Buyers beware of strike impact

Advertisers could ask nets to rework upfront pacts

As the WGA strike continues, media buyers said they might be a month away from asking the broadcast networks to renegotiate their upfront packages or give them cash back.

"The situation may not become a major problem until after the February sweeps, but we have to start thinking about how we are going to deal with things for the remainder of the season now," one major media buyer said. "In the next three weeks, if there is no settlement in the writers strike, and primetime ratings continue to fall, we will start looking for serious adjustments and even for cash back. That's going to be awkward and hard for the networks to deal with."

Broadcast network sales executives believe that their networks have enough fresh episodes of scripted shows to take them through the February sweep — along with the liberal dose of repeats that traditionally run in December and January — and enough reality programming to take them through the rest of the season.

But buyers, likening that attitude to Nero fiddling while Rome burned, say the networks are wrong if they think viewers will be retained with repeats and some new reality programming.

Instead, they believe viewers will begin defecting to cable, which, because of its different cycles, can offer first-run programming in some instances and also repeat full arcs of their hit scripted series that many regular broadcast network viewers have yet to see.

At an Advertising Club panel sponsored by Discovery Networks last week, Rino Scanzoni, chief investment officer of media agency conglomerate GroupM, said: "During the first four weeks of this season, when all of the broadcast networks were airing original episodes and their new shows, the ratings erosion from last season was about 12%. That's quite unnerving, particularly since these ratings declines were with all first-run programming." He said it can't get better once all the fresh episodes are used up. "Cable can be an alternative to broadcast if the strike continues," he added.

"Over the past several seasons, cable ratings in the aggregate have increased by about 5% in nonsweeps months," said Steve Sternberg, executive vp audience analysis at Magna Global USA.

Sternberg projects that if the strike continues through the end of February, the broadcast networks will lose an additional 5% of its primetime ratings on top of the minus-12% it is averaging. That number will grow to 8% in March (down 20% compared with last season), by 12% in April (-24%) and by 13% in May (-25%).

That level of audience defection from broadcast primetime surely will leave the networks with virtually no way to meet their promised upfront guarantees and likely would prompt a large number of advertisers to ask for cash back. It would also create chaos for the 2008-09 upfront in May.

Buyers said the broadcast networks assumed a 7% ratings decline for this season when doing their upfront deals and put aside make-goods for those levels of underdelivery. With ratings 5% lower than that, the networks still can manage handing out make-goods without reaching an imperative cash-back situation.

But one buyer said, "If a large majority of the original reality shows the networks plan to put on during the strike don't hit a chord with viewers, the entire ratings and make-goods situation could spiral out of control."

Added another media buyer: "We need to know what we are going to do right now. Even if a strike doesn't last until the second quarter, it will impact the second quarter. We need to know that the programming packages our clients have in the second quarter resemble what they bought in the upfront. If there is no first-run 'Heroes' or 'Grey's Anatomy,' what programs that resemble those shows' audiences are our clients going to be put into?"

One buyer said that Fox's announcement that it will not air "24" (because all the episodes have not been completed) is a problem for some clients: "Even if Fox offers them units in 'American Idol,' it might not be the same target audience they are looking for. And putting them in a 'House' repeat is not the same as a first-run 'House.' "

Andy Jung, senior director of advertising and media at Kellogg's and chairman of the American Advertising Federation, said if viewers begin abandoning broadcast primetime for cable, the advertisers will follow. "If the eyeballs move," he said, "we will move our money."

Cable networks, particularly the larger, more general-audience services such as TNT, TBS, Discovery Networks and USA, along with the cable news networks in primetime, probably will see the bulk of shifted dollars. But media buyers warn that if they get greedy and ask for exorbitant rates, the agencies will balk and look to syndication, print or online.

One cable network sales executive said he recognizes the opportunity the strike has provided his sales team and would strive to not mishandle the situation. "While we would ask for rates that are a little higher than we are getting right now, we would make sure we didn't try to gouge the clients. But we do have enough inventory available to take advantage and to give each advertiser what they need."

John Consoli is a reporter at Media Week.