• by Joe Mandese  @mp_joemandese, September 30, 2003

In the first troubling sign to hit the broadcast network marketplace since it began leading the media economy out of recession more than a year ago, the network prime-time scatter marketplace has slowed down considerably coming into the fourth-quarter and at least one of the major networks - NBC - may be resorting to desperate measures to encourage advertising deals.

Speaking to analysts and investors during Tuesday morning's session of the Goldman Sachs Communicopia conference in New York, Viacom chief Mel Karmazin said NBC was selling its scatter prices at flat rates relative to its upfront pricing and, even more alarmingly, was offering advertisers guarantees on fourth quarter scatter buys. It was unclear how Karmizin knew exactly what NBC's scatter market position is, but he said he "heard" it, when queried by analysts at the conference.

While flat scatter pricing would be a troubling enough signal for the network marketplace, the granting of ratings guarantees are highly unusual and would dilute the logic of buying upfront. It would also likely infuriate advertisers who made upfront commitments.

Karmazin said none of that was true for Viacom's CBS unit, which he claimed was writing fourth-quarter deals at prices that are well above upfront rates and with no guarantees.

NBC executives were not available for comment, but Karmazin attributed the G.E. unit's scatter sales woes to the peacock network's ratings performance.

Later in the day at the same conference senior executives of both ABC parent Walt Disney Co. and Fox parent News Corp. also indicated strong positions in the fourth quarter scatter marketplace.

News Corp. chairman-CEO Peter Chernin said Fox's fourth quarter scatter prices were up in the "low single-digit or high double-digit" range over their upfront deals. "We don't see any softening," he said, noting that the advertising cancellation rate for all of Fox's upfront ad deals was about 2%. Bob Iger, president-COO of Walt Disney Co. said ABC's scatter ad rates also are continuing to rise and that given the network's strong start to the 2003-04 primetime season, it likely would have more inventory to sell in the scatter marketplace.

Wall Street analysts nonetheless have grown concerned about a softening of network ad market conditions and the remarks of Viacom's Karmazin caused a stir during the Goldman Sachs conference.

Those events followed an investment note released early Tuesday by Merrill Lynch analyst Jessica Reif Cohen that may have presaged trouble up the road. The report, which was labeled, "Even Flat Scatter Pricing Is Healthy; Volume Will Be The Key," noted that, "Q4 primetime scatter, thus far, reveals only modest price increases. More important for the quarter will be the amount of volume that is sold. At this point, we believe there is only modest demand, which could simply be a result of a late commitment-to-firm-order process in September (not a big deal). Or, it may be that scatter dollars have moved into the upfront (a bigger deal).

Media buyers agree that latter scenario would be a big deal, because it would create a contra market strategy that could hamper next year's upfront. Historically, weak scatter markets lead to weak upfronts the following year. Conversely, tight scatter markets - like the ad industry experienced coming into 2003-04 upfront negotiations - drive strong upfronts.

In her report, Merrill Lynch's Cohen, however, did allude to one likely positive indicator for network advertisers: "In an environment with little or no inflation, we believe it is foolish to expect that CPM pricing would enjoy strong gains on top of already strong upfront pricing.