Lehman Entertainment & Broadcasting analyst Anthony DiClemente estimates Broadcast TV upfront dollars committed will likely to be down versus last year, with pricing increases unable to compensate for lower units (ratings points) sold. Trends working against Broadcast include 1) Declining broadcast TV viewership (even excluding the impact of WGA strike), with viewership continuing to shift "up the dial" to cable networks; 2) The impact of the WGA strike itself leading to an interruption in viewership and uncertain programming for the Fall; and 3) Recessionary pressures modestly tempering demand.
DiClemente believes that Fox is the best positioned heading into the Upfront given its superior ratings performance and they believe Fox could be the only network to grow total dollar volume Y/Y. He expects the rest or all of the broadcast networks to see low to mid single digit declines on a total dollar volume basis.
The Lehman analyst estimates the broadcast network primetime Upfront advertising market could be down 3% this year, or roughly $240 million on a total dollar volume basis compared to last year’s total dollars committed, and this assumes an overall average of 5%-6% CPM increases, 7% declines in ratings sold and a 79% sellout, modestly down YOY.
Conversely, DiClemente expects Cable upfront commitments to be up 5% driving by strong ratings and more attractive relative pricing. Lehman predicts the broadcast network primetime upfront advertising market could be down 3% this year yielding roughly $7.9 billion on a total dollar volume basis compared to last year’s estimated $8.2 billion total dollar volume for the Big Four broadcast nets.
Despite the fact that overall TV viewership is up substantially, broadcast network TV viewership continues to cede share of viewership to cable, said The Lehman report. Based on Nielsen’s Live ratings, the big four networks’ audience declined 11% Y/Y this season from an average of 27.2 million to 24.3 million. “We believe that cable networks are becoming an attractive and realistic alternative to broadcast for television ad buyers due to three key characteristics: 1) Growing cumulative audience; 2) Significant improvements in original programming; and 3) Cheaper CPMs –the gap between broadcast and cable network CPMs remains sizeable with cable network CPMs averaging at 50-60% of broadcast network CPMs,” the analyst wrote.Broadcast Network detail:
Lehman believes ABC is likely to see 3-4% total dollar decline driven by a 78% inventory sellout rate, a 7% decline in a blended Total HH and A18-49 measurement Y/Y, and a 6% increase in CPMs. In total, they estimate ABC could see $2.2-$2.3 billion in total Upfront dollar volume, or -3-4% Y/Y.
ABC’s key franchises Desperate Housewives, Lost and Grey’s Anatomy have begun to realize steady viewership declines while promising freshman series were unable to air enough episodes to gain solid traction as a result of the strike and so remain an unknown quantity.
Given the uncertainty of the 2007-2008 season’s new shows, they are not sure how the 2008-2009 schedule will play out, but note that although ABC only has two new shows on its fall schedule, it currently has the largest development slate of the major broadcast networks. Currently, ABC has 17 pilots under development.
CBS’s prime-time total HH ratings levels have fallen 17% this season, driven by a continued steady decline in ratings for its franchise dramas including CSI. They estimate that decline is roughly 9-10% excluding the impact of the WGA strike. However, Lehman believes CBS will be able to maintain some degree of pricing strength in the marketplace behind the largest broadcast television audience available. They estimate total Upfront dollar volume will be down 5-6% and could be in the range of $2.1 billion. They believe that CBS will see about 5% CPM increases.
None of CBS’s 2007-2008 freshman shows made the cut, so it is back to the drawing board for CBS development. Given its lack of a recent breakout hit and the potential fatigue of its aging CSI franchise, CBS needs a fresh hit to remain a strong ratings contender against ABC and FOX. CBS is tied with NBC for the most freshman shows in its fall lineup.
FOX is currently leading all networks in A18-49 and A18-34 viewers as it has for the last two years, and they expect it to finish the 2007-2008 season that way. As compared with the other networks Lehman looks for FOX to see the smallest audience losses Y/Y. They expect FOX to realize the strongest pricing and dollar increases of the “Big Four” networks. They estimate the network could see modest growth in total Upfront dollar volume of roughly $1.8 billion. This is based on a 4% decrease in blended Total HH and A18-49 viewership, a 5% CPM increase, and the selling of 80% of total inventory during the Upfront.
NBC remains challenged despite a change in management. Viewers are down significantly from last year. They are using a blended Total HH and A18-49 metric to calculate NBC’s Upfront performance and the network was down roughly 13-14% against that metric this season.
They believe that NBC’s fourth place status could impact NBC’s pricing power in the marketplace, but that weaker pricing power might be offset by less inventory being made available for sale as it might anticipate greater makegood obligations. Overall, they anticipate a 6% increase in CPM pricing combined with a lower sell-out of its inventory (80% of its inventory in the Upfront compared to an estimated 90% last year). Together these factors result in a 3% decline in total Upfront sales dollars, with the total Upfront dollars at $1.7 billion.