• by David Goetzl  @dgoetzl, May 18, 2006

As upfront presentations draw to a close, a new report suggests that Fox and ABC will emerge as the biggest gainers when the dealing is done several weeks from now. Investment firm Merrill Lynch predicts Fox will ride strong ratings and young-audience appeal to a 12 percent revenue jump, while ABC's take will leap 7 percent.

Despite the highest percentage gains, Fox and ABC are still expected to trail CBS--buoyed by a stable schedule that offers advertisers less risk--in overall revenue. Although it would only mark a 1 percent gain compared to last year after some ratings struggles, CBS is expected to rake in $2.63 billion--the most revenue of any network for the second year in a row after it overtook NBC last year.

The report projects that "American Idol"-infused Fox will garner $1.78 billion for a 12 percent gain versus a year ago, while ABC will increase 7 percent to $2.23 billion. Fox is expected to leverage its youth appeal to grab dollars that in past years would have gone to UPN or The WB (the two are merging), while ABC's "reasonable" pricing gives it room for growth, the report said.

Fox and ABC are also the only networks that can boast ratings growth this season among regularly scheduled programs--the core of what's sold in the upfront--in the coveted 18-to-49 demo. Fox is up 11 percent, while ABC has increased 3 percent.

Ratings-challenged NBC is expected to continue to take upfront hits with a 3 percent drop to $1.84 billion--extraordinary in that its revenue would be virtually the same as Fox, a network that offers 7 hours less of programming a week. NBC's 3 percent decrease comes after a disastrous 33 percent free fall last year, according to the report. Merrill Lynch said that NBC's drop-off this year could be worse but for the addition of "Sunday Night Football" in the fall, which should attract considerable advertiser interest.

The report does not take into account the effect any of the new programs the networks are unveiling this week--or schedule changes such as ABC moving smash "Grey's Anatomy" to Thursday night--might have on advertisers' demand.

Merrill Lynch said it expects networks to pursue as much volume as possible, with a lesser focus on writing deals with CPM increases. It also said that the upfront could be a more drawn-out process as advertisers consider how to allocate dollars for emerging media and bargaining impasses result from how to value Nielsen's new DVR ratings.

Overall, the report projects a 4 percent rise in prime-time revenues to $8.47 billion for the four major networks. If the two new networks--The CW and MyNetworkTV--are added in, Merrill Lynch projects six-network revenues to be flat compared to last year, at $9.12 billion.

The report projects The CW--formed from a merger of UPN and The WB--will pull in $600 million, down from the combined $920 million its two predecessors garnered last year. MyNetworkTV, with its lineup of telenovelas and only 10 minutes a night in ad time to sell, is expected to bring in $50 million.

The prediction of overall flat revenue comes despite threats that advertisers will shift money away from broadcast television to new media--or perhaps hold money back in anticipation of new opportunities in the space emerging suddenly over the next year; uncertainty about the fate of new entrants The CW and MyNetworkTV; and Johnson & Johnson's decision to sit out the upfront entirely.

The report did say that if advertisers opt to shift significant dollars to emerging platforms such as broadband or mobile, the traditional broadcasters are primed to attract a significant share of that spending with their offerings in the new arenas--meaning that broadcasters could still get the money in the upfront just not for their television time. "Generally speaking, we believe that traditional broadcasters may be better positioned for this market than credited given their multiple touch points with consumers, experience in content production, already large inventory of much sought after video content and strong relationships with advertisers," the report said.

It also suggested that J&J's decision to make its deals in August could, in the end, have an "insignificant" impact, since late summer is when upfront deals go from simply agreements to actual commitments.

In other areas, the report projects that cable upfront revenues will grow 5 percent to $7.46 billion. But that would represent a slowdown compared to an 8 percent growth last year, and as much as a 20 percent increase two years ago. Merrill Lynch expects the MTV Networks portfolio to fare the best among the cable offerings, in part because of an attractive online presence for advertisers.

The report also projects robust growth for the two-leading Spanish-language broadcasters, Univision and Telemundo. The leader, Univision, is expected to continue to swamp Telemundo in volume with $1.11 billion versus Telemundo's $400 million. But their respective rates of growth might undergo a reversal with Telemundo growing faster. On the backs of strong ratings growth, Merrill Lynch projects Telemundo to grow at a 25 percent rate, well above Univision's still-impressive 10 percent (Univision grew at a much faster clip a year ago). Both networks are expected to benefit from now being measured by Nielsen's general market NTI metric--where they can be compared side-by-side with the traditional broadcasters--versus the niche Hispanic ratings they had used in the past.