Economy may undercut upfront

Recession fears cast doubt on this year's marketplace

Recession fears and a ratings hangover from the WGA strike are throwing uncertainty into this year's upfront marketplace.

Upfront forecasts, like weather, are never an exact science. But the winds blowing across this year's media landscape are exposing fault lines in the $20 billion-a-year upfront market (with $9 billion or so in primetime broadcast TV). Odds are that the primetime broadcast market will be down in overall volume by a percentage point or two -- no small potatoes when you're talking about so much money. But it's also rare: There have only been two down markets in the past 10 years.

"The overall money will be down in the upfront," said Andy Donchin, director of national broadcast at New York-based Carat. "The question is how much effect does the economy have to drive it down significantly."

Broadcast TV's position was weakened by the writers strike, with many original programs that haven't returned to their pre-strike ratings averages. But, Donchin said, broadcast TV remains "beachfront property."

Effects of a potential recession have shown up in local markets, but they have yet to dampen enthusiasm for broadcast TV, which saw record prices for scatter inventory in the first quarter and still high prices in the second quarter, all despite the writers strike. But a resurgent cable TV and an overall push toward digital is making advertisers less dependent on the traditional outlet.

Another top ad buyer said he's seen more caution among clients, though no recession concerns yet. But it will be in the next few weeks, when advertisers come to New York for upfronts and finalize their media spending plans, that indications will begin to become clearer for both buyers and sellers.

"There's a perception that the recession is impinging on the upfront," said one network ad exec. "But that's not something we'll have to guess at soon. We'll begin to get information from agencies and clients soon."

The networks don't seem worried, at least officially. Fox and CBS recently told Wall Street they're optimistic. News Corp. president/COO Peter Chernin said Fox was possibly better positioned than any broadcast network, and CBS CEO Leslie Moonves told analysts in a recent conference all that they "anticipate a very healthy upfront selling season."

But buyers have said that networks have told them they understand the fluid nature with the economy weakening.

"The posturing has been less aggressive than in years past and less aggressive than we were reading three or four weeks ago," said one buyer.

It also isn't a dream upfront for several traditionally big sectors, including automotive and financial services. One question mark is retail, which had a tough Christmas season but whose business depends on advertising. At least one media agency has been hitting the history books to try to forecast how media spend has played out in recessionary times.

And, said one buyer: "We haven't seen a big decline, but clients are double- and triple-checking their spends and being more cautious."

This year's topsy-turvy market comes after 2007's upfront selling season finished up stronger than expected and after continued double-digit increases in the scatter market. Fox led the market with CPM increases between 7% and 9%, with ABC, CBS and NBC in the mid-single-digit increases. Buyers say that despite volume being down, the networks could still come up with mid-single-digit CPM increases again this year.

There will likely be a small shift in dollars toward cable, particularly the top-tier cable networks like TNT, TBS and USA that garner nearly broadcast-style ratings for their original scripted programs. Turner Broadcasting has even scheduled its upfront for next week, in the middle of the broadcast presentations, to drive home the point. Volume for cable will likely increase.

Broadcast networks will have a difficult time determining how much of their inventory will be sold in the upfront compared to how much will be held back for the scatter market and, to a lesser extent, makegoods. Last time, the broadcasters held more in reserve and didn't sell as much inventory. That paid off for them with the strong demand in the scatter market. But it might not this year.

"The networks are going to be a little anxious about the potential recession and dollars coming out of the marketplace," one buyer said. "They may not see that in the upfront but they may be a little concerned about scatter. They should be pricing their inventory in the upfront to move."

Even though the recession is a factor in this year's upfronts, there's one issue that won't be. Last year saw a move to commercial live-plus-three-day viewing becoming the main currency after decades of live-only program ratings. With only a year of C3 under their belts, there's little appetite for wholesale change. There will be deals done with minute-by-minute ratings, but those are likely to be the exception, not the rule.

"We have to have some history under our belt before we go to the next metric, whatever that may be," one buyer said. "I think C3 is a good level to stay at, certainly for this year."

Georg Szalai contributed to this report.