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The Honolulu Advertiser
Posted on: Sunday, May 13, 2001

Networks face first big ad downturn

By Seth Sutel
Associated Press

NEW YORK — Every spring, the television world gears up for an intricate and high-stakes mating ritual: the pre-season advertising marketplace.

After weeks of preening up their ratings, networks make lavish presentations to advertisers in mid-May to unveil their fall lineups. When the "upfront" is over a few weeks later, huge sums of money have changed hands and nearly 80 percent of prime time advertising for the coming season has been sold.

The annual upfront market, which begins this year tomorrow, is always given close scrutiny by TV insiders. But this time it's taking on a greater importance as an indicator of just how bad the current advertising slowdown might be for other media.

Following years of big gains, broadcasters are certain to lose the upper hand this year as advertisers cut back on their budgets because of the slowing economy. The looming threat of an actors' strike isn't helping, either.

Advertising is already slumping at newspapers, radio and magazines. But given the large sums involved in the upfront, the results should provide forecasters with an important measure of advertisers' appetite for spending.

Jack Myers, chief economist and founder of Myers Reports Inc., a media research and forecasting service, revised his estimate for total 2001 advertising spending last week to a decline of 1.5 percent, compared to a previous forecast of a 2.4 percent gain.

This is definitely a media recession," Myers said. "We're anticipating that this slowdown is going to continue through 2002."

Myers estimates that the amount of advertising committed in this year's upfront market could fall by as much as 5 percent from last year to $7 billion, marking the first year of significant declines since 1992 and well below the eye-popping gains of 16 percent and 17 percent in the last two years.

To make matters worse, this year advertisers also have to consider the possibility that the main actors' union in Hollywood, the Screen Actors Guild, will go on strike, threatening the production of star-driven shows like "Friends."

The studios averted a strike by settling with the Writers Guild of America last week, but talks have yet to begin with the actors' union, whose contract expires June 30 — just as the upfront season would normally be drawing to a close. That uncertainty could make already jittery advertisers even more nervous about long-term spending commitments.

Not surprisingly, the owners of broadcast networks are downplaying the risk of a falloff. Walt Disney Co. chairman Michael Eisner, speaking at an industry conference last week, dismissed the notion that the upfront market would be a disaster for Disney's ABC network. "It may be a little late, it may be a little soft."

Viacom Inc. president Mel Karmazin, whose company owns the CBS network as well as MTV and Nickelodeon, has been standing out as the most bullish of the broadcasters.

"We're still looking at high single digits" in terms of ad growth, Karmazin said on a recent conference call to discuss Viacom's earnings. "For those of you on the call who are advertisers, we're looking for double-digit growth."

To keep things in perspective, the gains logged in network advertising have been so huge over the past several years that even a setback to $7 billion would still be double the amount spent on the 1993-1994 season, according to Myers.

"It's been a seller's market for close to eight years, and now there's been a switch and it's a buyer's market," Barry Diller, owner of USA Networks, said at the same media panel last week where Eisner was speaking.

"Like all other cycles, it will end. But like Mr. Eisner, I think it will take longer rather than shorter."