The answer will become evident in the coming months as formidable exceptional factors, from less original network programming and the continuing digital revolution to the paralyzing debt and credit crunch, play themselves out.
The four-month writers' strike will wreak more havoc with broadcast television revenues in the first half of 2008 than it appears to have done in the fourth quarter. Advertisers have been less likely to shift away from the broadcast networks or take a hard line on makegoods when the networks were running off their original series episodes last fall.
With much of the original series stockpile depleted and the networks ramping reality series, advertising prices and spending may not be as predictable. Networks may have to squeeze increased makegoods out of their artificially tightened scatter market inventory, or provide cash or future deal adjustments. Until now, the networks have been able to re-price premium time that becomes available when advertisers opt-out of last year's upfront commitments--as much as 40% higher.
Regardless of when the writers' strike is settled, the broadcast TV networks will be unable to pull together series development and production fast enough to assure a typical fall prime-time season. NBC Universal chief executive Jeff Zucker said Friday the company may dispense with its costly upfront season presentations, which could result in a more logical continuous 52-week production and ad-selling schedule. For now, Zucker insists that NBC will attempt to sell its ad time the upfront way, although it has been forced to make uncommon cash refunds to some advertisers for missing last year's guarantees.
NBC's ambitious effort to reposition the value and sale of advertising last week could be the shape of things to come. Its presentation to advertisers highlighted nine key out-of-home platforms and devices--from mobile phones, gas station pumps and grocery checkout kiosks to college networks and digital billboards--where they can invest in "NBC Everywhere." NBC, ABC and Fox are generating more than $1 billion in annual digital ad sales.
Call it insurance against the inevitable temporary pullback in ad spending that will result from tighter corporate budgets, declining consumer spending and the strain of mounting debt. Forget those historical expectations that advertisers will continue to briskly spend their way through tough times, given the unprecedented mix of economic and technical pressures that--even in a presidential election and Olympics year--are threatening network TV's fragile 2.7% advertising growth.
The government's proposed $140 billion stimulus package will have only superficial consequences, as it does not address potent long-term housing, debt and liquidity crises.
Consumers and corporations will more likely use any token rebate or paper benefits to pay some outstanding bills and debt rather than go on a shopping spree. For NBCU, that could mean struggling to match its 10% growth rise in fourth-quarter operating profit, even with offsetting cost cuts and increased cable TV and digital ad sales. Indeed, some broadcast networks are considering contracting their prime-time schedules to two hours at least part of the week. Jeffrey Immelt, CEO of NBCU parent General Electric, recently acknowledged "the TV network business is going to change," and that trimming costs will mean reducing its investment in prime-time programming.
Another critical difference from prior economic slumps is that advertisers can shift spending to more alternative media. They can target consumers more deeply into video games, DVDs and online video and social networks, where they are spending more time--particularly during the writers' strike. The writers' strike has hastened consumer migration to new media devices and interactive platforms. More than one-third of Americans have changed their media consumption habits, and 27% are watching less network TV, according to a new Interpret survey. Nearly half the respondents said they are watching more TV and movies on DVDs.
Online advertising will grow to more than $50 billion--representing more than one-quarter of all media consumption by 2011, according to The Yankee Group. Although the Internet and television represent roughly the same level of media consumption today, advertisers spend only 8% of their budgets, or $1 online for every $10 spent on traditional advertising. That will increase to at least 15% over the next five years as advertisers experience the value of "delivering the right ad to the right person in the right format at the right time," according to Yankee analyst Daniel Taylor.
Mastering the ability to connect with, engage and mine target consumers with improved measurement and creative techniques will make traditional television advertising "one-third as effective in 2010 as it was in 1990," according to McKinsey & Co. If that digital sea change is compounded by a recession and the permanent upheaval of television's advertising sales fundamentals, then all bets are off on where the numbers finally come in.