series from each network that shows someone is trying to put on something different," he added.
The upfront always begins with the sellers predicting that robust demand will enable them to raise prices and with the buyers playing down their ardor for the merchandise, which in this instance are 30-second commercials on the prime-time series to be broadcast by ABC, CBS, Fox, NBC, UPN and WB from September through next May.
Each network usually sells about 75 percent of the spots it plans to run, holding back the rest to peddle during the season in what is known as the scatter market. If prices are higher in the scatter market, the networks get more revenue than if the spots were sold in the upfront. If prices are lower, they at least hedged their bets by selling most of the commercial time at higher rates.
The apportioning of sales between the upfront and the scatter markets is part of the strategy-setting that network executives are now pondering, just as their counterparts across the table are determining whether to buy sooner rather than later.
"The economy is still wobbly enough that the networks might want to sell more now," said Gordon Hodge, an analyst who follows media companies for Thomas Weisel Partners in San Francisco. "Last year, they played the game of chicken a little too hard" and were forced to cut prices when agencies balked at paying the higher rates the networks initially sought.
"Taking the money and running would not be a bad idea if the networks can get the pricing they want in this environment," he added. "Asking double-digit increases doesn't make a lot of sense, but it seems to us now that dollar volume could go up 6 to 8 percent."
One issue looming large for this upfront market is that many media conglomerates that own broadcast networks, including AOL Time Warner, the parent of WB, and the Walt Disney Company, the parent of ABC, are under increasing pressure from Wall Street to demonstrate quickly that business is improving.
"That influence on the sellers is making the upfront more complicated than ever before," said Jack Myers, chief economist at Jack Myers L.L.C. in New York, which publishes media and research newsletters.
"Investors are looking to the upfront as a sign of market strength," he added. That means, he said, that "sales executives are under pressure to deliver positive news," like selling more commercial time in this upfront market than last year's even if they might be able to charge higher prices later in the scatter market.
As the early assessments of the upfront market are being made, a consensus is emerging that among the network players, the weaker hands are held by ABC and Fox, which is part of the News Corporation. Both networks suffered steep ratings declines in the 2001-2002 season that forced them to offer compensatory spots to advertisers known as make-goods.
Conversely, the stronger hands are held by CBS, which gained viewers for series like "C.S.I." and will finish the season in second place in the ratings; NBC, which will finish first; and WB, which continues to attract the coveted younger viewers who are typically harder to reach. How NBC sales executives play their cards may provide the key to the market. Last May, when NBC, which is owned by General Electric, reversed course and cut prices after refusing for a month to do so, advertisers suddenly raced to buy commercial time, forcing most other networks to reduce their rates, too.
This time around, "there are factors that could lead to a strong upfront," said Joseph Abruzzese, president for network sales at CBS, which is part of Viacom. Among them he listed the recent "fairly strong scatter market," with some prices 15 percent to 20 percent higher than was obtained in the upfront market, and signs of demand from advertisers like auto and drug makers as well as entertainment and telecommunications companies.
Mr. Abruzzese will be wearing two hats during the upfront negotiations, also selling spots for UPN, a CBS sibling in the Viacom empire.
The upfront chess match may be somewhat less crucial than in previous years, said Jed Petrick, the president and chief operating officer at WB in Burbank, Calif., because "buying and selling is now a 52-week game." Mr. Petrick added that "more and more advertisers are holding on to their money till the 11th hour and placing buys closer to the air date."
The upfront market usually begins one to four weeks after the fall-season presentations and can last one to three months. Last year, the talks began in early June and ended by the July Fourth weekend; in 2000, they began right after the presentations and concluded by Memorial Day.
After the broadcast networks finish their upfront market, similar negotiations start for cable TV networks and syndicated shows.
Stuart Elliott, The New York Times. May 9, 2002
Copyright © 2002 The New York Times Company, Inc.. All rights reserved.