• by David Goetzl  @dgoetzl, May 9, 2008

An influential Wall Street analyst predicts that troubling economic conditions could have a significant negative impact on the coming upfront. Under a worst-case scenario, spending in the broadcast market could drop as much as 14%, according to a new report.

Cable, however, is better-positioned and might only suffer a 3% decline, according to the report by Merrill Lynch's Jessica Reif Cohen.

Even under Cohen's best-case (or "bull-case") scenario--where the economic impact is not as severe--she predicts volume for the Big Four broadcast networks will still fall, although a slight 1%. The Big Four networks brought in a collective $8.28 billion a year ago.

But Cohen writes that the worst-case (or "bear-case") scenario--the 14% drop for the Big Four--is "far more plausible" and "a meaningful decline (is) a distinct possibility."

The "bear-case" scenario would ensue if conditions are similar to the last two recessions--1991 and 2001--when upfront volume dropped both times in the 20% range.

In addition to the "economic woes," Cohen writes that broadcast networks could be hurt by ratings declines and a "development cycle" impacted by the writers' strike.

Under Cohen's "bear-case" scenario, all Big Four networks would experience double-digit volume declines, with ABC and CBS each down 15% to $2.04 billion and $1.93 billion, respectively. NBC would drop 13% to $1.57 billion, and Fox would be down 12% to $1.59 billion.

If, however, the "bull case" ensues, Cohen projects Fox to be the only network up, with a 2% increase to $1.85 billion. CBS would drop 3% to $2.2 billion; ABC would be down 2% to $2.35 billion; and NBC would decline 1% to $1.78 billion.

One reason that networks may not be reporting steep spending declines yet is that ad spending tends to decline more precipitously some three to six months into a recession. Cohen also writes that her bearish projections are derived partly from poor performances reported recently by local broadcast station groups.

In cable, Cohen's "bull-case" projection calls for a 5% volume gain. The cable market brought in total commitments of $7.68 billion last year.

"The combination of strong ratings and value pricing should position cable networks for a stronger upfront than the broadcast networks," Cohen writes. "At the margin, we also think the cable networks have been more successful in transitioning their brands online, allowing for greater integration possibilities."

"Cable networks focused on the (18-to-49 and 25-to-54 demos) should show the best performance, a continuation of recent strong performances, as the key beneficiary of falling broadcast ratings," Cohen adds.

In the report, Cohen suggests that the upfront selling period could go deeper into the summer than in recent years.