Barclay’s Capital Equity Research expects aggregate broadcast TV upfront dollar volume for ABC, CBS, FOX, and NBC to be down 15% to roughly $7.4 billion, as a more difficult macroeconomic environment, declining ratings, pressures from certain key verticals (particularly autos), continued share shift of ad dollars to cable networks/Internet, and lower inventory sellout ratios all pressure total broadcast dollar volume. While network sellers remain publicly adamant that they intend to hold the line on price, Barclay’s expects to see Y/Y declines in sellout ratios as inventory is sold at flat-to-down prices. There is less certainty surrounding cable TV upfront volume, and while many expect cable TV upfront dollars to be up on a Y/Y basis given increased ratings share versus broadcast and a still-sizeable CPM pricing discount versus broadcast, they are concerned that broadcast TV network pricing/ volume weakness could unfortunately spread to cable TV.
Given the dislocation in the economy since the last TV upfront, Barclay’s believes the broadcast and cable TV industries must [get beyond] cyclical pressures since the last TV ad upfront before equilibrium is achieved in both the upfront and scatter markets. They look for three trends heading into the 2009/ 2010 broadcast TV upfront:
1) Firm Pricing Could Mean Lower Sellout Ratios. Broadcast networks are generally loathe to “break price” in order to sell more ad inventory given they would be locking in the year’s business at lower prices, thus foregoing the opportunity to benefit from a stabilization or cyclical improvement in the scatter market later in the year. Lower sellout ratios in the upfront, however, could have the effect of inflating supply available in the scatter market later in 2009/2010, which could instead act as a price deflator later.
2) Potential Narrowing of the CPM Gap. They believe the pricing premium for broadcast television spots could dissipate over time as cable TV networks continue to gain market share and relative reach for specific networks. There are offsetting factors at work, however, as a decline in overall broadcast ratings season-to-date has reduced A18-49 inventory by roughly 11% vs. last year, possibly creating another year of “artificial” CPM pricing support for broadcast given constricted supply.
3) NBC is the Unknown. NBC’s decision to fill the 10PM prime-time hour with Jay Leno’s “The Tonight Show” removes 5 hours of prime-time inventory from the marketplace, potentially tightening inventory supply for the other three major networks, a potential modest positive for their pricing and ad dollar volume.
RBR/TVBR observation: Radio you must follow the money. Now this year radio operators must pay attention to the TV upfront as once money starts to be committed you must track where it is going as you can pace your own upfront.
Radio must get in tune with all the competition and upfront is where the money starts. Few years ago radio attempted an upfront and then gave up. This is a disadvantage for Radio and we should consider to come together to produce a complete Radio upfront as radio we know radio has the content, talent and this should be put in front of the money planners.
