• by David Goetzl  @dgoetzl, June 20, 2006

A well-regarded, if not definitive source on the network upfront advertising marketplace Monday revised its estimates for the broadcast networks' 2006-07 upfront sales downward. The correction by the influential equities research team at Wall Street's Merrill Lynch is the latest evidence that demand appears to be ebbing for network upfront ad inventory.

In a report issued Monday by lead broadcast analyst Jessica Reif Cohen, the securities firm estimates upfront ad spending on the six broadcast networks will decline 1 percent from the 2005-06 upfront, the first decrease in upfront ad volume in years. To date, Merrill Lynch had maintained that the network upfront marketplace would be flat at worst.

Cohen estimated the six broadcast networks would take in $8.98 billion, down from last year's $9.03 billion. Merrill had previously projected a flat upfront--with increases at Fox, ABC, and CBS offsetting a revenue loss caused by the combination of UPN and The WB and a drop at ratings-challenged NBC.

But Merrill said it lowered its projections with advertisers leveraging an "advantage" to command more favorable pricing and an overall reduction in available dollars caused either by lower budgets or advertisers holding back money to use later.

Merrill also cut its forecast for the Big 4 networks by 1.5 percent from previous projections. That comes despite Merrill now projecting that struggling NBC will be able to use lower pricing and its new "Sunday Night Football" package to bring in the same volume as a year ago--$1.84 billion. Merrill had previously predicted that NBC would lose $600 million after suffering a huge decline last year.

Instead, the projected Big 4 revenue drop is a result of Merrill lowering its forecasts at Fox, ABC, and CBS: Merrill cut its forecast at Fox by $80 million, and at ABC and CBS by $30 million each.

Despite those cuts, Merrill projects 6 percent revenue gains at Fox and ABC to $1.7 billion and $2.2 billion, respectively. CBS is now projected to bring in the same as last year ($2.6 billion), which would make it the market leader in terms of overall intake for the second year in a row.

On the CPM front, Merrill wrote that Fox's deals would carry CPM gains of 2-3 percent, and ABC is "holding out" for 4 percent jumps. CBS is in the flat to negative 1 percent range and NBC is down 4-5 percent, Merrill said.

Merrill said it is reducing its volume projections for Fox, since the network "is guaranteeing lower ratings than our original projections implied." The altered prediction comes despite the CPM jumps at Fox. (Despite speculation to the contrary, Fox maintains that all its deals are being done at a CPM increase.)

With the broadcast market dragging, Merrill also lowered its forecast for the cable upfront from a 5 percent volume gain to a 3 percent increase ($7.31 billion).

Merrill also said that while the while the upfront was expected to be slowed by the inclusion of digital and multi-platform elements in deals, "digital media has played a less significant" role than predicted. Instead, haggling over price has been the principal reason for the slowdown, it wrote.