The broadcast networks' most formidable challenge is no longer prime-time supremacy--it is adequately pricing and recouping the ad dollars and licensing fees in the digital media spectrum. The broadcast networks' parent companies may be unable to generate enough digital and cable network revenues to collectively offset upfront and scatter market ad losses. In that case, deep cost cuts are inevitable, as are other fund-raising efforts--such as selling equity stakes in prime-time programming blocks to outsiders, as the CBS-Time Warner CW Network has done with independent studio Media Rights Capital.
Worst-case estimates call for CBS and ABC each to decline as much as 15% in upfront ad sales (to about $2 billion in revenues each), and for NBC and Fox each to be down about 13% in upfront ad sales (to about $1.6 billion each). The ad dollars could shift to cable, online and connected mobile devices, or be withheld by reticent advertisers. Even with CPMs up as much as 4%, this might not make up the fiscal difference.
Anticipated ad spending declines and shifts will reflect the long-suffering loss of broadcast network TV viewers, the crippled economy and the allocation of growing portions of ad dollars to other platforms. There also is the threat of a Screen Actors Guild strike in July and uncertainty about the amount of makegoods the broadcast networks owe to advertisers from missed ratings guarantees in the season just ending. In late March, the networks were down as much as 7% collectively--ABC was down 18% and CBS off 12%, according to Morgan Stanley. They track the continued decline in prime-time ratings: 15% for ABC, 11% for Fox, 8% for CBS and flat for NBC.
As a result, the Big 4 networks are limited in their ability to offset the worst-case loss of nearly $1.5 billion, or 14% decline in overall upfront prime-time commitments, as forecast by Merrill Lynch analyst Jessica Reif Cohen. Her best-case scenario for the Big 4 is a 2% upfront deceline. Cable networks' upfront revenues could increase as much as 5% to $8.06 billion or decline 3% to $7.49 billion--offering advertisers the same audience reach when cobbled together and greater returns at a lower cost. This may be the first upfront in which cable networks can attract comparable ad prices for their highest-rated programs, which match or exceed the lowest-rated of broadcast network shows.
It is much more difficult to forecast the reach of millions of consumers who use their BlackBerrys, iPhones and other connected wireless devices to watch all or part of TV programs, with and without commercials. The exploding convergence of grassroots and enterprise consumers is a growing market for ad-supported TV content not adequately measured or monetized. Catching up on missed episodes of "The Office" is as important as answering corporate email. It may become the first series ever to have a greater following on connected devices (from ad-supported Hulu.com to $1.99 iPod downloads) than in its scheduled TV slot.
What is at stake is countering the most bearish prime-time ad revenue losses this season--which means a serious financial rift awaits. The $9 billion in upfront commitments last year, down about 7% over prior years, is about half its nearly $19 billion of total annual ad revenues. All TV ad spending fell 2% to $65 billion in 2007, according to TNS Media Research.
With ABC, Fox, CBS and NBC attracting only about 5% of the share of TV viewing households in prime time (or the loss of another 6 million viewers), it is imperative that advertisers and the networks buy into the other media platforms to connect with target consumers. Even as they make that effort, they are handicapped by the inability to reliably measure and reconcile the audience metrics across every media platform.
All the praise for the C3 ratings that includes extended three-day viewing on DVRs and TiVo overlooks the important fact that all TV measurement is still mere estimates of who is watching. It can't beat the Internet's more accountable user reflection until television in the home becomes universally interactive.
Media companies and Madison Avenue executives could be their own worst enemies--they are slow to warm to digital content, according to a new Accenture survey, and the most removed from the ways in which the masses are consuming portable video and media, per Tim Hanlon, executive vice president of Publicis' Denuo Group. Yahoo and Google are aiming to sell a greater portion (some say as much as 30%) of their online ad inventory in conjunction with the upfront market.
With such complex factors in play, it is no wonder that the changing value proposition that has vexed the broadcast networks for years is finally catching up with them this week. Their preview of fewer series pilots is far less important than their multi-platform media strategy and sales.
While qualifying and quantifying consumer connections remains the broadcast networks' Achilles heel, their ability to reach 6 million or 8 million people with a single program event and ad message still gives them a lingering edge. The big unknown is what will that be worth in the future?