Network upfront presentations are designed to be gigantic cheerleading sessions. But when NBC kicks off the annual week of broadcast presentations at New York's Radio City Music Hall this week, expect bombastic NBC Universal Television Group President Jeff Zucker to express something uncharacteristic: a bit of humility.
This is the same stage where, last year, Zucker unveiled a fall slate that almost completely bombed, sending NBC's prime time ratings from first place all the way down to fourth.
Lots of networks attempt to gloss over their blemishes, but NBC's shortcomings are too massive for even a showman like Zucker to skirt gracefully. “I will acknowledge up top the reality of the situation,” he says of his presentation this week. “We're not going to run from that; we're not going to hide from that. We're not going to let the elephant sit in the room.”
Zucker's modesty isn't the only change in this year's upfront market. Buyers are much quieter, the economy is slowing, and advertisers in a few major categories may not buy as much. As a result, the latest upfront forecasts are expected to show little growth—if any at all.
It is easy to see the lack of enthusiasm. A year ago, the prime time upfront market was so energized that ad buyers didn't even wait until broadcast networks finalized their fall slates. They rushed to cable's Turner networks. After years of watching giant buying agencies spend their money on broadcast first, Turner's TNT, TBS and CNN found buyers pulling them to the head of the line.
By the end of upfront week last year, Turner Broadcasting's cable networks had written more than 75% of their upfront business. It took weeks for ABC to hit that level. This year at the same time, Turner has signed hardly any business.
Meanwhile, the $1 billion children's upfront market is sluggish. Usually, it is all wrapped up when the prime time cocktail parties commence. This year, advertisers and networks targeting kids are likely to see that sales process roll beyond the closing of upfront week. As of late last week, buyers had committed just 50% of the money that networks expect them to spend.
What has changed? First, look to the broad economy. Lehman Bros. economists predict economic growth will slow during the second half (that is, the fall TV season) to 5.3%, down from 6.1%. Since advertising spending usually moves in sync with gross domestic product, those tenths of a point can have significant ripple effects.
Second, some of the biggest advertisers are simply sitting out this year. Rising gas prices have frozen high-margin SUV sales. Ford and GM are having such dramatic problems that bond-ratings agencies have just downgraded them to “junk” status. (Foreign-car sales are better.)
Movie studios are also seeing tough times. And pharmaceutical companies, beset by new regulatory scrutiny over advertising of prescription drugs (see page 24), are anxious about stepping up their ad-spending campaigns.
Another change: ratings parity. Although NBC may have fallen to last place, the four major networks are in a tight pack. NBC is not all that far behind CBS in the key 18-49 demo—just a few hundred thousand shy. A year ago, the gap between first and fourth was 1.3 million viewers.
NBC's loss dilutes its power to charge high prices but doesn't necessarily give it all to CBS. Where does the leverage go? Back to the advertisers.
And despite big hits like ABC's Desperate Housewives and Lost, cable continues to drain the audience from broadcasters. But, of course, that is an old story.
The message: bad news for the broadcast sector as a whole. Two forecasts, from Goldman Sachs analyst Anthony Noto and Lehman Bros. Vijay Jayant, are negative on broadcast.
Noto forecasts that the Big Four broadcast networks' upfront take might fall 5%, from $8.5 billion last year to $8.1 billion. He sees average CPMs (the cost per thousand viewers) increasing 5% and audience guarantees falling 3%. Networks unhappy with prices will hold out more inventory, he says, and pray that the scatter market is stronger next fall and winter.
Jayant is negative in one way, predicting CPM growth of just 4%. But he sees audience guarantees down only 2% and expects networks to sell about as much inventory as they did last year (83%). Net result: upfront volume up 2.7% to $9.6 billion.
In February, B&C predicted that broadcast volume would be flat. We'll stick with that.
Of course, individual broadcast networks will do far better than those averages. ABC's audience is up 16% this season, and analysts predict that its upfront take will jump by 10%-18%. CBS, the new, undisputed No. 1, could also do well. Jayant sees CBS increasing 8%, but Noto expects a soft market to prompt the network to hold back a bigger portion of its inventory.
Neither analyst published a forecast for cable. (Hello!!! Remember cable?) But B&C estimates that cable's take could rise as much as 10% to $7.2 billion, most of that coming at the expense of broadcast.
As he prepares for the NBC upfront presentation on Monday, Zucker notes that, at last year's upfront, ABC was a dog, mired in fourth place. Days earlier, it had fired its two top programming executives.
A turnaround was only one desperate housewife and some lost souls away. Says Zucker: “One or two moves got them back to parity this year.”
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