Commercial Prices Still Holding Up

Ratings are down. New series have been canceled. But ad buyers aren’t panicking. They’ve seen this show before.

“Some level of erosion is the new normal,” says Ethan Heftman, senior VP, director of national broadcast at Initiative Media. “Erosion concerns us, but it’s not out of balance or out of whack with what we’d consider the new normal.”

In the first three weeks of the new season, using the C3 commercial ratings on which most ad buys are based, the broadcast networks are down 4% in primetime among adults 18 to 49 compared to the same three-week period a year ago. NBC is up 3%, CBS is down 1%, ABC is down 9 and Fox is down 11%. The CW is up 7%.

The ratings decline and show cancellations mean the networks have to put sponsors’ ads into other shows, or provide extra spots to make up the shortfall. “If you put some money down on Lone Star, you’re going to make it good in other programs, whether it’s direct replacement [ads in the show in the same time slot] or something else that fits your brand needs,” Heftman says. (Fox typically uses the World Series to make good for some advertisers, especially if there are a lot of pitching changes and the series goes beyond five games.)

In the topsy-turvy world of media buying, the mostly lower primetime ratings are contributing to continuing high prices in the scatter market by limiting supply after an upfront market in which the nets sold an unusually large share of inventory. With advertisers spending despite concerns about the overall economy, the TV commercial market is perky, with prices more than 10% higher than the upfront, buyers and sellers say.

“There’s demand, which is coming in very strong. No one’s pulling back. The money is coming in. But because the ratings supply is dropping, it’s inevitably adding to the price increases,” says Donna Speciale, president, investment & activation and agency operations at Mediavest.

Peter Knobloch, CEO of media agency RJ Palmer, says CBS’ strong performance so far this season could spell opportunity for buyers: “They have a little more supply than they probably anticipated.”

Most other dayparts are also strong, particularly sports. “The network daytime marketplace is strong because there’s no inventory left in daytime. And early morning is holding up,” Knobloch says. On the other hand, late night is weaker.

Knobloch doesn’t think the strong market will continue: “I’m still saying the scatter market is going to fall apart. There are going to be some great opportunities throughout the rest of the year.”

However, the next mile marker for the market, first-quarter options, seems to be another bullish indicator. Clients who buy ads in the upfront have an option to cancel up to 25% of their purchases during the first quarter and 50% in the second and third quarters. Buyers and sellers report that so far, it appears clients will use options to reduce buys by about 5%—a fairly normal level. But many advertisers have asked for extensions rather than committing.

“In terms of first-quarter options, it’s still a little early,” Knoblauch adds. “Everybody’s asking for an extension anyway, but I just don’t see a whole lot of fallout there.”

“We haven’t gotten any indication of any signifiicant cutbacks in the first quarter,” says Jon Nesvig, president of ad sales for Fox Broadcasting.

Beyond options, the market has an eye on retail sales, the stock market and economic indicators. “The two biggest drivers of our business are the overall economy and corporate profits,” Nesvig says. “Profits seem to be holding up among the large companies. The economy and unemployment are worrisome, but consumer spending seems to be holding.”

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Jon has been business editor of Broadcasting+Cable since 2010. He focuses on revenue-generating activities, including advertising and distribution, as well as executive intrigue and merger and acquisition activity. Just about any story is fair game, if a dollar sign can make its way into the article. Before B+C, Jon covered the industry for TVWeek, Cable World, Electronic Media, Advertising Age and The New York Post. A native New Yorker, Jon is hiding in plain sight in the suburbs of Chicago.