• by Wayne Friedman , David Goetzl  @dgoetzl, February 6, 2009

Second-quarter TV cancellation options are bad--but they don't necessarily mean that all of that money is leaving TV.

"Across the board it does not mean the money is disappearing," says Larry Novenstern, executive vice president and managing director of national and local TV investments for Optimedia. "Scatter is not in the negatives. People are taking money off the table and re-buying."

Mel Berning, executive vice president of advertising sales for A&E Networks, estimated that about 5% of the withdrawn dollars may be returned to the market as buyers seek lower pricing. Marketers also are pulling back money and reallocating it to other initiatives, such as offering coupons or running other promotions.

"It's extremely hard to tell how much money is being taken back because of real business problems and how much money is being pulled back because people want to play the market," he said on a Credit Suisse conference call with investors.

TV marketers are also shifting money among the networks. This means that higher-priced broadcast and cable networks are getting hurt. Some TV marketers that are taking big second-quarter options on the higher-priced networks are shifting it to cheaper-priced networks.

"The higher CPM commitments were hit harder than the more efficient stuff, and that is a telling sign as we approach the pre-upfront season," says one veteran media executive in regard to second-quarter options.

Still, another TV sales executive says this is not the case. Virtually all the money is being pulled out of the market because companies are suffering. Re-buying in scatter would anger sellers and could damage relationships going forward.

In regard to the options themselves, broadcast and cable networks are seeing second-quarter cancellation rates in the 10% to 15% range. Typically, around 8% to 10% of what TV marketers run in the second quarter is canceled; the buys were made in the upfront last June.

"It's worse than normal," says Gary Carr, senior vice president of national broadcast for TargetCast tcm. "But I don't think anyone was shocked." Carr also reports that while marketers are pulling back, others are buying even more TV.

"Considering the macroeconomic environment, it's really not that bad," says another TV media executive.

News Corp. said during its earnings call on Thursday that its Fox Broadcast Network was currently at about 8%, but was expected to increase to 11%. In January, the company gave some advertisers extensions in making their second-quarter option decisions. It still hasn't heard from many.

A&E's Mel Berning said its rate is in the "mid-to-low teens." "I suspect that's where it's going to end," he noted. "Low teens is not a horrible number, but it's not a mark of strength."

Other cable groups--Scripps Networks, HGTV and Food Networks--also recently said they are seeing options in the "low teens." One mid-level media agency says his clients have witnessed 20% on average. In addition to noting weakness in automotives, retail and financial categories, ad sales executives report there is pullback across the board. One plus: health and beauty, packaged-goods, computers and entertainment were stronger.

TV marketers can cancel up to 50% of their upfront buys in the second quarter. For many, the second quarter is a harbinger of how the bigger upfront advertising buying market typically fares, a market that commences in May/June.

For the second-quarter scatter market, broadcast and cable networks say pricing remains at or above upfront levels.

A&E Network's Berning offered some opinions on the coming upfront, suggesting "the first battle of the upfronts [is] shaping up right now with options." He expects deal-making to be later than normal, with volume and cost-per-thousand prices to be flat.