• by Paul Gough , October 20, 2003

Media-market observers say the next few weeks will be crucial to determining the health of the network TV scatter marketplace, which has become a cause for concern as the major broadcast networks report flat ad prices and with others saying their situation is even worse than that.

The murmuring began a few weeks ago, when CBS President Mel Karmazin told an investors conference that he had heard NBC was giving ratings guarantees in the scatter market (MediaDailyNews Oct. 1). Karmazin claimed CBS' scatter would finish up double digits. NBC, for its part, said scatter pricing was flat compared to upfront pricing but it wouldn't comment about whether it was giving ratings guarantees. ABC and Fox said their scatter markets were strong.

Advertisers have been holding onto their money longer and, by the same token, don't seem to be in a hurry to commit to holds from the upfront or decide whether to exercise their options for the first quarter of 2004. Several reports say that advertisers have been granted extensions beyond the traditional Oct. 1 date for exercising first quarter cancellation options. Normally, advertisers negotiate the right to cancel 25% of their first quarter upfront ad inventory. During the second and third quarters, upfront advertisers normally have the right to cancel 50% of their inventory. Fourth quarter upfront ad buys are normally firm, which is what makes stories of fourth quarter scatter advertising guarantees all the more unusual.

For the 2002-03 broadcast season, upfront cancellation rates were unusually low - between 2 percent and 5 percent - compared to the 8 percent to 15 percent that's normal. Bear Stearns analyst Raymond Lee Katz predicts first-quarter 2004 cancellation rates will land somewhere near normal, between 10 percent and 12 percent.

Katz said a clearer picture of the market will emerge around Nov. 15, after the cancellation orders come in. He urged caution but not panic.

"It is still early in the new broadcast season and media buyers do not look to the month of September to gauge the strength of calendar '04 or the next year's market," asserted Katz in an equities research report issued Monday. "September is more of a bridge between the end of the summer and the start of the new season." Katz noted there haven't been any make-goods yet and some buyers might be holding off putting already-budgeted money into scatter.

"We believe advertisers are taking a more deliberate approach to spending in scatter than they did in the upfront," Katz wrote.

Jessica Reif Cohen, an analyst at Merrill Lynch, agreed it's too early to write off this year's scatter market. For one thing, she said, it's too early in the season and the networks haven't premiered every show yet. (Fox, for example, won't kick in its new season until late October following the World Series.) And Cohen said it's unreasonable to expect that scatter prices would rise well above upfront ad prices that had already exceeded historical rates of inflation.

"While it is clearly not bullish that advertisers have been asking for extensions on upfront cancellation deadlines into November, we believe it is too early to definitely call a market change for the worst," Cohen wrote.