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Advertising Market Remains Volatile

An ever-weakening U.S. economy is taking its ugly toll on broadcast and cable ad sales, creating volatility and a slew of uncertainty as sellers and buyers prepare to face off for the upfront selling season.

On the one hand, the first-quarter cable scatter advertising market seems, for the most part, to be improving over the past fourth quarter. But it still lags behind year-ago levels.

The scatter market attracts advertisers who come in at the last minute and get a bargain in bad economic times, or pay through the nose in robust times.

More disturbing-and unusual because of its depth-is the fact that advertisers are also reneging on the upfront buys they made last spring. That's occurring mostly in the broadcast sector, but it's spilling over into the cable-network arena as well-creating, to some extent, a mini-glut of unsold inventory.

USA Networks Inc. chairman Barry Diller has publicly acknowledged that General Motors Corp. had opted out of about 15 percent of its upfront commitments, well below its percentage on the broadcast side.

Addressing an International Radio & Television Society Foundation Inc. breakfast audience last Thursday, Merrill Lynch's Jessica Reif Cohen said GM's cancellation of its 2000 upfront TV buys was "unprecedented" and "scary."

As a result, all eyes are closely focused on what each day brings in the first-quarter scatter market-the day-to-day yardstick of a healthy or unhealthy marketplace.

ESPN, for one, appears to be in good health. ESPN/ABC Sports president of customer marketing and sales Ed Erhardt said his scatter units are going at "premium rates," although he declined to specify cost-per-thousand figures.

At Discovery Networks U.S., executive vice president of ad sales Bill McGowan said the fourth-quarter dot-com meltdown is "yesterday's news." "The marketplace has turned the corner and business is substantially stronger," he reported.

Likewise, executives at Turner Broadcasting Sales Inc., Lifetime Television and Fox Family Channel all said the first-quarter scatter market is tracking well, and all are hoping that trend continues apace into the upfront market, where approximately three quarters of all advertising inventory is sold in advance of the next year.

But that's not the case at all cable networks, which have been hit with a double whammy: softness in the first-quarter scatter market and losses from advertisers who exercised second-quarter options from last spring's upfront buys.

An executive at one midsized niche network said his first-quarter scatter activity is "rocky," off about 8 percent to 10 percent from year ago.

And he's not alone, according to the president of another niche network, who did not want to be identified. That executive also acknowledged that he too had his share of advertisers who pulled back last year's upfront dollars in the second quarter.

Meanwhile, the tone at last week's annual Cable television Advertising Bureau conference was bullish, with most participants predicting stronger cable-network ad sales in the second half of the year.

Myers Reports Inc. CEO officer Jack Myers cautioned against "overestimating the economic downturn."

And Viacom Inc president Mel Karmazin told CAB attendees that "advertising is growing and 2001 is no exception." But he conceded there would be "some rough bumps in the first part of the year."

Those present rough bumps worry other executives, who are more conservative in their take on market conditions.

At the IRTS breakfast last week, UBS Warburg Inc. analyst Christopher Dixon predicted sales would not notch up until the second half of the year. He also foresaw more cross-media sales activity from the media conglomerates, citing AOL Time Warner, The Walt Disney Co., News Corp. and Viacom Inc.

But Merrill Lynch's Cohen said that it would be increasingly difficult for others to compete against the vertically integrated giants. She said that TNN: The National Network and FX are already beginning to see the upsides in deals involving sister networks.

At that same event, Sanford C. Bernstein analyst Tom Wolzien summed up what many are privately thinking when he concluded, "This quarter continues to be pretty ugly."