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News Industry Plans for War and Worries About Lost Ads

The last time a president named Bush went to war against Saddam Hussein, in 1991, the confrontation had deep and unforeseen effects across the American media industry. The war established CNN's viability as the first all-news network, taxed television and print news organizations alike with tens of millions in reporting costs, and deprived networks and publications of hundreds of millions in lost revenue as advertisers withdrew from sponsoring the all-consuming news of the conflict.

This time, however, the course of the potential conflict is both more open-ended and harder to predict, partly because of the prospect of an uneasy occupation in Iraq and the possibility of terrorist attacks elsewhere. The Pentagon has also given signs that it will allow journalists greater access to the carnage of battle, coverage that could further deter advertisers. Several major media companies, meanwhile, are in a more precarious financial condition than they were a decade ago.

The combination is adding pressure on industry executives as they anxiously prepare, dealing with problems like outfitting news crews with the right biochemical protection suits as they debate the public's appetite for reality television if real soldiers are dying.

Most media industry investors expect a swift, clean conflict, like the first Persian Gulf war, analysts said.

"Everyone is assuming that it is a rerun," said John Tinker, an analyst at Blaylock & Partners, an investment firm in New York. "But that may not be the case. Does Saddam Hussein use gas and all that kind of stuff because he doesn't care any more? The bottom line is, if it drifts on into late spring then it is a serious problem."

Several of the major media companies, whose stocks are already depressed, can ill afford the lost revenue of a war at the moment. Vivendi Universal is trying to recover from a severe cash shortage and is considering selling businesses. AOL Time Warner is trying to pare down its own heavy debts and regain investors' confidence, partly through a planned initial public offering of stock in its cable division this spring, a step a war might delay. Walt Disney's chairman, Michael D. Eisner, is also under pressure from investors over the poor performance of its ABC division in recent years.

Disney and Vivendi Universal would feel the first pinch of a war because both operate theme parks, and travelers tend to shun air travel or boisterous family vacations during national crises.

In 1991, companies in the travel and tourism industries stopped advertising completely, as did energy companies. Almost every other major advertiser, from Procter & Gamble to Campbell Soup, pulled back sharply, too, partly because consumers lost interest in shopping and partly because no company wants its proud sponsorship or catchy jingle interspersed with scenes of battle.

The broadcast networks have the most to lose in a war because they plan to pre-empt their normal programming schedules for wall-to-wall news - at least during the first days and then for any major events - and to suspend commercials. "I can't think of anything that would be appropriate at that time to advertise," said Randy Falco, the group president of the NBC Television Network.

In 1991, NBC, part of General Electric, lost about $3.5 million to $4 million in canceled advertising revenue during each of the first three nights of its coverage of the war, according to reports. Many estimates put the lost revenue of the three major networks at a total of more than $25 million a day. After Sept. 11, when the major networks suspended advertising to cover the news continuously for four days, the News Corporation, which owns the Fox and Fox News channels as well as The New York Post, lost $100 million in advertising revenue in the week after the disaster, the company later said.

Mr. Falco and executives at other networks said they had begun polling their advertisers to determine their willingness to run commercials. "During `Today' show, for instance, we will have a reel of advertisers who we know are comfortable having station breaks when we are," Mr. Falco said.

Executives of the 24-hour cable news channels - CNN, Fox News and MSNBC - said they expected to suspend all advertising for at least the first days of a war. Paul Rittenberg, the senior vice president of advertising for Fox News, said the network usually brought in about $1 million in advertising a day. But executives at all three channels said they expected at least a few advertisers to begin returning within weeks, especially if the war ended quickly.

Newspapers and magazines stand to suffer from an ad pullback as well. Magazines can be especially slow to recover because they often sell advertising weeks or months before publication. After Sept. 11, many newspapers and magazines added extra pages of ad-free news and lost about half of their weekly advertising revenue.

In a conference call with investors last week, Douglas H. McCorkindale, the chief executive of Gannett, which publishes USA Today and other papers, told investors, "We are getting national advertisers, in particular, being very cautious about ads out into the end of February and through March. They don't want to be on the wrong side of news like that."

Network news executives said that the Pentagon might play a decisive role in shaping the coverage, and therefore the advertising climate, through its policies on access to the front. So far, military officials have indicated a greater willingness than in Afghanistan or the previous gulf war to let journalists cover the front, making preliminary arrangements for some reporters to travel "embedded with troops," in military parlance. But what is good for freedom of information may be bad for advertising sales.

"It is not clear to me if this is going to be a video war the way the gulf war was or a lot of people waiting around for Rumsfeld at a press conference," Mr. Rittenberg, of Fox News, said, "On the other hand, if it is footage of the front lines, we are not going to cut away."

Letting reporters close to the front also increases the already significant costs of covering a war, including the cost of buying bulletproof vests and other protective gear. But a protracted conflict may stretch the budgets that network executives say they have set aside for that purpose.

CNN executives have said the network has allocated $30 million to $35 million for the additional cost of covering a war. By comparison, it cost CNN $25 million to cover the first war in Iraq. This war could be far longer. In 1991, the three biggest broadcast networks lost so much money because of canceled advertising and news gathering expenses - NBC estimated its total costs at $45 million - that it led to widespread retrenchments and budget cuts, including in the news divisions.

James Kelly, the managing editor of Time magazine, said his "operating assumption" was that "there will be a war, and it will not go quickly."

Network executives are also weighing the possibility that the harsh reality of war might diminish the astounding popularity of reality television. The question was first raised and then dismissed after Sept. 11, but scenes of American troops fighting on the ground may be another matter.

A turn from reality TV is possible, Mr. Falco of NBC said, noting that some reality-show ratings fell after Sept. 11. "At times those kinds of shows, in the midst of a tragedy or a war, seem a little frivolous to viewers," he said, "But over time things tend to get back on cycles."

One thing that is certain is that a war will draw viewers from entertainment to news. That could hurt networks that spent heavily for sporting events. For example, CBS, part of Viacom, paid $360 million for the rights to broadcast the college basketball championships in March.

For CNN, the war is an opportunity to reprise its finest hour, when it was the only American network reporting from Baghdad during the 1991 war. Its executives hope to regain some ratings ground lost to Fox News. But CNN is unlikely to enjoy a similar monopoly on images from Baghdad again, in part because there are now other Arab and international networks there. CNN also competes now not only with Fox News but also with MSNBC for viewers seeking around-the-clock news.

Eason Jordan, the chief news executive for the CNN News Group, said the network was determined to be prepared, noting that it had maintained its bureau in Baghdad for 12 years. But Mr. Jordan acknowledged, "This is a wildly different situation from 1991, and if there are 200,000 U.S. troops in Iraq for the rest of the year, that is going to be a very expensive thing for us to cover."

Posted on aef.com: February 13, 2003


David D. Kirkpatrick, The New York Times. February 10, 2003

Copyright © 2003 The New York Times Company. All rights reserved.