• by Joe Mandese  @mp_joemandese, June 6, 2005

In an alarming development, NBC has "gone negative" in its upfront negotiations. Unlike the highly public statements being made by the other major broadcast networks, NBC executives have not yet commented on their upfront sales activity, but a wide variety of trade publications are reporting that NBC last week caved in on its upfront stance and began selling 2005-06 upfront ad inventory at prices that are below its 2004-05 rates.

That's an alarming development, because if it sticks with that strategy, it may mean that NBC might fail to make its upfront revenue goals, and may lose a greater share of the upfront market than analysts previously thought. Given its pronounced ratings decline--which dropped 17 percent during the 2004-05 prime-time season--NBC would have had to get at least some kind of price gain just to make the $2.3 billion upfront prime-time sales goal that observers had been projecting for the network.

While that would have been off nearly 20 percent from NBC's market-leading position in the 2004-05 upfront, it now appears that the General Electric unit may lose even more market share. Depending on how deeply NBC dives, and for how long and for how much of its prime-time inventory, NBC could actually fall to third place behind ABC in upfront market share. Based on their upfront sales results, CBS was projected to end up with nearly 31 percent of the Big 4 network's upfront market share this year, followed by 27 percent for NBC, nearly 25 percent for ABC, and almost 18 percent for Fox, according to estimates compiled by Merrill Lynch.

Those projections, however, assumed that NBC would net CPM gains averaging at least 1 percent or 2 percent. But according to some trade reports, NBC is now taking discounts as much as 4 percent lower than its 2004-05 upfront prices.

The development is not just a serious one for NBC. Once buyers smell blood in the water, the downward spiral in price pressure could begin to affect the upfront pricing leverage of other national TV outlets, including cable and syndication.

"ABC's restraint on price increases is likely to be imitated--and is a reflection of the increasing tension, in our view, between the networks and advertisers," predicted Merrill Lynch analyst Lauren Rich Fine in her research note last week.