The ebullient forecasts for a record upfront market this spring - when the television networks will sell most of their advertising for the 2003-4 season - are being tempered as the war in Iraq enters its third week.
The less optimistic predictions, which lower the consensus estimates of increases to the single digits from 12 percent to 15 percent, are a marked change from the first few days of the war. Network executives had confidently predicted that the conflict was unlikely to adversely affect the demand for commercial time.
But the outlook for the upfront market has become cloudy as setbacks in the war effort compete for news media attention with the successes.
"Right now it's murky, and uncertainty is not good for the advertising economy," said Joe Mandese, editor of Media Markets Daily in New York, a newsletter published by Primedia.
The original forecasts by analysts and network executives called for the broadcast networks to take in perhaps as much as $9 billion in the upfront market, compared with the $8 billion booked in advance of the 2002-3 season. The cable networks, by comparison, were expected to ring up as much as $5.5 billion, compared with $4.6 billion ahead of the current season. And the sellers of syndicated series were predicted to book as much as $2.4 billion, compared with $2 billion before this season started.
"There was a euphoria on the seller side that there would be strong demand, up by double digits, but then it quieted, big time," said William Cella, chairman at Magna Global USA in New York, part of the Magna Global media-negotiating agency owned by the Interpublic Group of Companies.
The prices paid by advertisers are likely to increase, he added, but by percentages in the low single digits rather than in the high double digits.
Besides the question marks generated by the war, "the economy started slowing before the war happened, and it's still crummy," Mr. Cella said.
"Even if the war is out of the picture, all it would mean is that we could concentrate on the bad economy."
The economic outlook, particularly centered on consumer confidence, is being closely monitored by Madison Avenue. Mullen, an Interpublic agency in Wenham, Mass., plans to update regularly the results of a survey taken at the start of the war to gauge shifting sentiments.
The first update, released yesterday, showed that Americans "are more comfortable with, or less fearful of, the day-to-day risks we all must take to live our lives in a somewhat normal manner," said Ted Nelson, managing partner and director for brand and strategic planning at Mullen.
"However, expect everything to change," he added, "should our worst fears be confirmed and a terrorist event does in fact occur in the U.S."
Consumer sentiment is particularly important in determining whether big-ticket items are bought or ignored. Sales were sluggish last month for automobiles, which account for more advertising spending than any other product category. That led three analysts at Morgan Stanley in New York, in a report released on Tuesday, to predict that "auto ad spending will disappoint investors in 2003-4, as current levels are unsustainable."
Not surprisingly then, a report from Morgan Stanley on the 2003-4 upfront market took issue with the consensus estimates for increases of 12 percent to 15 percent in the total revenue for all TV commercial time. Rather, the report concluded, increases of 5 percent to 7 percent are more likely, and for the time frame of two seasons, through 2005, not one.
Mr. Mandese of Media Markets Daily said he was concerned about the results of a survey of chief financial officers by Financial Executives International and the Fuqua School of Business at Duke University. Two-thirds of those responding to the survey, released last week, said they expected their company's ad and marketing spending in the next 12 months to be flat or decline.
"While C.F.O. confidence could improve by the time the 2003-4 upfront action starts in May or June," Mr. Mandese said, "their sentiment will be shaped largely by the developments in the Iraq war."
William Drewry, an analyst at Credit Suisse First Boston in Atlanta, said he believed that what happens on the battlefields in the next two to three weeks "may determine which direction the advertising market takes."
"If the war is nearing an end or is over (wishful thinking perhaps), then the advertising numbers would probably start to pick up," Mr. Drewry wrote in a report.
"If the news flow is relatively stable and the coalition forces are making progress, then the market may start to pick back up as well as advertisers step back into the market."
Mr. Cella at Magna Global said he also believed that "we'll be able to get a better, clearer picture in two weeks."
One analyst, Jack Myers, chief economist at Jack Myers L.L.C. in New York, which publishes media and research newsletters, is more bullish than most others. He continues to forecast a strong upfront market before the fall season begins, citing evidence like current robust demand for commercial time, bought shortly before spots run, in what is known as the scatter market.
"Those in scatter are paying prices as much as 50 percent higher than what was charged in the upfront for 2002-3," Mr. Myers said, "so they'll want to push into the upfront market."
"Marketers are certainly cautious," Mr. Myers said, "but the upfront is about 2004, and the hope is that the war will be past history in 2004 and marketers will be really focused on rebuilding their businesses."
The Summer Olympics and elections in 2004 will also stimulate demand, he added.
While the upfront market "is unlikely to meet the original bullish hopes of the networks," Mr. Myers said, "it's certainly realistic to expect an increase of 5 percent to 7 percent for the broadcast networks" along with gains of 7 percent to 15 percent for revenue for cable networks and increases of 5 percent to 10 percent for revenue for spots in syndicated shows.
Those predictions, he added, are predicated on an assumption that "the war does not stretch beyond mid-May" and a concurrent "return of positive economic indicators."
Otherwise, Mr. Myers said, "all bets are off."
Posted on aef.com: April 7, 2003.
Stuart Elliott, The New York Times. April 3, 2003
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