• by Paul Gough , June 3, 2004

Just as the upfront marketplace has begun in earnest for the major broadcast networks, a well-regarded Wall Street analyst Thursday issued a report predicting the Big 4 networks' prime-time sales would decline 2 percent of $7.9 billion, due mainly to erosion at ABC (-17 percent) and NBC (-3 percent). While Fox's sales are expected to be flat, the report from Merrill Lynch analyst Jessica Reif Cohen, now anticipates CBS' prime-time sales will expand 8 percent.

Even with those shifts, Cohen predicts NBC will remain the dominant prime-time network in terms of overall upfront advertising sales, with a 35.4 percent share of overall upfront advertising budgets, down half a percentage point from the 2003-04 upfront. CBS, by comparison, will grow nearly three percentage points to a 29.7 percent share of the upfront. ABC will erode nearly three points to a 15.8 percent share, while Fox will expand slightly to a 19.0 percent share. The total upfront market when other network dayparts, UPN, WB, cable, syndication, and Hispanic networks are factored in, will actually expand 8 percent this year, with the biggest winners being cable, syndication and the Spanish-language networks.

The report notes that ad budgets coming into the upfront were either flat or up mid-single digits in the third-quarter and that cancellations are rising to 7 percent to 10 percent.

The Big Four networks' upfront take in 2003-04 was $8.08 billion compared to $7.19 million a year earlier, according to Merrill Lynch research. CBS was poised to gain the most in terms of market share among the top four networks, although NBC would remain the leader. CBS would see its market share rise from 27 percent this year to 29.7 percent next year, ahead of all but NBC, whose share would decline from 35.9 percent this year to 35.4 percent next year. Merrill Lynch sees Fox's share of the market gain slightly, while ABC's would fall from 18.6 percent this year to 15.8 percent next television season.

"While scatter pricing remains modestly up, we do not find it significant enough to suggest the 2004-05 upfront will match last year's exuberance of 'across the board' double-digit CPM and total dollar increases for all networks," Merrill Lynch analyst Jessica Reif Cohen wrote.

At the same time, Cohen predicted that strong performance and a higher inventory sellout at the larger cable networks will push the medium's total dollars up nearly 20 percent to $6.6 billion. The biggest gains in share and CPM would come from the higher profile groups like MTV Networks, FX/Fox News Channel and Turner Broadcasting's TNT and TBS. Viacom, with a 26 percent aggregate share of the prime-time audience, would be the "winner" in the upfront.

The niche networks like Scripps and Discovery would also do well in Merrill Lynch's estimation.

The broadcast network upfront sprung to life earlier this week, with buyers reporting that the Fox and CBS seemed to be nearly done with what they planned to do in the upfront.

"NBC got a completely late start," said one buyer. "They were not moving fast, which is what they usually do."

Meanwhile, the bigger cable groups have been completing deals at a dizzying rate. A cable executive who asked not to be identified estimated that as much as 75 percent of the inventory set aside for the upfront had been sold.

The deals began three weeks ago, while the broadcasters were still telling advertisers about what would be on their new schedules. Cable networks have been gaining upper single-digit to low double-digit increases, according to sources on both sides of the negotiating table.

Many of the early deals involved movie studios and automakers, who need to reserve space for movie openings and new model introductions. Turner Broadcasting signed an integrated marketing deal with Mitsubishi Motors primarily connected to "Sex and the City," the HBO series that will get its first commercial television run on TBS beginning this month.

Turner said Mitsubishi will be the exclusive automotive sponsor for "Sex and the City," with promotional tune-in spots, customized vignettes, and online integration--plus print advertising and billboards. The deal, which also includes sponsorship of a special Movie and a Makeover, begins this quarter and runs through the third quarter of 2005.

What of the predicted $1 billion shift of upfront money from broadcast to cable? Even the most ardent supporters of cable--executives of the channel--have been reluctant to say that they would capture that much of the networks' traditional cash cow.

"I think we still have to wait and see," one executive said yesterday, while championing the company's upfront performance. "I think the jury's out."

The 2004-05 upfront has already charted a different course than the past two, when advertisers bought network TV time at a brisk clip on a pace for a $9.3 billion upfront haul for the past season. Weary of double-digit CPM increases, advertisers and agencies served notice to the broadcast networks that they wouldn't go for another year of record increases. Between $500 million and $1 billion in broadcast network ad spend could be shifted to cable networks this year, some buyers and cable executives have suggested.

Broadcast network executives have balked at a shift of that magnitude, although most if not all acknowledge that there has been a consistent advertiser outcry.